Will U.K. Mobile Market Change after LTE Auctions?

It is of course axiomatic that without access to spectrum, no entity can be in the mobile service provider business. That access can be through owned or leased spectrum, but fundamentally, spectrum access is necessary. That naturally raises the question of whether “winning” fourth generation Long Term Evolution spectrum is “necessary” for a firm to be a market leader in mobile services, in the future.

Some might say so. “The importance of this spectrum auction in shaping the future of the U.K. wireless market cannot be understated,” said Daniel Gleeson, mobile analyst at IHS iSuppli. “Access to spectrum is the main barrier to entry for any company looking to build a new wireless network.”

It is true that seven companies are bidding for spectrum: the country’s four existing mobile operators along with three new players. With only three companies likely to win spectrum, at least one of the United Kingdom’s existing operators is likely to lose out,” said Gleeson.

The four existing players that have entered the auction are EE, O2, Vodafone and Three. The three new entrants are BT, PCCW and MLL Telecom.

Other European spectrum auctions have only seen a maximum of three operators win 800 MHz spectrum. The United Kingdom could follow this pattern, yielding three winners and four losers, IHS iSuppli says.

Among the existing mobile operators, the companies with the most to lose are O2 and Vodafone, which presently do not have 4G spectrum, IHS iSuppli said.

Not securing 800 MHz licenses would be a disaster for O2 or Vodafone, some might argue, even if both firms were to win spectrum at 2.6 GHz. The reason is that 800 MHz is viewed as essential for rural coverage, while the 2.6 GHz spectrum is seen as best suited to urban coverage.

Some might argue that the more likely outcome is that the fourth provider will wind up leasing spectrum from one of the other three providers, so the result might not be catastrophic. Still, owning spectrum arguably is safer than leasing spectrum.

But that analysis assumes the prices paid by the winners are reasonable, in light of the incremental revenue opportunities. Europe’s mobile service providers know well the dangers of overpaying for spectrum, as was the case when the 3G auctions were hold.

Operators overpaid for that spectrum, causing years of financial distress that also threatened  bankruptcy for a few.

So it is possible the U.K. 4G auctions could rearrange business plans, perhaps in unexpected ways. Depending on the outcome, one or two of the leading four providers in the U.K. mobile market might find themselves more limited in terms of national coverage.

One or more of the “winners” might find themselves in more favorable positions, in terms of quality and quantity of spectrum. The auction, by itself, will not immediately change the market share situation. But it could begin a process that does change the market.