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British Regulator Investigated Over Low 4G Auction Revenue
judgecorp writes "Ofcom, the British telecom regulator, raised £2.3 billion in the 4G spectrum auction when the government had hoped for £3.5 billion. Now Ofcom's auction is being investigated by the National Audit Office over whether it provided value for money for the British taxpayer. Ironically, the auction resulted in a low price but spread the bandwidth amongst rival firms, and so provided better value than if the auction had created a partial monopoly or (as happened in the 3G auctions in 2000) gouged as much money as possible from the operators leaving them unable to actually build a network."
When 3G was rolled out in the UK, the cost to the customer was prohibitively expensive that uptake was pretty slow, despite the fact that billions had been spent on acquiring the licence for the spectrum, let alone from the infrastructure costs. Gradually, it's come down to a more reasonable price, but it's still prohibitively limited by bandwidth for the majority of people - 250MB per month is often considered generous.
And so now we come to 4G. I happen to be on a network that was an early adopter of 4G and they've been pushing it agressively since they got the licence. Yet, it's only available in 10 cities (not mine), costs a minimum of £50 per month and the monthly bandwidth allowance can be used up in a matter of minutes if you actually use it.
Hopefully this time, with lots of companies getting in on the action rather than just a couple, there'll be competition and it'll actually become a viable technology for the customer rather than just being good in theory.
The Tory party sold off publicly owned infrastructure for a fraction of what it is really worth. Is anyone surprised?
Um its an auction, companies bid what they think it will take to get the goods and beat competitors. You can't blame the government if the price fetched at a competitive auction is lower than expected. A kneejerk "blame the Tories for everything" reaction is what keeps them in power, because people see how shallow the argument against them is. If you really want someone else in, you have to say how you could have done better.
Also the high auction price of 3G last time slowed its deployment and arguably the development of 3G services in the UK. Hopefully the fact that companies have not bid as much this time allows them to invest more. If the companies make more money, then they will presumably pay more tax in the form of Corporation tax in the long run, and perhaps have more employees also paying income tax.
Donte Alistair Anderson Roberts - hi son!
Karma: Chameleon
It wasn't the Tory party that sold it off, it was Ofcom, but you can guarantee it's the Tory party that instigated this investigation.
Osborne factored the income from the auction into his budget to mask a shortfall in his budget to try and maintain the facade that he is economically competent and reducing the deficit. The problem is now, as the money that has actually come in is over £1bn lower than expected, his books now will struggle to balance so he's more likely to end up failing to hit his target yet again of deficit reduction.
There was nothing wrong with the auction, but Osborne is just upset he's going to have egg on his face that his attempt to mask a shortfall in his deficit reduction plan with a one off windfall (rather than do something that will reduce the deficit perpetually) has failed.
For what it's worth though it's not as if it's just the Tories that do this sort of thing that's bad for our country- Brown for example gave away billions of our EU rebate under some misguided delusion that France would then give up some agricultural subsidies which of course they didn't, and have only sought to increase them. Both Labour and the Tories are equally guilty of throwing money away, so don't try and make it about this part or that, they're all just as incompetent.
The Tory party sold off publicly owned infrastructure for a fraction of what it is really worth. Is anyone surprised?
Well at least this time Ofcom created an environment condusive to competition by not gouging out as much money as possible. The irony is that the Tories are now investigating Ofcom for not extorting as much money as possible and thus creating a reasonably level playing field for competition. This is very funny because Thatcherist/Tories tend to never shut up about how competition is good for the citizenry since it lowers costs. That being said I'm generally against selling off publically owned infrastructure since I have rarely seen it work out well and it tends to end with some form of cartel that effectively has a license to tax the public. In this case selling the spectrum was the thing to do, unless you want the govt. to' do what? Rent it out?
Only to idiots, are orders laws.
-- Henning von Tresckow
I was with you until the "rather than do something that will reduce the deficit perpetually" bit.
Exactly what makes you think that an economy in the grip of a 4 year recession about to hit it's third dip, recovering less well than it did in the 1930s is the right time to continue with GDP shrinking austerity? Has the Conservative "message" been so effectively fed that people aren't even questioning the sanity of the policy? As a lifetime Liberal voter I am utterly disgusted by the parties kow-towing to discredited neo-thatcherism - this is the party of John Maynard Keynes and the party that first pushed for a National Health Service. They of all people should be refusing to stand by and let another generation go to waste.
Pro-tip - you reduce the deficit when the economy is healthy, that way the "austerity" acts as a brake preventing overheating and the growth in the GDP multiplies the effect of the deficit reduction. It's not hard people...
Quoting from Ofcom on the suibject...
"Ofcom said that the aim of the auction was not to generate revenue for the government, but to promote competition that will ensure consumers will benefit from the rollout of 4G services."
However, I would be willing to bet my mortgage and my left testicle that the mobile carriers will say "this service is x% better than the 3G network, so we need to charge the consumer at least x% more than they paid for 3G services" irrespective of the relative cost of the 3G and 4G services to the provider.
