UK to open extra mobile spectrum

The UK used to be at the forefront of mobile communications deployment. The announcement by Chancellor George Osborne that 2.6 GHz spectrum and digital dividend spectrum will be auctioned in 2011 or 2012, now puts the UK well behind Scandinavia, Germany, Austria and other European countries in terms of mobile technology deployment. UK mobile users will have to wait for LTE for another 2 years whereas commercial services are already in operation elsewhere.

However, from the operators’ perspective this is not bad news. Capital expenditure for the acquisition of spectrum at auction and the subsequent deployment is also delayed. It is likely that mobile broadband demand will remain strong and existing capacity would not be sufficient. Operators may be able to increase mobile broadband prices which would help to improve not only UK mobile industry EBITDA margins – which are among the lowest in Europe – but also increase free cash flow. This should delight shareholders.

As regards auction design, the fact that the announcement was made by the Chancellor who is primarily concerned with raising revenue for the government, must be worrying for operators. It is likely that the auction will be designed to maximise revenue.

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