Ofcom has released long-awaited proposals for the 2012 auction of 800MHz and 2.6GHz frequencies, the so-called 4G or LTE spectrum, to create more capacity on the UK's mobile networks and possibly extend high-speed mobile broadband to more rural areas.
Ofcom says the amount of spectrum available is 80% greater than that for 3G, which netted the government £22.4bn but left auction winners short of money for a fast network build.
Ofcom is proposing caps and floors to the amount of spectrum each licensee can hold. This could dramatically affect the revenue the auction can generate for the government.
Ofcom says it has learned from the 3G experience and from the design of the recent German auction. This prioritised "last mile first", increased network build costs, and reduced the revenue from the auction to €4bn compared to the €50bn for 3G spectrum.
Ofcom says it will include a coverage obligation of 95% of the UK population in the licence for the 800MHz spectrum. "It is expected that bidders will factor in the cost of achieving this obligation when making bids for the licence," the regulator says. But it will result in coverage for future mobile broadband services that approach today's 2G coverage by the end of 2017.
Since Deutsche Telekom and France Telecom merged their UK mobile networks into Everything Everywhere (but retained the T-Mobile and Orange brands for marketing purposes), the UK has effectively had only three operators.
However, the operators also share network infrastructure, which leaves the UK effectively with just two physical mobile networks. The auction is designed to open the way for a third to specialise in rural mobile networks.
Analysts believe Ofcom's stated intention to have four mobile network operators signals its desire to preserve competition.
Ovum analyst Matthew Howett says the pitch for four operators shows that Ofcom values Three's "disruptive nature and role in developing a competitive mobile market", a view endorsed by Juniper Research analyst Howard Wilcox and Canalys's Pete Cunningham.
"Three was getting squeezed, so the caps and floors give it breathing space," Cunningham says.
Howard says the use of caps is "bitterly controversial" because of their capacity to distort the market. But it is essential to preserve competition.
Wilcox says the provisions with respect to rural high-speed broadband leads the way to fixed-mobile convergence, and that mobile networking is used for rural broadband in countries including Ireland and Norway because of its cost-effectiveness.
The question now is whether BT will bid for the rural licence. If it did and it won, it would consolidate its monopoly in Market 1 (or rural) areas and allow it to compete in towns, especially as the supplier of networking for the energy industry's smart meter project.