Ofcom's approach is a nice idea, if the savings from reduced licence cost are passed on to the consumer, but in related news it has been discovered that the problems with the Curiosity rover on Mars are caused by the fact that the water we were hoping to find there is actually Champagne, and the rover is currently detoxing in a Martian Alcoholics Anonymous facility before resuming its place as a productive member of Martian society...
Reducing the cost to big business in the hope that there is a trickle-down effect will not see all of those savings go in Management bonuses at the mobile companies, but considering that the expected revenue will now have to be made up by the British taxpayer, the net result will be a win for the business and a loss for the man in the street.
The public have never owned any mobile network infrastructure.
The government are selling licences to use a particular part of the spectrum.
If you want to go back to the bad old days of waiting weeks for a phone then feel free to do so, but elsewhere, not in the UK. Telecoms is without doubt one of the most successful privatisations. BT was challenged by competition and had to up its game in all areas. We, the consumers, won and moribund management lost out.
Do you pine for the days of union closed shops and secondary action too?
Reminds me of the UMTS auctions around 1999/2000. Huge amounts of money were spent in various countries - so much that several of the buyers of UMTS licenses almost went bankrupt, just on the license cost. Especially as the high license cost required high fees for subscribers in a time that there was no such thing as a smartphone.
Auctions got huge results in various countries, but after five, six such auctions in other countries in EU the prices offered fell drastically. Phone companies obviously smartened up, realising that the amount paid in the first auctions was so much that they'd never be able to get that back from subscribers. A few years later, mobile internet was being offered cheap as there was little demand and a huge bandwidth available, so the more subscribers the more money they could get back. Hence the lower prices.
Nowadays I'm sure mobile phone companies have smartened up a lot. They know the demand, they know what they can reasonably pay to make a reasonable profit, and of course a major competitor to the new 4G network is the existing 3G network - which for many people is good enough already.
Five companies is not competition. That's a club.
Managers know this and avoid competing on price whenever they can. In a market with only a handful of competitors, they can and do avoid it. Reducing the costs drives profits up, not prices down.
Surely this would be illegal under the Cartels and the Competition Act 1998, so they couldn't possibly be avoiding true competition. Could they?
The investigation being pressed is to see if the bidders colluded before and during the auction to keep the price down. This is illegal under British law but that's not stopped folks before.
The difference between 'expected' and actual revenue is what ... 1.2 billion pounds?
Politicians in other countries and their industry cronies are probably having a good laugh about now. Have a look at this:
http://en.wikipedia.org/wiki/2G_spectrum_scam
"Exactly what makes you think that an economy in the grip of a 4 year recession about to hit it's third dip, recovering less well than it did in the 1930s is the right time to continue with GDP shrinking austerity?"
Why assume austerity is the only method of deficit reduction? investment can increase growth which will in turn increase tax receipts which will in turn reduce the deficit.
Deficit reduction doesn't have to be just about making cuts.
When 3G was rolled out in the UK, the cost to the customer was prohibitively expensive that uptake was pretty slow,
So, the same as 4G then...
At the moment 4G is completely pointless:
- Its only availble in highly populated built up areas (i.e. where there are already plenty of wifi hotspots)
- Its pretty expensive (although EE have at least made their pricing slightly saner since their initial launch, which saw them bundling lots of free talktime and SMS but charging through the nose for data - what exactly do they think people will upgrade to 4G for?)
- There's still not a lot of hardware that supports 4G
3G had very similar problems (ok, so it wasn't competing with wifi, but it was expensive, not widely supported by hardware and had terrible coverage). 4G will improve, just as 3G did, but for now I don't see the value in paying more for 4G network access.
Gradually, it's come down to a more reasonable price, but it's still prohibitively limited by bandwidth for the majority of people - 250MB per month is often considered generous.
Really? You can get some pretty cheap contracts offering gigabytes per month. Personally, I'm on a PAYG plan - I get 150MB "free" (expires after 45 days) every time I add £5 to my account balance, and I can purchase a 2GB bundle (expires after 30 days) for £5, which is taken from that account balance. As it happens, I often don't need more than 150MB over 45 days, so assuming I didn't use the phone for anything else that would be £5 for 75 days worth of data (so £2/month), but worst case its £5/month for over 2GB of data/month, which seems a pretty reasonable deal to me.
If you want to use 3G as a home internet connection then you probably want more than 2GB, but there are still pretty good options here - a quick look at Three's pricing shows they do a 10GB for £15.
http://blog.nexusuk.org
I have no idea what UK you live in, I'm with Three and have been for numerous years. I pay 25GBP (comparable to broadband costs and that's not even adding line rental costs etc from landline to it!) a month for unlimited Internet with tethering (along with a bunch of other things like 3000 minutes, texts etc). If your memory fails you, Three was that network that has only 3g towers (they rent 2g from other providers). They were the ones that provided free, unlimited options to all users on their network, including Skype, Live Messenger, Yahoo Messenger etc.
Maybe you should switch to Three? They stated they have no intention of charging extra for 4G either. In other words, the existing cheap plan coverage, covers 4G as well.
