4G auction: Mobile operators know what to do this time

4G auction: Mobile operators know what to do this time

In Germany, Telefonica spent €8.3bn on 3G airwaves, but was then so flummoxed by what to do with it that it did not to bother rolling out a 3G network at all. It was eventually forced to hand the capacity back to the government for free.

British mobile operators were not quite so lost, but it was not until three years after the auction that 3G gained any traction, and around six years until it became a mainstream replacement for the much slower 2G services. However, the landscape they find themselves in is very different this time around.

The auction of 4G airwaves was much bigger than the one in 2000, in terms of capacity, but has raised little more than a tenth of the sum. Together, Vodafone, EE, O2, Three and BT have paid £2.3bn for the valuable airwaves. Or put another way, £1.2bn less than the Government had budgeted for. BT is expected to use its tranche to boost its wireless internet networks, but the rest will focus on 4G mobile services.

While the auction leaves the Chancellor, George Osborne, with an uncomfortable gap to fill, it leaves Britain’s telecoms operators with enough money in the bank to make the most of their new assets. There is a strong incentive for them to do so. Whereas the 3G auction took place before the technology was in place to make the most of it, large swathes of the British population have been walking around with 4G handsets for years – never mind that there were no 4G services.

The new generation of smartphones and tablet devices has also changed consumer behaviour. People are used to reading their email, checking into Facebook or doing their shopping on the move. The advent of 4G is expected to drive demand for internet usage over mobiles even more, as people turn to their handheld devices to watch films and TV by streaming them over the internet.

EE, Britain’s biggest mobile operator, which got a head start in rolling out superfast mobile services, says customers with a 4G connection typically use twice as much data as those on the older technology. In a world where revenues from voice calls are dwindling, this internet usage is becoming more and more important; Britain’s mobile operators have got to have a good network if they want to stay in the game.

They know this of course. EE has spent the last 18 months telling customers about the investment it is making in its network. Meanwhile analysts have interpreted Vodafone’s £791m outlay on airwaves as a signal to the public that it wants this to be its main selling point as well. The company, like all of the Big Four operators, has spent well over a year preparing their networks for this moment. It will take a few months more before they can all flick the switch and light up their 4G services. But the race to do so is now well and truly on.

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