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Ofcom CEO says 4G auction is not about the money

Ed Richards says he will not attempt to predict how much the sale of 4G spectrum will raise

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Ofcom chief executive Ed Richards has distanced himself from the government's claims that the sale of 4G spectrum will raise £3.5 billion, claiming that the first time he heard the figure was in the Autumn Statement.

In his recent budget statement, Chancellor George Osborne announced that the sale of the 4G spectrum was likely to bring in a total of £3.5 billion, and announced that the government was already spending the money on new projects including numerous further education colleges.

This is despite the fact that Ofcom announced in November that the reserve price for the spectrum would be £1.3 billion.

At a press conference in London today, Richards said that Ofcom would not attempt to predict how much the sale of 4G spectrum would raise, adding that revenue maximisation is not the objective of the auction.

“We will be judging the auction ourselves on whether we believe it has successfully produced an efficient outcome, in which the bidders were able to express their preferences thoroughly and clearly and effectively during the process such that we're confident that the spectrum will be used in the most efficient way,” he said.

“However many billions the actual revenue is, the real economic benefit here is in the benefit to consumers and the the economy from the deployment of these highly valuable services. If we were to calculate the estimated economic benefit of that, it would massively dwarf the revenues from the auction, so that is the game for us.”

Ofcom also revealed details of the 4G auction process today, and Richards emphasised that the price of lots would be dictated by how much operators are willing to pay for them. This means that two lots of spectrum in the same band may go for completely different prices.

However, Richards denied the operators with the deepest pockets would be at an advantage, claiming that the amount that bidders offer will be based on a “hard headed calculation” by companies, and reflect how valuable the spectrum is to them.

Commenting on the reserve price, Ofcom's director of spectrum markets, Graham Louth, said that this was based on what operators in other markets have been willing to pay.

“There have been a number of auctions over the last few months and years of similar spectrum in similar markets. So we have looked at what other operators have been willing to pay or have paid in other markets, adjusted that for the UK circumstances, and then we have to balance various different risks in setting the level of those reserve prices,” said Louth.

“If we set the reserve prices too high, we may discourage smaller bidders from even bidding in the auction. On the other hand if we set them too low, we actually create opportunities for bidders to play games in order to reduce the amount they might have to pay, and we want to minimise the opportunity to play those games. So we have set prices that balance those two risks.”

The bidding process will start later in January, and is expected to go on for several weeks. A full data set of all the bids made during the auction will be made available after the auction is over.


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