On 5 April, UK regulator Ofcom announced the outcome of the UK’s first auction of 5G spectrum (3.4GHz), as well as additional spectrum for 4G (2.3GHz). The total amount of money raised was £1,355.7 million, significantly more than generally expected, and all new licences were won by the UK’s four existing mobile operators.
An interesting feature of the price outcome of the 2018 auction is that on a per-MHz basis, the higher frequency band (3.4GHz) has proved more expensive than the lower frequency band (2.3GHz). This is a reversal of the pattern seen in previous auctions. In the 2013 UK auction, for example, the lower frequency band (800MHz) proved to be three times more expensive per MHz than the higher frequency band (2.6GHz).
The higher price per MHz paid for 3.4GHz may, in part, be a consequence of EE’s ineligibility as a bidder for 2.3GHz. However, we believe something more fundamental is also in play here.
Lower-frequency signals travel further than higher-frequency ones, so it is easier and cheaper to roll out network coverage at lower frequencies – hence the higher price paid for lower-frequency spectrum in previous auctions.
However, lower-frequency signals have less capacity for carrying information than higher-frequency ones. As the per-customer usage of mobile data continues to grow rapidly, operators’ primary concern in network development is shifting away from the need to roll out coverage, and towards the need to improve capacity, in order to keep up with demand. This underlying strategic trend is shifting the value in spectrum licensing to the higher-frequency bands.
The more expensive 3.4GHz band is especially important from the capacity perspective, for several reasons:
- It is in one of the bands adopted internationally for the deployment of 5G New Radio (NR), a waveform which can fit more data into a given amount of spectrum than 4G’s LTE.
- There is a comparatively large amount of spectrum available in the 3.4GHz band
- There is the prospect of further spectrum in the 3.4-3.8GHz range becoming available over the next few years. This means that as operators start to fill up the 3.4GHz spectrum they have just licensed, probably around the mid-2020s, they are likely by that time to have licensed additional spectrum in the same range, which will enable them to expand capacity further in a relatively straightforward way.
Coming soon – 5G Spectrum Auction in the UK: Is O2 The Winner?
If you want to learn more about this topic, or have any question on European Mobility, please contact John Delaney.
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