4G or not 4G, now that is the question

4G

The UK has finally made it! Technically we have already got 4G through those chaps over at EE and they have been making a lot of noise whilst rapidly trying to expand their infrastructure before the rest of the major operators joined the party! The winners and losers have been announced and we can now get on with enjoying those high speed s over mobile broadband…or can we? David Dungay discusses the potential impact of 4G and how the roll out may not be as simple as everyone thinks.

 

The Auction

The Office for Budget Responsibility had forecast that the auction would raise £3.5bn for the Treasury. Perhaps somewhat disappointingly the final total came in at £2.34bn with the major spender Vodafone, bid £790.7m for fives chunks of spectrum. BT says they paid far less, £186 million, for their winning bid however the final price to be paid may include an additional amount which will be determined during the assignment stage of the auction which now follows.
Ed Richards, Ofcom chief executive, commented that the total figure raised was lower because “we are in very, very different times”, but he insisted that maximising the size of the auction was not the objective it was set by the government.

Ofcom says4G will provide £20bn of benefits for UK consumers over the next 10 years. The regulator auctioned the spectrum in two bands, 800MHz and 2.6GHz, equivalent to two-thirds of the radio frequencies currently used by tablet computers, smartphones and laptops.

“This will allow 4G networks to achieve widespread coverage as well as offering capacity to cope with significant demand in urban centres. 4G coverage will extend far beyond that of existing 3G services, covering 98% of the UK population indoors – and even more when outdoors – which is good news for parts of the country currently underserved by mobile broadband”, said Mr Richards.

The Winners

Everything Everywhere
Hutchison 3G UK
Niche Spectrum Ventures – a BT subsidiary
Telefonica
Vodafone

Lessons Learned

John Delaney, Research Director, Consumer Mobile – IDC commented on the auction shortfall “I recently wrote an article about the lessons that UK mobile operators can learn from their experiences with 3G. The most immediate lesson that sprang to my mind was this: don’t over-pay for the spectrum. It turns out that the UK operators have learned, assimilated and applied that lesson pretty thoroughly. With 3G, the UK was one of the first countries to auction new spectrum, but with 4G, it’s one of the last. One good consequence, for the UK operators, is that they have access to plenty of pricing benchmarks. The auction results in countries such as France and Germany indicated that at the going rate, the UK auction would probably raise somewhere between £3 billion and £4 billion. In the event, the operators have been able to gain the new spectrum that they need for less than that – a happy result for them, though a less happy one for the UK Treasury, which was counting on receiving about £3.5 billion.”
Billy Hayes, CWU general secretary, said: “Today’s 4G announcement is both good and bad news for the UK. As customers, UK taxpayers will soon be able to enjoy quicker download speeds and enhanced mobile services, but they have been cheated of a billion pounds which should have gone into public finances. In short, good service but shame about the tariff.”

Big Spender

In the auction Vodafone was the biggest bidder, with its £790.7 million representing more than one-third of the entire auction’s proceeds. The No. 3-ranked operator acquired bandwidth both in the short-range 2600 megahertz (MHz) band, as well as in the longer-range 800MHz frequency, which is essential for the nationwide deployment of 4G data services. This development could allow Vodafone to reclaim its status as a contender for leadership in the U.K. wireless market.

“Just four years ago, in 2009, Vodafone had a lock on the second-place ranking in the U.K. wireless market, slightly behind leader O2,” said Daniel Gleeson, mobile media analyst at IHS. “However, the merger of Orange and T-Mobile into Everything Everywhere relegated Vodafone to third place, several million subscriptions behind the top market player. By leading the way in spectrum spending, Vodafone has made a statement it intends to reclaim its former position in the market.”

Vodafone in 2009 was ranked No. 2 in the U.K. wireless operator market behind O2 UK. The two companies in 2009 were very close in market share, with O2 accounting for 26.1 percent and Vodafone at 23.4 percent. However, by 2012, Vodafone had settled into third place, with a preliminary estimate of a 23.8 percent share compared to 33.1 percent for Everything Everywhere and 28.7 percent for O2.

Beyond expanding its reach in 4G, Vodafone’s bid indicates that it plans to remain a player in the market for older 2G services, with hopes to expand its market share.

“By spending big in both bands available in the U.K. auction, Vodafone is showing it doesn’t plan to shift its 2G frequencies at either 900MHz or 1800MHz to 4G services at any time in the short to medium term,” Gleeson said. “Vodafone is clearly targeting all types of services from low- to high-end in a bid to garner the largest possible market share in the U.K.”

