RPT-UPDATE 2-UK gets less-than-expected 2.3 bln stg from airwaves sale

Wed Feb 20, 2013 5:16am EST

* 4G licenses sell for less than 3.5 bln forecast

* All existing operators plus BT win licences

* Regulator Ofcom says result will speed 4G roll-out

By Paul Sandle

LONDON, Feb 20 (Reuters) - Britain's mobile operators were the winners and the government was the loser in an auction of 4G airwaves that raised 2.3 billion pounds ($3.6 billion), a third lower than the Treasury expected.

Telecoms regulator Ofcom had designed the auction to maximise the availability of 4G services, after the previous 3G auction in 2000 delivered a 22.5 billion pound windfall to the state but left the industry indebted and unable to roll out new services for years.

"This is a positive outcome for competition in the UK, which will lead to faster and more widespread mobile broadband, and substantial benefits for consumers and businesses across the country," Ofcom Chief Executive Ed Richards said.

All four existing network operators picked up blocks of airwaves for between 791 million pounds and 225 million, as did fixed-line company BT, the regulator said on Wednesday.

Yet the Treasury had penciled in proceeds of 3.5 billion and although the total will rise slightly - after a final stage of bidding to allocate the bands of airwaves - it will still fall far short of what finance minister George Osborne had wanted.

BNP Paribas economist David Tinsley said the shortfall was not a huge deal in the context of Britain's deficit, with 1 billion pounds being less than 0.1 percent of GDP, but nonetheless it was more bad news for the public finances.

"It is certainly not going to help recent perceptions of the UK in terms of the fiscal position," Tinsley said.

By contrast there will likely be widespread relief among mobile operators that the amount paid is a fraction of the sum they were asked to cough up during the 3G licensing process, said analyst Matthew Howett at telecoms consultancy Ovum.

"The fact they didn't have to pay billions more is without doubt a positive thing," Howett said. "The costs of rolling out a network are significant."

The operators' outlays for spectrum licences in Britain are also not to be as painful as those of a recent Dutch auction that raised 3.8 billion euros, well above the 800 million analysts had predicted.

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Next-generation 4G services deliver speeds more than five times faster than 3G services, enabling smartphone and tablet users to make video calls and consume more and more content.

Services will be launched on the new airwaves from the summer, helping Britain, which got its first 4G service late last year, catch up in the superfast broadband race.

The airwaves, some of which became available after the switch-off of analogue television signals, were sold in blocks of 800 MHz spectrum, the so-called golden frequencies suitable for widespread coverage indoor and outdoor, and 2.6 MHz spectrum, to deliver higher capacity in urban areas.

Vodafone the country's third-ranking operator, paid the most, some 790.8 million pounds, to win a five blocks of airwaves, Ofcom said.

The operator's UK chief Guy Laurence said it had secured the low-frequency spectrum to support the launch of its 4G service later this year. "It will enable us to deliver services where people really want it, especially indoors," he said.

The biggest operator, EE (owned by France Telecom and Deutsche Telekom ), which has already launched 4G services in major British cities using its existing airwaves, paid 588.9 million pounds to buy more to extend coverage countrywide, Ofcom said.

O2, owned by Telefonica, paid 550 million pounds for two 800 Mhz tranches.

Ofcom reserved airwaves for a fourth operator in order to keep the market competitive. Hutchison 3G, the operator of fourth-placed Three, paid 225 million pounds to win the bands, Ofcom said.

BT bid 186.5 million pounds to pick up three blocks of spectrum. It said it would use the licenses to provide its customers with better mobile broadband, but it would not build a national mobile network.

There is a final stage in the process to determine where in the bands each winning bidder's spectrum will be located, but analysts said it was not expected to significantly raise the total.