Change is certain; progress is not obligatory.
That being said I'm generally against selling off publically owned infrastructure since I have rarely seen it work out well and it tends to end with some form of cartel that effectively has a license to tax the public. In this case selling the spectrum was the thing to do, unless you want the govt. to' do what? Rent it out?
I think whether selling off infrastructure is a good idea depends on whether it can sensibly turn into a competing market.
A good example is the rail network - there is only one rail network, which means that you can't have competition (if I want to make a long distance journey between two cities, I don't get to choose between lots of competing operators - there is one company that operates that route and I'm stuck with them, which means no competition and that's bad for the customer). This has resulted in a very bad situation for the public - the British rail network is an unmitegated disaster these days.
Although, that said, despite the phone network being a similar situation, that seems to have worked out surprisingly well (despite the fact that we're mostly stuck with using BT for the local-loop, and they are utterly utterly incompetent).
http://blog.nexusuk.org
Unfortunately reality doesn't match your fantasies. Spectrum is a limited resource - with our current technologies we can only fit a certain amount of "stuff" into a given amount of spectrum. So having it "free" and letting anyone do anything they want with it doesn't work - the transmissions interfere with each other and we end up either with no one getting to use it for anything useful at all, or the people who can afford the biggest transmitters being able to use all of it for whatever they want.
Rather than that society usually resorts to one of::
1. Have the government use it as they see fit not allowing the private sector to use it at all. So the government would run the phone network and the television stations and so on.
2. Have the government allocate parts of the spectrum to private sector users placing whatever restrictions it deems beneficial.
That second one is what most of the Western world uses. The government splits up the spectrum and allocates parts to certain activities "from A to B will be for television, from C to D will be for radio, from E to F will be for cell phones, from G to H will be free for all with a maximum power limit, etc". Then it comes up with some mechanism of assigning bits of spectrum to companies/etc; an auction is one such mechanism, "Tom donated $X to my election campaign so he can have it" is another...
This doesn't happen with sidewalks and roads because the physical world limits things. However, when it does happen again there are solutions. You mentioned toll roads - if there's a huge demand for traffic between two points then a toll road is a common way to have the people who make up the traffic pay for the infrastructure. Toll sidewalks are not as common, though I'm sure somewhere in the world there's a paid walkway. Usually for sidewalks lots of traffic means lots of businesses who can be taxed to pay for upgrades (converting the road to a pedestrian only walkway, widening footpaths, building alternative routes, etc). If it's in a residential area then it would usually be solved by adding restrictions to non-resident traffic - restricting parking to residents, etc
That depends on the cities in question, and whether you are really keen on optimizing for costs or whether you care about how long it takes as well.
For most long distance journies, your choice is:
1. Take the intercity, which gives you a choice of exactly one operator.
2. Take a long series of interconnecting very slow local trains, where each leg of the journey gives you a choice of exactly one operator.
3. Take a bunch of intercity trains that go via a very circuitous route, where each leg gives you a choice of exactly one operator.
(2) and (3) would usually be more expensive, take an unfeasibly long time and open you up to being completely screwed if one of the trains is delayed (since you would have one ticket for each leg instead of a single end-to-end ticket, and that makes you liable if you miss one of your trains due to the preceeding train being delayed).
(1) is usually several times the cost of driving unless booked several weeks in advance, and for a lot of routes is slower than driving.
It's usually (always?) the case that if you want the fastest vaguely sane option, you pay more.
Except in the case of the british rail network, the "fastest vaguely sane option" is usually to drive instead of taking the train...
I frequently take the train for a specific journey, and the _only_ reason I do that is because if I book it 2 weeks in advance its cheaper than driving. If I don't book it that far in advance, its considerably more expensive than driving; and since the train takes twice as long as a car to get there, I wouldn't take the train in that situation. Hell, if I wanted to travel first class it would cost *4 to 5 times* what it costs to drive, for a journey that takes twice as long as driving - that's a complete WTF.
http://blog.nexusuk.org
As always it's a trade off.
Sure the government could just tax everyone and use that money to build the towers an so on for a cell phone network infrastructure and then either give access to that to whomever wants to provide a cell phone service, or charge for such access and hopefully recover the costs for building and running the infrastructure. Or it could farm that out to a private monopoly. That's basically how the "copper" phone network in say Australia works. That's sort of how roads and foot paths work - just without the service providing middle man since the raw infrastructure is good enough (though of course you do have transport companies providing a service on top of the road infrastructure).
The downside to that approach is that the government (or other monopoly owner) of the infrastructure has little incentive to upgrade it. There's no room for private risk taking and experimenting with new technologies that can't work on top of that infrastructure. There's no competition being used to determine the "right" amount and type of such infrastructure.
Capitalism is far from perfect, but the base bones of it is that limited resources are allocated to those who will pay the most for them, with the hope that they are paying the most because they can sell the results for the most which in turn we hope is because that is what the population most wants to buy. Of course unless you happen to be a libertarian of the most extreme sense you likely don't think all those hopes actually always turn out to be the case...