Valuable spectrum that is being cleared as a result of the digital switch-over will become available next year and this award will enable mobile operators to acquire this spectrum to deploy new 4G mobile technology. With the rapid uptake of smartphones and growth in demand for mobile data the industry has had to invest heavily in capacity. This new spectrum, and the new 4G technology will enable operators to offer higher speed data, but more importantly, provide mobile data capacity more cost efficiently.
Commenting on Ofcom's proposals to extend 4G mobile coverage, Simon Harris, director in PwC's Valuations team, said:
"Following the revisions to the auction process made by Ofcom in this latest announcement, a competitive process should still be the outcome. Based on other auctions which have taken place, licence fees of £3bn - £4bn could be generated in line with our previous expectations. The desire for sub 1GHz spectrum is likely to be a key driver of competitive tension."
Brian Potterill, director in PwC's telecoms strategy team, added:
"Ofcom proposes to reserve spectrum to ensure that at least 4 operators emerge successfully from the auction. Over the last year there has been some debate about the risks of this being considered state aid but also of the impact on prices in the auction, as the 4th bidder may not have the same appetite or capacity to pay the prices that would otherwise result from an unfettered competitive process.
"Most interestingly, Ofcom is no longer proposing that any of the most valuable 800 MHz spectrum is necessarily reserved for the 4th bidder. However, spectrum caps imposed on other bidders may still limit the auction prices for this spectrum. With uncertainty over the level of bidding, the minimum reserve prices set for the auction could be critical. Ofcom is keeping its counsel on the levels it proposes until closer to the auction. However, regulators in other European markets have become more aggressive in recent auctions and typical reserve prices are rising.
"Ofcom also proposes to have a coverage obligation with one of the licences equivalent to providing 2 Mbps indoor coverage to 98% of the population; up from 95% in earlier proposals set out last year. This additional 3% is important, as it is to these households that it is proving particularly difficult and expensive to reach with the super fast broadband that is now widely being deployed in cities. This increase in coverage obligation is, in part, due to the Government's recent decision to invest £150m to improve mobile coverage in rural areas. Ofcom proposes to link the award of this £150m funding to the award of the licence with the coverage obligation. This should provide a welcome boost to rural broadband, and is a pragmatic response to this important challenge."
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