UPDATE 2-Competition hots up for UK's 4G mobile phone airwaves

Thu Dec 20, 2012 10:55am EST

By Paul Sandle

LONDON Dec 20 (Reuters) - Seven companies were named on Thursday as bidders for the superfast 4G mobile broadband radio frequencies to be auctioned off in Britain next month by industry regulator Ofcom.

Existing mobile network operators EE, Vodafone, O2 owner Telefonica and Hutchison, which is behind Three, will be vying with O2's former owner BT, managed networks firm MLL Telecom and Hong Kong's PCCW Limited , the regulator said.

EE, the UK's biggest mobile network operator, is a joint venture between France Telecom and Deutsche Telekom and has already launched 4G services in some major British cities by reallocating its existing airwaves.

Ofcom calculated that giving EE a head start this year would put an end to the networks seeking to delay the auction further in a squabble over who should be offered what spectrum and therefore give Britain a chance of catching up with the United States and other European countries in the deployment of superfast mobile networks.

"I think you'll find the UK's position in relative terms transformed very fast," said Ofcom's chief executive Ed Richards.

The auction has been designed, he said, to deliver maximum benefit to consumers by getting mobile broadband networks built, which are capable of operating at five to seven times the speeds of 3G, while ensuring that operators pay the right amount of cash rather than the most possible to the government.

The sell-off of 3G airwaves in 2000 raised 22.5 billion pounds ($37 billion) for state coffers, but left the operators saddled with debt, prompting complaints that they could not afford to invest in all the infrastructure needed to roll out new services.

"The backdrop to this is utterly different," Richards said. "When the 3G auction was done you were still at the height of the dotcom boom. We are in the so-called age of austerity now."

Earlier this month the government budgeted for a 3.5 billion-pound windfall from the auction next year, but Richards said that prediction had not come from Ofcom.

"The real economic benefit here is in the benefit to consumers and the economy from the deployment of these highly valuable services," he said. "If we were to calculate the estimated economic benefit of that it would massively dwarf the revenues from the auction."

Analysts at Espirito Santo said they were not surprised by the bidders, and they did not expect an overheated auction as was seen in the Netherlands, where 3.8 billion euros were raised in a 4G spectrum sale last week.

They noted that fixed line operator BT had previously said it only wanted to pick up niche amounts of spectrum to support its existing strategy and the other two potential new entrants were also likely to bid on a speculative or opportunistic basis.

"The way the auction is designed ... ought to allow the incumbent mobile network operators and niche players to pick up what they need without going head to head," they said.

"We remain comfortable with the 1 billion pounds ... we have pencilled in for each licence into our Vodafone, France Telecom/Deutsche Telekom and Telefonica models."

MLL Telecom said it was bidding to complement its existing spectrum allocation, and to increase the infrastructure it has available for its mobile operator customers. "We are not looking to supply a consumer or enterprise service," chief commercial officer Karl Edwards said.

SPECTRUM COMBINATIONS

Ofcom said a mix of 28 blocks of bandwidth were up for grabs this time, whereas only five licences were available for 3G.

Operators need to use a combination of different blocks to provide superfast coverage across the country, typically using 800 megahertz radio frequencies to serve rural areas and high-capacity 2.6 gigahertz frequencies for urban areas. The lower-frequency 800 MHz band was freed up when analogue terrestrial TV was switched off.

One portfolio of spectrum has been reserved for a fourth national operator, whether Three, which is the smallest operator today, or another, Richards said.