Mobile Network Comparison

It’s taken five years but finally Ofcom has completed the 4G spectrum auction. We may be miles behind pretty much every country in Europe, but at last, all networks will soon be able to offer a 4G service in the UK.

The latest auction of spectrum consisted of two frequency bands capable of carrying 4G communications: 800 Mhz and 2600 Mhz. The 800 Mhz frequency band is much more valuable as it travels about 10 times faster making it more useful for long-distance rural applications without requiring as many masts. In contrast, the 2600 Mhz band works well in densely-populated areas such as city centres.

It was thought that Three Mobile would not manage to afford any of the 800 Mhz but it did manage to get hold of a small slice and only had to pay the reserve of just over £200,000. Vodafone paid a huge amount to secure the maximum amount allowed under the rules. O₂ also paid a lot to get as much 800 Mhz spectrum as possible. This is likely due to the fact that O₂ has long been maligned for having very poor 3G coverage outside of major urban areas. Having a large amount of low frequency spectrum to hand will hopefully allow it to plug these gaps. The big surprise was that all the operators managed to get themselves a share of the more valuable 800 Mhz band. This hopefully will encourage more competition.

As for the 2600 Mhz band, only O₂ and Three didn’t manage to grab any. This means that EE acquired a large amount as did Vodafone. Because of the slight imbalance, it’s thought by industry analysts and Ofcom staff that some agreements might be hashed out between the networks for them to share masts or trade some of the spectrum they now own. EE is already offering 4G wireless data servers that it calls “superfast” broadband. And all networks will use the new spectrum they have bought to provide much fast 4G internet services to mobile phones and tablets.

The full picture of how the mobile spectrum is divided up is as follows:

There were seven bidders in the auction but only five won any spectrum. O₂, Vodafone, 3, EE and, new kid on the block, BT. It is thought that BT will not launch a mobile phone service (they originally owned BT Cellnet which became O₂) but rather that they will use their spectrum to provide wifi hotspots.

The amount spent by each network varies quite a lot. Vodafone spent the most forking out a massive £791 million. It’s the only network to have made a net gain in the amount of spectrum it now owns. EE, which is easily the largest mobile network in the UK after it was formed when T-Mobile and Orange merged, spent almost as much. They paid £589 million but didn’t get much of the lower frequency spectrum. O₂, which probably has the worst 3G coverage cheaped out and would only commit £550 million. However, they did get a lot of 800 Mhz spectrum which should allow them to improve their rural coverage.

What do you think of the results of this auction? Did any of the bids catch you by surprise? Did O₂ get enough, should EE have got more low frequencies, did Vodafone overpay? And what do you think BT could do with their spectrum?

Ofcom’s long-awaited 4G spectrum auction has fallen far short of expectations as it was revealed that, at its end, it only raised £2.3 billion for the public purse. Analysts had pencilled in a far greater amount with mobile phone companies predicted to spend about £3.5 billion. The massive 35% deficit is a huge disappointment and is much lower than we would have thought following results from 4G auction in similar European countries.

Economists have expressed shock at the figure and said that it provides a stark warning about the shape of the UK economy. The UK Treasury now has a shortfall of about £1.2 billion.

This will be humiliating for troubled Tory Chancellor George Osborne. The failure of the 4G auction to bring as much funds as he relied upon is the latest blow for Osborne whose reign as Chancellor has been peppered with mistakes and incompetence. In his autumn statement, he used the included the amount forecast for the 4G auction earnings against government borrowing to help reduce the deficit. Now he faces an embarrassing climbdown as he must scramble to find the funds from elsewhere.

Rachel Reeves, shadow chief secretary to the Treasury, said the débacle showed “how foolish and short-termist” the chancellor had been to bank the cash before it had been raised, adding: “His trickery has now badly backfired.”

These results come after high-ranking industry experts and economists expressed concern about the state of the economy under Osborne. Although he has claimed that unemployment is falling, leading figures are warning that the weakness of the economy signals very major problems with the labour market. A triple-dip recession is also on the cards.

Here at Mobile Network Comparison, we’re a little unsurprised at the low amount that the 4G spectrum auction raised. Nobody truly expected anything like the results we got in the midst of the 2000 boom in mobile when the 3G auction raised a massive £22 billion. 4G has shown to not be the money-spinner some expected following EE’s very poor results.

The 4G-specialist network has completely failed to capitalise on its initial monopoly and financial results from the rest of Europe show that once there is more competition in the 4G market, additional revenues fall even further. Mobile phone networks would have been foolish to spend more on 4G. They would only have ended up burdened with so much debt for so long that they couldn’t afford the necessary investments in infrastructure to provide a workable service.

What do you think? Were you surprised by how little money the auction raised? Is there money to be made from 4G? And are the networks right to save their cash for other services?

EE, formed by the merger of Orange and T-Mobile and the UK’s first 4G mobile network, has slumped to some truly appalling financial results for 2012. The latest figures show that its losses have doubled since 2011 with a pre-tax loss of £249 million ($385 million). The results are far worse than last year’s which added up to a loss of “only” £113 million ($175 million). This failure to turn a profit wasn’t unexpected but the size of the losses is a bit of a shock. Despite huge marketing campaigns, EE only had earning of £1.41 billion ($2.19 billion) which was less than in 2011 and the total revenue fell too £6.66 billion ($10.34 billion).

The big launch of 4G services and EE’s monopoly gifted by Ofcom didn’t seem help the company in the way they hoped. In fact, EE actually saw its subscriber numbers fall compared with the same time last year. In the final quarter of 2011 EE had 313,000 new contract customers. However, in the same period in 2012, EE suffered from a massive 35% year-on-year decrease. They only managed to attract 201,000 new post-pay customers in 2012’s fourth quarter.

As for 4G usage, EE have claimed that the uptake is fast although most analysts expect that it has fallen far below what they had hoped. EE probably predicted great results from their head-start over rival networks but they have admitted that only about 10% of their corporate customers are trialling or using their more-expensive 4G plans.

When EE first launched its 4G service it came under quite intense criticism for the pricing of its various tariffs. It was also lambasted strongly for not offering any unlimited data plans when superfast broadband needs to have no restrictions to be genuinely useful. While the company later u-turned and introduced a plan with a larger bandwidth allowance, uptake has been pretty poor and the customer response has been far from promising.

Although EE is reporting that it makes 10 percent more money off each 4G customer compared to a 3G customer, the fact that is is charging more for this service is probably meaning that more people stick with the cheaper option. It also seems that many would-be buyers are waiting to see what the other networks can offer before committing to a 24-month contract with EE.

Especially now 3 Mobile have announced that they will offer an unlimited 4G data plan without charging a premium, it’s hard to say that EE have made the most of their monopoly. The results really put the pressure on CEO Olaf Swantee who has held the position for only just under 18 months.

EE’s public relations department have already started desperately spinning the profits news to make it seem less dire. Despite doubling its losses, EE is claiming that it has “maintained solid commercial momentum” and successfully built its brand.

What do you make of the latest profit results from EE? And what about their attempts to excuse them? Have you tried its 4G service yet? And do you think its revenues will improve over the coming years?