A guide to the forthcoming spectrum auction
Ofcom is holding an auction for two bands of spectrum, which will increase the airwaves available for mobile devices by almost one third.
Releasing spectrum will allow mobile companies to increase data capacity, enabling their customers to enjoy more reliable internet browsing.
Ofcom will auction a total of 190 MHz of spectrum in two ‘frequency bands’: 40 MHz in the 2.3 GHz band, and 150 MHz in the 3.4 GHz band. The spectrum in the 2.3 GHz band is compatible with existing phones made by companies such as Apple and Samsung. So it will be usable as soon as it's released, helping to increase mobile broadband capacity for today's mobile users.
The 3.4 GHz spectrum is earmarked for future 5G services. Today's devices can't yet support this band, but it will become usable in a year or so. It will be vital for the future, supporting the rollout of 5G in the UK.
5G is the next generation of mobile technology. It follows previous generations of mobile technology such as 3G and 4G, and will offer the capacity for thousands of devices in a small area to be connected at the same time.
Who will be bidding?
Five companies have been approved to bid in the auction: Airspan Spectrum Holdings Ltd; EE Limited; Hutchison 3G UK Limited; Telefonica UK Limited and Vodafone Limited.
We have placed two caps on the spectrum any one operator can hold, to protect competition in the market. The first means that EE, which currently holds the most spectrum, will not be able to bid for any spectrum in the 2.3 GHz band. There second is an overall cap on how much a single operator can hold after the auction.
How will the auction work?
- The auction will have two bidding stages.
- The main one, called the principal stage, comes first and takes place over a number of rounds. In each round, prices go up with bids, and the bids determine how much spectrum each party acquires.
- The principal stage begins with all the spectrum being made available at a reserve, or minimum, price. There is one reserve price for each 2.3 GHz portion, or lot, of spectrum; and another price for each 3.4 GHz lot.
- The reserve price for each 2.3 GHz lot is £10m, and there are four lots of spectrum (each of 10 MHz). The reserve for each 3.4 GHz lot is £1m and there are thirty lots, each of 5 MHz.
- Bidders will bid for a number of lots in each band at the given price, which is set by Ofcom.
- If demand for the available lots is equal to, or larger than, the amount available, then the price for each frequency band will go up in the next round. Bidders will then be invited to bid at the new, higher, price – again, set by Ofcom.
- The principal stage ends when there are no new bids in a round. At that point demand across all bidders in the auction will essentially have matched the available supply, and winning bidders will know how much spectrum they have won.
- The winning bidders will pay the price of their last bids.
- The second stage, called the assignment stage, takes place over a single round and determines where the airwaves won by each bidder are located within the radio spectrum.
- In the assignment stage, winning bidders from the principal stage bid to locate the spectrum they have won at particular frequencies within the band.
- Unlike in the principal stage, bidders in the assignment stage will pay the price set by the highest losing bidder. This is known as the ‘second price’ rule, and is similar to how bidding works on the consumer auction platform eBay.
When will we know the results?
- Spectrum auctions can take some weeks to complete. The length will depend on the level of demand for the spectrum being made available.
- At the end of each day during the principal stage, Ofcom will publish:
- the prices for 2.3 and 3.4 GHz lots in the last round for that day; and
- a measure of demand in each band, called ‘excess demand’, also in relation to that last round of the day.
- Excess demand refers to the active demand for spectrum in each band, in excess of the available supply.
- When the auction is complete, we will publish full details of the spectrum secured by each bidder.