Osborne dealt £1bn blow by 4G auction

Despite the much-hyped figure of £3.5bn, auction for next-generation mobile services and broadband limped in at £2.34bn

Chancellor George Osborne has been left with a £1bn-shaped hole after the much-plugged 4G auction raised just £2.34bn instead of the £3.5bn expected.

The winning bidders are Everything Everywhere, Hutchinson 3G UK, Niche Spectrum Ventures (a BT company), Telefonica UK and Vodafone.

The aim of 4G is to offer faster mobile broadband speeds, lower prices and better coverage to the growing army of smartphone and tablet users across the UK.

However, the auction raised far less than the whopping £22bn gleaned from the 3G auction in 2000.

Playing down the loss, Ofcom chief executive Ed Richards said in a statement: “This is a positive outcome for competition in the UK, which will lead to faster and more widespread mobile broadband, and substantial benefits for consumers and businesses across the country. We are confident that the UK will be among the most competitive markets in the world for 4G services.”

He also told the BBC news site the figure was lower because “we are in very, very different times.”

A Treasury representative also told the BBC: “The £3.5bn number at Autumn Statement 2012 was certified by the independent OBR and based on external expert independent analysis based on similar auctions including the last 3G one. The final auction revenue will be accounted for at Budget in the usual way.”

Victor Basta, managing director of market watcher Magister Advisors said social media was hitting mobile operators in the pocket which explained the lower bids.

“The disappointing revenues from the 4G auction, well below Government forecasts, are a reflection of the challenges that mobile operators face in growing revenues from their users in the social media age.

"Data-heavy social media services are causing huge growth in data traffic across mobile networks. Mobile operators increasingly find themselves in a role that is about supporting end users’ social networking habits, with little, if any, commercial benefit. Social networking has effectively turning mobile network operators into digital drug mules," he said.

And Matthew Howett, telecoms regulation analyst at Ovum, said the lower sale price meant a positive outcome for potential 4G customers.

"Despite all the noise being made about the UK’s 4G auction, what you can’t hear is the sound of champagne corks popping over at the Treasury as Ofcom’s 4G auction fails to raise George Osborne’s optimistic expectation of £3.5bn coming in at £2.34bn.

"For the mobile operators there must be widespread relief that the amount paid is a mere fraction of the £22.5bn they were asked to cough up during the 3G licencing process. For them, the fact they didn’t have to pay billions more is without doubt a positive thing. The costs of rolling out a network are significant. It could be argued that the relatively poor 3G coverage we have seen in the UK up until now is at least partially a result of operator’s being left out of pocket after the last auction that they had very little to actually spend on building the network. Things this time should be different, especially given the ability for the 800MHz airwaves to cover large distances and penetrate buildings well," he said.