Will the 4G Auction exceed £3.5bn? You bet!

Although Chancellor George Osborne is unlikely to raise anywhere near to Gordon Brown’s £21bn for 3G licences, I believe he may do rather better than is being reported.  Recent auctions in Europe have raised £3bn which suggests that the UK 4G licences will achieve £3.5bn.  However, it is suggested that Private equity firms, retail groups and banks as well as international telecom players have entered the fray alongside the UK’s Big Four mobile operators, EE, Vodafone, O2 and Three to win a slice of these 4G licences.

Ed Richards, chief executive of Ofcom, the telecoms watchdog, said that it had “fired the starting gun” on an auction process that would “release crucial capacity to support future growth, helping to boost UK productivity”.  Even in these recessionary times, the total U.K. Internet traffic is currently projected to increase by an average of 37 per cent each year until 2015. Although the majority of traffic remains on fixed networks, traffic on mobile networks is growing at a faster rate of 84% year-over-year and is expected to account for 11% of total traffic by 2015. 

Mobile access to the Internet accounts for even more time spent browsing, communicating, and transacting than this traffic data suggests, with fixed lines being used to consume bandwidth-intensive services such as video and mobile used more for social media. Indeed, the Internet is increasingly being accessed on mobile devices, whether through mobile connections or Wi-Fi networks, and the next generation of mobile communications of 4G will continue to shift this dynamic and economists have suggested could add as much as 0.5% to GDP in infrastructure investment alone not to mention the enhanced capability of the mobile web usage.

The superior quality of coverage and speed of performance offered by 4G’s 800MHz network offers significant improvement over the current 3G licences.  This superior system will add significantly to the opportunity for both network providers and service providers to make significant revenue.  The UK is one the largest mobile internet markets and consequently the opportunity  to own a slice of this market will in my opinion drive the value of these licences far beyond the projected £3.5bn and along with the additional impact 4G will have on the UK economy, the auction could bring a welcome additional windfall for Mr Osborne.