Selling Air

Posted by Voipfone on September 1, 2020

Selling Air

Last month Ofcom announced that it’s holding a 5G spectrum auction in January 2021 ie, the government is raising taxes by selling air to mobile operators.

Back when I was in BT I was involved in the 3G spectrum auctions. We worked for months to build financial and bidding models. I remember the term “Monte Carlo Simulation” being used a lot. The models produced cash flow and profitability forecasts at all bid points under various scenarios; we knew exactly how much we were prepared to bid in every round. We had a sophisticated game plan and the models told us when to stop bidding.

After the first couple of rounds of bidding we threw all the models away as all bids were higher than our highest modelled bid we analysed. At that point the BT politicians got involved and we basically bid to win at any price. Vodafone had said that’s what they’d do right from the beginning, presumably attempting to pre-empt usurpers. The final winner was, of course, only the UK Treasury, it expected to bag about £5bn in total from 5 licences. In fact, from one licence alone it won almost £6bn – Vodafone; their strategy obviously failed. BT spent £4bn and the treasury landed £22.5bn in total. For air!

Many, if not all, of the losing bidders thought themselves lucky and some of the winners wondered what on earth they’d done. In BT’s case it was so deep in debt caused by that and its ludicrous international ventures that it had to sell its mobile network – Cellnet/O2 – only a year later, leaving it the only incumbent telco in the world with no mobile product.
And no 3G.

Just how much BT overpaid for 3G was shown 5 years later when it bought EE for £12.5bn. For this they got the 3G licence, the national built network, a profitable business and 24.5m new customers. Oh, and it got the latest 4G licence thrown in as a freebie.

This time around the mobile operators attempted to persuade Ofcom that they should allocate the spectrum ‘administratively’ ie prorate it to existing operators based on some fabricated mechanism to avoid another financial catastrophe, but Ofcom declined.

So it’s another bidding war. I don’t expect the same cavalier approach this time around as the world is not as frantic as then and maybe all concerned are a little wiser – there maybe something of the “we don’t want to hurt each other do we” about this one. Maybe a few meetings in motorway service stations…

The 3G auction was quite a thing; whilst trying to remember it, I found a really good history here. Written by a loser.

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