As we near the UK’s long-awaited auction of 800MHz and 2.6GHz spectrum for next-generation mobile services, there is very good news for UK consumers in terms of expected coverage of LTE services. Ofcom has published its latest proposals for the award of 800MHz and 2.6GHz spectrum, and it is clear that it has moved a considerable distance from its early proposals for a minimum coverage requirement for LTE operators.
We had feared that Ofcom was going to make the same mistake it made with UMTS licence auctioning back in the year 2000. Ofcom and the UK government were so preoccupied with maximising the financial return from the auction and increasing the number of mobile network operators that they failed to consider the profitability of mobile network operators or the impact of inadequate minimum coverage levels for 3G services.
As a result, there has been significant underinvestment in 3G networks, which we have reported on previously. While it has been well over ten years since the UK UMTS auction was concluded on 27th April 2000, the UK’s 3G networks still do not deliver coverage comparable to 2G networks. Sadly, the UK has ended up with several 3G networks, each offering relatively poor quality of service and coverage compared with many leading markets. In contrast to the end users of mobile services, for many years Ofcom seemed disinterested in 3G coverage, preferring to focus on the pricing benefits from having a significant number of mobile network operators. Perhaps due to increasing dissatisfaction from mobile users, increased lobbying from bodies such as the Countryside Alliance and the interest in 3G coverage from media organisations such as the BBC, we have witnessed changing attitudes. For example, in July 2009, Ofcom pledged to “further consumer protection for mobile users” by publishing 3G mobile coverage maps for the first time.
Ofcom’s latest proposals, published on 12th January 2012, give hope that Ofcom has now learnt from its past mistakes.
Ofcom has reported that it received many responses to its previous consultation, urging it to go further in defining minimum coverage requirements and in particular to impose a higher population target. Indeed, the House of Commons Culture, Media and Sport Select Committee recommended to Ofcom that it should impose a coverage obligation of 98% on one or more of the 800MHz licences to be auctioned.
We are pleased to see that Ofcom is now proposing to go even further than this recommendation. Ofcom’s preferred option is to define a stringent minimum coverage requirement for one of the 800MHz licences, which would ensure that at least one LTE service would be available to the vast majority of mobile users by the end of 2017.
Ofcom’s proposal is to require one operator to deliver coverage comparable to the 2G mobile voice coverage delivered by today’s 2G mobile networks (in combination) plus the extended mobile voice coverage that will be achieved as a result of the recently-announced Government GBP150 million investment in mobile infrastructure to improve mobile coverage in rural areas. At last, the UK would have a more advanced network than 2G networks that actually offers superior coverage than 2G networks.
By defining a much more stringent requirement for one licence compared to the others, Ofcom would introduce intriguing dynamics into the auction. Potential bidders will now have to decide whether they want to offer such an extensive LTE network and determine how much they are prepared to pay to acquire such a licence compared with licences with significantly less stringent coverage requirements. They will also need to define an appropriate cost-effective network architecture, which will look very different to today’s 3G networks. While the stringent coverage requirements may have a significant impact on network costs for the one operator, they may bestow a powerful competitive advantage, in being able to offer (and promote) unrivalled nationwide coverage. It will be interesting to see how this affects the roll out plans of other operators. With 3G, no operator has seized the opportunity to deliver superior coverage to 2G networks, so all operators have undertaken relatively modest roll-outs, to remain competitive with their counterparts. If we were to see a clear nationwide coverage leader, this could increase the motivation for other operators not to fall behind. For example, would operators such as Vodafone, O2 or Everything Everywhere be content with offering inferior LTE coverage? We will see in due course.
Even with Ofcom’s latest announcements, UK mobile users, currently constrained by low usage allowances and relatively poor coverage, will have a long time to wait. First, the UK spectrum auction is unlikely to take place until the first half of 2013. Then, they would have to wait until the end of 2017 for the coverage target to be achieved by a single operator. Nevertheless, the future UK mobile landscape is now looking somewhat brighter than it was, at least in terms of LTE coverage.
We will continue to track developments closely. Our next blog will look at the impact of the spectrum auction on the structure of the industry and the extent to which we will see partnerships and new entrants.