U.K. operators bolster 5G spectrum holdings after 3-day auction

British mobile operators have scooped up new 5G spectrum, spending a total of about £1.36 billion ($1.89 billion) in a quick three-day auction process.

Results published Wednesday by U.K. regulator Ofcom showed the four major operators BT/EE, Three, Telefonica UK (O2), and Vodafone acquired all of the 200-megahertz available across the 700 MHz and 3.6-3.8 GHz bands.

The auction offered 80-megahertz in the 700 MHz band (60 MHz paired and 20 MHz unpaired supplementary downlink only) and 120-megahertz at 3.6-3.8 GHz. Ofcom says it represents about a 22% increase in the amount of spectrum available in the U.K. for mobile use.

Total spending was less than half of the £3 billion analysts expected. In a Wednesday note, New Street Research said the swift pace was “a sign of genuinely rational bidding between the 4 operators.”

BT came away with the most spectrum and like Telefonica’s O2 purchased across both bands. Meanwhile, Three and Vodafone won frequencies in the 700 MHz and 3.6 band, respectively.

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Here’s how much they paid and won according to Ofcom results (PDF):

BT: £452 million ($628 million) to obtain 80 MHz. That includes 20 MHz (2x10 MHz) paired at 700 MHz (£280 million); 20 MHz unpaired 700 MHz (£4 million); and 40 MHz at 3.6 GHz (£168 million). New Street expected BT to spend £800 million.

Telefonica/O2: Spent a little bit less at £448m ($623 million) for similar winnings to BT - minus the unpaired 700 MHz - for 2x10 MHz paired 700 MHz and 40 MHz at 3.6 GHz. That compares to expectations for spending of £610 million.

Three: £280 million ($388 million) for 2x10 MHz at 700 MHz.

Vodafone: £176 ($244 million) to obtain 40 MHz, at 3.6 GHz – significantly less than pre-auction estimates of £720 million.

The 3.6 GHz spectrum was sold at €0.08 per MHz-pop, representing “a material discount to the European average of €0.19/ MHz.pop” in the four other major markets, according to New Street Research. The 700 MHz bock was also below the €0.47 per MHz-pop average, at €0.27/ MHz.pop, the firm noted.

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The auction just kicked off March 12, after the expected start date was pushed back from January. Now it will move into the assignment phase, but analysts don’t expect significant changes to the prices.

“The swift conclusion of the auction and the relatively modest overall spend is good news for UK 5G. The UK was fast out of the blocks with early 5G launches in 2019, but progress has been hindered by the Government ban on Huawei,” said Kester Mann, director of Consumer and Connectivity at CCS Insight in emailed comments.

Operators address spectrum weaknesses

U.K. operators all went after spectrum to bolster holdings where they were lacking, according to Jeffries analysts.

BT increased its sub-1 GHz spectrum holdings to 50 MHz post auction (up from less than 10MHz), while O2 now has 75 MHz (up from 55 MH), and Three increased to 30 MHz (up from 10 MHz), the firm noted.  

According to CCS’ Mann, winning in the 700 MHz band was important to both BT and Three, as “both were lagging in low-band frequencies, which are best-suited to achieving wide-area, rural and in-building coverage.”

O2 added to both low and mid-band spectrum, having the smallest spectrum position coming into the auction.

“[O2’s] 33% increase in frequencies will be crucial to support the more than 35 million customers that use its network,” Mann commented.

Three was the only one not to scoop up 3.6 GHz spectrum, but already held 80-megahertz before the auction. Mann said that Three “still holds an enviable position in mid-band spectrum” after acquiring UK broadband in 2017.

Every other operator picked up 3.6-3.8 GHz for the first time, each securing 40 MHz.

“In this way, all operators appear to have made good progress in addressing their strategic weakness,” wrote Jeffries analysts in a Wednesday note to investors.

News Street Research said Three’s and Vodafone’s respective moves to step back from the 3.6 GHz and 700 MHz bands make sense and the latter helped avoid over bidding.

The firm pointed out that BT and Three at only 10 MHz below 1 GHz, while Vodafone and O2 had 54 MHz.

“Hence there could have been the risk of overbidding in this band, and it is encouraging to see that one operator, in this case Vodafone, was willing to step back from excessive bidding,” wrote New Street Research. “It also suggests limited network strain from the MNOs.”

With the additional 40 MHz, Vodafone now holds 90 MHz of 3.4-3.6 GHz spectrum. Vodafone UK CEO Ahmed Essam suggested that not having to spend on the 700 MHz band aligns with its strategy.  

“We have been successful in the 3.6GHz band and have avoided expenditure on low-band spectrum, where it is our strategy to re-farm over time our significant 900MHz holdings to carry 5G traffic,” stated Essam.

The 3.6 GHz spectrum it acquired has a 20-year license term through 2041.

U.K. carriers delighted with results

The U.K. mobile carriers, which spent less than analysts initially anticipated, expressed delight with auction results.

Telefonica (O2) put out a statement saying it was pleased with the price at auction.

“We are delighted with the results, which secured the right spectrum at a fair price,” O2 stated, adding that the additional spectrum will allow it to continue improving networks and investing in digital infrastructure to build out Britain’s connectivity.

Marc Allera, CEO of BT’s Consumer Division, tweeted that he was “delighted [EE] secured critically important new radio spectrum” for the its 5G network, adding that BT will start deploying it later this year.

Between the 700 MHz and 3.6-3.8 GHz spectrum “it’s a winning combination that will support better rural, urban and indoor coverage,” Allera said in a Tweet.  

Three CEO Robert Finnegan said the auction triples the amount of low-band spectrum the operator owns and will have an impact on customers’ experience indoors and in rural areas.  

“We are delighted to have won two 10MHz blocks of low frequency spectrum at the auction,” Finnegan stated. “Coupled with our existing low frequency spectrum and the UK’s largest 5G spectrum holding, we are in a fantastic position to deliver a great network experience for our customers now and in the future.”

Ofcom initially proposed tying certain coverage obligations, including increases in rural areas, in exchange for bidders winning discounted spectrum at the auction. Instead, operators developed a Shared Rural Network plan, which led to the removal of auction coverage requirements.  

The regulatory body also placed 37% cap on overall spectrum holdings, meaning limits on the amount certain operators could acquire at the auction.

All four operators already launched initial 5G service in the U.K. and Ofcom said releasing the 3.6-3.8 GHz airwaves will help increase the capacity and quality of mobile services.