Modest Winners
O2

O2 won relatively modest amounts of 4G spectrum in the auction. Because of this, the company probably will need to refarm some of its 2G spectrum at some point after coming away with only 800MHz spectrum. O2 also has a coverage obligation spectrum, which means it will be an important operator for rural areas and will need to invest quickly to hit the rollout target by the end of 2017. Without high-capacity 2600MHz spectrum, coupled with the need to focus on a countrywide rollout, it is possible that O2 will lose the battle for network quality in major population centres. This will be a major concern because O2 has the largest number of valuable iPhone subscriptions in the country.

EE

EE had a relatively small hand is the auction this time around. Being able to refarm its 1800MHz spectrum and launch 4G for relatively little cost, Everything Everywhere decided not to invest heavily in this auction. Common wisdom among operators is that a 2 x 5MHz block will not be enough to offer a good wireless broadband experience. But EE—along with another player, Three—will be aiming to use only its 800MHz 4G network to cover remote areas and for some in-building reach in cities, leaving  the bulk of urban needs to be served by its 1800MHz 4G network. This will lighten the load on the 800MHz network, and mean that customers in rural areas should still get decent broadband speeds.

Three

No. 4-ranked Three played a conservative role in this auction after forking out for Everything Everywhere’s divested 1800MHz spectrum, which will now presumably be the central plank of its 4G rollout strategy. By limiting its spend in that auction, Three will be hoping to make viable its recently announced plan to not charge a premium for 4G. However, it is not publicly known how much Three paid Everything Everywhere for its spectrum. The 800MHz winning by Three will open up rural markets that the company up to now was not able to effectively cover.

BT

British Telecom spent £186m to re-enter the mobile market after selling O2 to Telefónica in 2005. However, with just short-range 2600MHz spectrum at its disposal, it is unlikely that BT will launch a consumer-facing mobile service of its own. The two more likely options are it could wholesale extra capacity to the four mobile operators and the many virtual operators; or it could use the spectrum to provide high-speed broadband in areas where ADSL and even VDSL are limited by the copper access network.

 

WiFi – The new standard?

What about WiFi? With all the fuss about 4G going on it is easy to look a technology that most of us have been using fairly consistently for years. With the new standard coming in (802.11ac) the WiFi operators are trying desperately to be heard above the 4G buzz.

Mark Pearce, strategic alliance director for Enterasys Networks said,“The focus and hype with 4G overlooks the current availability and future potential of WiFi as a serious contender to provide all-pervasive Internet connectivity.  The current WiFi standard (802.11n) delivers better than 4G performance now, and in the next 12 months when the new standard (802.11ac) comes in, consistent gigabyte connectivity will be a reality.

“As the divide between work and personal life blurs even further, good quality WiFi is going to become part of everyday life. Organisations are already paying for home broadband so it seems a natural extension that ‘company created’ WiFi hotspots will become part of the ‘always on’ culture of the future. Leaving 4G for those remote locations.

“It is likely that 4G and WiFi will happily co-exist, but Enterasys’ focus on WiFi and cloud is supported by the recent acquisition of Meraki by Cisco. This gives a huge indication of where the industry feels the connectivity battle will be fought/won in a clear move to focus on cloud delivery to supply usable connectivity.”

“Our own research tells us that many customers are unaware of just how much superfast broadband can enhance their mobile experience and what the full benefits of 4G are. As the only mobile retailer in the UK that offers all the major networks, we are better positioned than anyone to educate customers to help them understand the complexities of 4G and the full scope of opportunities available to them.”

 

Comms Bytes

Rob Davis, Head of Mobile at Gamma: “The successful conclusion of the main part of the 4G auction is great news for Gamma’s MVNO partners since Gamma’s network partner, Vodafone, secured more spectrum than any other operator, including the coveted 800Mhz spectrum which is best for in-building coverage. Combined with the fact that far more modest sums were spent on the licences this means that UK businesses are more likely to gain access to business-class 4G services much more quickly than was the case with the deployment of 3G.”

Graham Stapleton, Chief Commercial Officer at Carphone Warehouse. “Today’s news is the first step towards an overall improved mobile experience, which is great news for customers, for business and for the UK economy.  The networks have invested significant sums of money in their infrastructures to ensure mobile broadband speeds are optimised and that customers can get the most from their devices.

Gary Calcott, Technical Marketing Manager, Progress Software: “I see the greatest benefit for mobile applications on a 4G network where streaming (on demand) video is required. Typically, we would expect any ‘data crunching’ in a business sense to be performed on the back-end of the application, in the Cloud.”

Ed says:

When you scratch beneath the surface it is clear to see what our operators’ long term plans are. Having invested less than expected in the auction will allow operators to roll out the 4G infrastructure far quicker than the 3G masts. Don’t discount the WiFi providers just yet either, they are developing (albeit in a quieter manner) some compelling offerings,combined with new technology, that will be available over the next 12 months.

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