The risks of selling off the 800MHz radio spectrum at the wrong price

The 800MHz radio band is prime airspace for the delivery of mobile broadband because it offers a long range.

This month the government dropped a bombshell.

Minister for communications Ed Vaizey and culture, media and sport secretary Jeremy Hunt announced that the national rollout of next-generation broadband would be delayed by three years.

It was originally planned for 2012 but is being put back to 2015.

The 2012 deadline for the delivery of an "up to" 2Mbit/s UK-wide rollout of internet connectivity was established by Lord Carter’s 2009 Digital Britain report. The rollout is also known as the universal service commitment.

Broadband Delivery UK (BDUK) was set up to ensure delivery of the infrastructure by overseeing deployment of UK-wide next-generation broadband via optical fibre connections, either straight to your house – fibre-to-the-home, or to the green street cabinets – fibre-to-the-cabinet.

Governments fear being seen to have failed on policy initiatives, so pushing back the original rollout to 2015 presumably gives it a better chance of not failing. But it is not the date that matters – it’s the decisions it makes between now and then which will determine success.

The upcoming auction of the radio spectrum – the 800MHz band – freed up by the switch from analogue to digital TV is key to the success of the rollout.

That 800MHz radio band is prime airspace for the delivery of mobile broadband because it offers a long range.

Germany has already auctioned its 800MHz and 2.6GHz radio spectrum to Deutsche Telekom, Telefónica and Vodafone, raising a modest €4.38bn (£3.7bn). The auctioned spectrum comes with an obligation for the winning bidders to roll out service to 90 per cent of Germans by 2016.

But will the UK government force similar service commitments when it auctions the UK’s spectrum?

We don’t want a repeat of the auction of 2000 when the UK sold the original third-generation mobile phone licence. That auction concluded on 27 April 2000, and when the gavel came down, then chancellor of the exchequer Gordon Brown pocketed £22.5bn – equivalent to 2.5 per cent of gross domestic product at the time.

In an academic paper about the auction, Ken Binmore and Paul Klemperer, who led the team advising the government on the auction, said: “not since the Praetorian Guard knocked down the entire Roman Empire to Didius Julianus in AD195 had there been an auction quite as large’’.

What’s wrong with that? The government needs the cash, after all. Well, I suspect that had it dished out the airwaves free of charge in 2000, everybody, including people in rural areas, would currently have access to a minimum of 2Mbit/s already. All the potential cash for the investment went to the government in 2000.

Ofcom will be running the latest spectrum auction, which Vaizey recently said should take place as soon as possible.

So will the government give out the spectrum at a nominal cost on condition that providers ensure universal high-speed broadband by 2015, or will it see nothing but pound signs?