Ofcom raises £2.34bn in 4G auction, less than forecast

Telecoms regulator Ofcom has raised £2.34bn from its auction of 4G mobile spectrum, less than expected.

The Office for Budget Responsibility (OBR) had forecast that the auction would raise £3.5bn for the Treasury.

The winning bidders are Everything Everywhere; Hutchison 3G UK; Niche Spectrum Ventures, a BT subsidiary; Telefonica (O2); and Vodafone.

4G mobile broadband should provide smartphone and tablet computer users with superfast download speeds.

The auction netted far less than the £22bn raised from the 3G auction in 2000.

Ed Richards, Ofcom chief executive, told the BBC that the figure was lower because "we are in very, very different times", but he insisted that maximising the size of the auction was not the objective it was set by the government.

"What we were trying to do was ensure that a valuable economic resource was brought into productive commercial use," he said.

The shortfall has important political implications, because Chancellor George Osborne included £3.5bn worth of 4G auction receipts in his Autumn Statement in December.

BBC political producer Andrew Fagg says this allowed Mr Osborne to play the "trump card" of predicting that the UK's budget deficit would fall in 2012-13.

However, economists have now pointed out that without that full amount, borrowing would have been going up.

"The lower-than-expected windfall means that all bets must now be off on whether the deficit will in fact come down," says our producer. "Next month's Budget will reveal the answer."

Responding to the announcement, a Treasury spokesperson said: "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."

The OBR in its turn said it had described the £3.5bn "Government's estimate" as "an area of particular uncertainty" in its December 2012 forecast.

But Rachel Reeves MP, Labour's shadow chief secretary to the Treasury, said: "This is yet another blow to George Osborne's failing economic plan. It shows how foolish and short-termist the chancellor was to bank this cash in the Autumn Statement to make his borrowing figures look less bad.

"He couldn't bring himself to admit that borrowing was up so far this year, but his trickery has now badly backfired."

Even senior Tories took the opportunity to criticise Chancellor George Osborne's figures.

John Redwood, MP, said: "The figure for the 4G auction was optimistic, just like most of the numbers in George Osborne's strategy. This is a dent, but there are far bigger dents in the public finances."

Radio frequencies

Ofcom says 4G will provide £20bn of benefits for UK consumers over the next 10 years.

But the culture secretary, Maria Miller, is even more bullish, saying: "Spectrum use is worth more than £50bn to the UK economy and 4G mobile broadband is a key part of our digital growth strategy, so I am delighted the auction has been completed."

The regulator auctioned the spectrum in two bands, 800MHz and 2.6GHz, equivalent to two-thirds of the radio frequencies currently used by wireless devices, such as tablet computers, smartphones and laptops.

This "will allow 4G networks to achieve widespread coverage as well as offering capacity to cope with significant demand in urban centres", said Mr Richards.

"4G coverage will extend far beyond that of existing 3G services, covering 98% of the UK population indoors - and even more when outdoors - which is good news for parts of the country currently underserved by mobile broadband", he said.

Vodafone bid £791m, the most of all the bidders, for five chunks of spectrum; EE, the T-Mobile and Orange joint venture formerly called Everything Everywhere, paid £589m for four chunks.

EE was the first to launch a 4G service in late 2012, but has struggled to attract users, leading it to run a cut-price special offer in January.

Its chief executive, Olaf Swantee, said: "One in four consumers and businesses are already buying this service when they are in a 4G area."