U.K. Government Expects 4G Auction To Make Just £3.5B, Big Step Down From 3G’s £22.5B

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The U.K. government has already put a price on the sale of 4G spectrum frequencies — due to kick off in January next year. Chancellor George Osborne, who was giving his autumn budget statement today, is factoring into his policy decisions the sum of £3.5 billion which he expects to be raised by next year’s 4G spectrum sale.

The Treasury notes:

The commercial auction for 4G spectrum, being overseen by Ofcom, is due to be completed by March 2013. Following formal assessment, based on independent analysis of the likely valuation of spectrum receipts by the OBR [Office for Budget Responsibility], the spectrum receipts will be reflected in this Autumn Statement at £3.5 billion.

The figure is a far cry from the £22.5 billion raised when 3G spectrum frequencies went under the hammer, back in the millennium — but the 4G windfall has long been expected to raise considerably less than 3G as carriers complained they over-paid for 3G frequencies, and have had a tougher time making money from mobile data than the heady days of 2G voice-plus-text.

The structure of the auction is also different, with caps and coverage obligations making the 4G sale a more grounded affair, as Ovum analyst Matthew Howett noted back in July: “Despite 80% more spectrum being available in this auction than during the 3G licencing of 2000 which famously raised £22.5bn, this time it’s likely to generate a mere fraction of that amount given both the use of spectrum caps (which limit how much each spectrum one operator can obtain), and a realisation from the industry that revenues aren’t there to support such large outlays.”

Last month the Guardian quoted Brian Potterill, director in PwC’s telecoms strategy team, suggesting that the total raised for the U.K. government’s coffers from the 4G sale would amount to between £2bn and £4bn. Osborne’s estimate sits within that bracket.

Although the U.K.’s 4G spectrum is still to go under the hammer, the first 4G network is already up and running. Carrier EE was able to refarm existing 2G spectrum holdings for 4G services after getting the go-ahead from telecoms regulator Ofcom — launching a 4G network at the end of October.

Rival U.K. carriers O2 and Vodafone will be among the bidders for the 4G spectrum frequencies next year.

Osborne’s eagerness to factor an extra £3.5 billion into his autumn budget goes some way to explaining why government ministers got involved in cracking carrier heads together in September — to ensure the spectrum auction was not delayed by further legal action. Then comms minister, Jeremy Hunt, helped to broker an agreement between the carriers and Ofcom that enabled EE to launch its 4G network this year, and the spectrum auction and clearance timetable to be sped up so other carriers will be able to launch 4G networks up to five months sooner than the original schedule allowed.