Following a big round of spending in the 4G auction in the United Kingdom, Vodafone signaled its intent to aggressively regain lost market ranking in the country’s wireless business, according to according to a new Analyst Commentary from the IHS Screen Digest Mobile Technology Intelligence Service at information and analytics provider IHS (NYSE: IHS).
In the auction results announced on Tuesday, Vodafone was the biggest bidder, with its £790.7 million representing more than one-third of the entire auction’s proceeds. The No. 3-ranked operator acquired bandwidth both in the short-range 2600 megahertz (MHz) band, as well as in the longer-range 800MHz frequency, which is essential for the nationwide deployment of 4G data services. This development could allow Vodafone to reclaim its status as a contender for leadership in the U.K. wireless market.
“Just four years ago, in 2009, Vodafone had a lock on the second-place ranking in the U.K. wireless market, slightly behind leader O2,” said Daniel Gleeson, mobile media analyst at IHS. “However, the merger of Orange and T-Mobile into Everything Everywhere relegated Vodafone to third place, several million subscriptions behind the top market player. By leading the way in spectrum spending, Vodafone has made a statement it intends to reclaim its former position in the market.”
Vodafone in 2009 was ranked No. 2 in the U.K. wireless operator market behind O2 UK. The two companies in 2009 were very close in market share, with O2 accounting for 26.1 percent and Vodafone at 23.4 percent. However, by 2012, Vodafone had settled into third place, with a preliminary estimate of a 23.8 percent share compared to 33.1 percent for Everything Everywhere and 28.7 percent for O2, as presented in the attached table.
Beyond expanding its reach in 4G, Vodafone’s bid indicates that it plans to remain a player in the market for older 2G services, with hopes to expand its market share.
“By spending big in both bands available in the U.K. auction, Vodafone is showing it doesn’t plan to shift its 2G frequencies at either 900MHz or 1800MHz to 4G services at any time in the short to medium term,” Gleeson said. “Vodafone is clearly targeting all types of services from low- to high-end in a bid to garner the largest possible market share in the U.K.”
O2 buys in moderation
O2 won relatively modest amounts of 4G spectrum in the auction. Because of this, the company probably will need to refarm some of its 2G spectrum at some point after coming away with only 800MHz spectrum.
O2 also has a coverage obligation spectrum, which means it will be an important operator for rural areas and will need to invest quickly to hit the rollout target by the end of 2017.
Without high-capacity 2600MHz spectrum, coupled with the need to focus on a countrywide rollout, it is possible that O2 will lose the battle for network quality in major population centers. This will be a major concern because O2 has the largest number of valuable iPhone subscriptions in the country.
Everything Everywhere does little anywhere
Being able to refarm its 1800MHz spectrum and launch 4G for relatively little cost, Everything Everywhere decided not to invest heavily in this auction. Common wisdom among operators is that a 2 x 5MHz block will not be enough to offer a good wireless broadband experience. But EE—along with another player, Three—will be aiming to use only its 800MHz 4G network to cover remote areas and for some in-building reach in cities, leaving the bulk of urban needs to be served by its 1800MHz 4G network. This will lighten the load on the 800MHz network, and mean that customers in rural areas should still get decent broadband speeds. Over the long term, 2x5MHz may not be enough to remain competitive in speed and capacity with rivals possessing larger spectrum blocks. This is true even though initially the situation will be different because when 4G networks have relatively few customers, those operators with 2x5MHz will have the headroom to be competitive.
And Three makes four
No. 4-ranked Three played a conservative role in this auction after forking out for Everything Everywhere’s divested 1800MHz spectrum, which will now presumably be the central plank of its 4G rollout strategy. By limiting its spend in that auction, Three will be hoping to make viable its recently announced plan to not charge a premium for 4G. However, it is not publicly known how much Three paid Everything Everywhere for its spectrum. The 800MHz winning by Three will open up rural markets that the company up to now was not able to effectively cover.
British Telecom reenters mobile market
British Telecom spent £186m to re-enter the mobile market after selling O2 to Telefónica in 2005. However, with just short-range 2600MHz spectrum at its disposal, it is unlikely that BT will launch a consumer-facing mobile service of its own. The two more likely options are it could wholesale extra capacity to the four mobile operators and the many virtual operators; or it could use the spectrum to provide high-speed broadband in areas where ADSL and even VDSL are limited by the copper access network. These options are not mutually exclusive as the wholesale option would be mainly needed in urban areas, whereas the fixed-line replacement option would be needed in rural areas.
Everybody’s a winner
One of the most significant results from the recent auction is that all four incumbent operators won spectrum in the valuable 800MHz band. This marks the first time that four operators have come away with spectrum in the band, with previous European auctions yielding only three winners.
The most likely reason for this was Ofcom’s prescribed minimum portfolio for a fourth national operator beyond EE, O2 and Vodafone. After receiving 1800MHz spectrum from Everything Everywhere, Three essentially secured the position, giving it cheap access to a small amount of 800MHz spectrum. Indeed, the price paid by Three for its block is exactly the reserve price set by Ofcom before the auction.