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UK carriers open their wallets as regulator Ofcom doles out more slabs of 5G spectrum

Netting £1.35bn for the Treasury

Ofcom today wrapped up bidding on its 5G spectrum auction, which made 200MHz of mid and low-band spectrum available to carriers, raising the total amount of mobile spectrum by 18 per cent.

In total, the combined bids reached £1.35bn – or roughly 1/16th of a test-and-trace programme.

BT's EE splashed the most cash and committed to spend £280m on 2x10MHz lots of paired frequency spectrum in the 700MHz range, which is ideally suited to long-distance deployments. EE additionally dropped £4m on 20MHz of supplementary 700MHz downlink spectrum, and £168m on 40MHz in the coveted 3.6-3.8GHz band, which provides faster speeds albeit at a comparatively shorter range.

Telefónica UK's O2, which is in the process of merging with Virgin Media, spent the second most. It too bought 2x10MHz of 700MHz band spectrum at a cost of £280m, as well as 40MHz of prime 3.6-38GHz real estate for the princely sum of £168m.

Vodafone and Hutchinson 3G were more restrained, with the former spending £176m on 40MHz of 3.6-3.8GHz spectrum, and the latter committing £280m to buy 2x10MHz of 700MHz spectrum.

The total spend surpassed Ofcom's combined reserve price of £1.084bn, with all monies heading straight to the Treasury. Carriers will have access to the spectrum for 20 years, with licences expiring in 2041.

The winning bidders will now enter the second phase of bidding, called the "assignment stage". Set across a single bidding round, the winning telcos will need to negotiate with each other if they want to alter the frequency positions of the spectrum they have already acquired. This stage is optional, although Ofcom noted that companies may wish, for example, to append their newly bought spectrum to their existing holdings. The telecoms regulator has not yet confirmed a date for this.

In a statement, Philip Marnick, group director of spectrum at Ofcom, said: "With bidding in the principal stage concluded, we now move to the next stage of the auction where the operators will have an opportunity to negotiate the position of their spectrum holdings in the wider band. This is an important step forward in bringing better mobile services to people – wherever they live, work and travel. These airwaves will help improve coverage for the mobile services people use today, as well as supporting the UK’s position as a world leader in 5G."

Carriers are similarly jubilant. Vodafone UK chief exec Ahmed Essam said: "This auction will boost our 5G network capacity. It means we will have the spectrum we need to further the rollout of 5G to our customers, bringing high-speed connectivity and opening up new opportunities for products and services. We have been successful in the 3.6GHz band and have avoided expenditure on low band spectrum, where it is our strategy to refarm over time our significant 900MHz holdings to carry 5G traffic."

Marc Allera, CEO of consumer at BT, gloated: "EE has secured vital new spectrum in this auction which, when rolled out into the network, will allow us to grow our position as the UK's number one 5G network. EE was first to launch 4G and 5G, and this auction outcome is great news for our network, our customers and BT."

This is the UK's second 5G spectrum auction. The first, held in 2018, focused on mid-band spectrum in the 2.3GHz and 3.4GHz bands, and raised £1.35bn for the government following the close of the preliminary stage.

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Kester Mann, director of consumer and connectivity at analyst firm CCS Insight, commented that the telcos largely managed to achieve their objectives, with EE and Three obtaining spectrum vital for long-range coverage while O2 beefed up its dismally small holdings.

"Winning prized 700MHz spectrum was particularly important to EE and Three. Both were lagging in low-band frequencies, which are best-suited to achieving wide-area, rural and in-building coverage," Mann said. As noted, Vodafone, which did not acquire any 700MHz spectrum, will instead reuse its existing 900MHz holdings.

"With the smallest holding coming into the auction, O2 will be pleased to scoop both low-band and mid-band spectrum. Its 33 per cent increase in frequencies will be crucial to support the more than 35 million customers that use its network. Three was the only operator not to secure any spectrum in the 3.6GHz to 3.8GHz band, but it still holds an enviable position in mid-band spectrum following its acquisition of UK Broadband in 2017."

Paolo Pescatore, telecoms analyst at PP Foresight, added that this was one of the "easiest spectrum auctions."

"The main process concluded so quickly as all providers were successful in securing the spectrum they needed. Expect to see some haggling behind closed doors in the next assignment stage," he said.

Although Pescatore hopes the spectrum will be in use by summer, he doesn't expect to see any significant changes in strategy behind the 5G rollout.

"All of the operators are seeking to maximise their current holdings in the face of increasing costs and margins being squeezed," he said. "It is highly unlikely that we will see a change in approach to 5G deployment. To date, focus has been on cities and data hungry locations for the rollout of 5G. This will continue especially with those winning securing 700MHz which will be used for indoor coverage as well in the short term. Ultimately the operators will seek to leverage 700MHz in rural areas in the future, but not immediately." ®

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