John Delaney
John Delaney (Associate VP, European Telecoms)

On 5 April, UK telecoms regulator Ofcom announced the outcome of the UK’s first auction of 5G spectrum (3.4GHz), as well as an additional spectrum for 4G (2.3GHz):

  • EE (BT) paid £302.6 million for 40MHz of spectrum in the 3.4GHz band
  • Vodafone paid £378.2 million for 50MHz of spectrum in the 3.4GHz band
  • Three (Hutchison) paid £151.3 million for 20MHz of spectrum in the 3.4GHz band
  • O2 (Telefonica) paid £317.7 million for 40MHz of spectrum in the 3.4GHz band, and £205.9 million for 40MHz of spectrum in the 2.3GHz band

In media reports of the outcome, O2 has widely been described as the winner. It’s true that O2 did well out of the auction, having secured all the 4G spectrum on offer, as well as a substantial chunk of 5G spectrum. However, we would hesitate to describe O2 as the “winner”, for two reasons:

  • Firstly, because the rules set by Ofcom for the auction meant, in effect, that EE was barred from bidding for any 2.3GHz spectrum.
  • Secondly, because by securing 2.3GHz spectrum, O2 did not gain an advantage over the other operators. Rather, it remedied a disadvantage caused by its failure to secure any 2.6GHz spectrum in the UK’s 2013 (4G) spectrum auction.

Following the auction, a Spanish journalist asked us whether we thought Telefonica was seeking to pump up O2’s value for a potential IPO, and whether as a consequence O2 had paid too much for its spectrum. The first question is a matter of speculation, and the second is a matter of opinion! On the first question, we note that if (if!) Telefonica does want to offer any shares in O2 for public sale, O2’s increased spectrum holdings will make it easier for Telefonica to make an attractive case to prospective investors. On the second question, we note that that a second failure to secure spectrum in the mid-2GHz range would have looked very bad for O2, and would have deepened its strategic disadvantage in the UK market for 4G services. Avoiding that outcome was definitely worth paying for.

The same journalist also asked whether we thought Vodafone’s strategy of buying more in 3.4GHz was a better one. The two operators started from positions so different that it does not make sense to compare their strategies directly. In its own terms, however, we believe Vodafone’s strategy was the sensible one.

  • Although Vodafone, unlike EE, did have an option to bid for some 2.3GHz, it does not have a pressing need for more 4G spectrum. Vodafone already holds a substantial amount of spectrum in the 2.6GHz band. In that context, it made sense to focus its resources on gaining 5G spectrum.
  • Another factor that may have affected Vodafone’s decision not to license any 2.3GHz is that the size of Vodafone’s and EE’s total spectrum holdings, as a percentage of the total spectrum licensed, has been the subject of ongoing controversy. O2, for example, has been calling on Ofcom to impose a limit of 35% on the total amount of licensed spectrum that any single UK operator is allowed to hold. It is by no means certain that Ofcom will impose a cap of this sort in the future; but if it were to do so, then by acquiring 2.3GHz spectrum now, Vodafone could potentially limit its ability to bid for additional 5G spectrum in the 3.4-3.8GHz band, when that becomes available.

***Disclaimer: given the commercial sensitivity of spectrum issues, it is important to note that neither Vodafone nor Telefonica/O2 have made any statements about the issues that we discuss in this post, either publicly or directly to IDC***

If you want to learn more about this topic, or have any question on European Mobility, please contact John Delaney.

More on 5G :

5G Spectrum Auction in The UK: Value Shifts From Coverage To Capacity

5G gets real at Mobile World Congress 2018

5G in Europe: Timeline for Availability