By Paul Sandle
LONDON (Reuters) - Britain's mobile operators were the winners and the government was the loser in an auction of 4G airwaves that raised a less than expected 2.3 billion pounds ($3.6 billion).
Telecoms regulator Ofcom had designed the sale to maximize the availability of 4G services, after the previous 3G auction in 2000 delivered 22.5 billion pounds to the state but left the industry indebted and unable to roll out new services for years.
"This is a positive outcome for competition in the UK, which will lead to faster and more widespread mobile broadband, and substantial benefits for consumers and businesses across the country," Ofcom Chief Executive Ed Richards said.
All four existing network operators picked up blocks of airwaves for between 791 million pounds and 225 million, as did new entrant BT Group
Yet the Treasury had penciled in proceeds of 3.5 billion and although the total will rise slightly - after a final stage of bidding to allocate the bands of airwaves - it will still fall far short of what finance minister George Osborne had wanted.
The forecast, which the Treasury said had come from the independent Office for Budget Responsibility, had helped Osborne confound expectations in December by predicting government borrowing would not have to rise this financial year.
The opposition Labour party said the result showed Osborne was wrong to bank the cash to flatter his borrowing figures.
"He couldn't bring himself to admit that borrowing was up so far this year, but the trickery has now badly misfired," said Rachel Reeves, shadow chief secretary to the Treasury.
BNP Paribas economist David Tinsley said the shortfall was not a huge deal in the context of Britain's deficit, with 1 billion pounds being less than 0.1 percent of GDP, but nonetheless it was more bad news for the public finances.
"It is certainly not going to help recent perceptions of the UK in terms of the fiscal position," Tinsley said.
By contrast, there will likely be widespread relief among mobile operators that the amount paid is a fraction of the sum they were asked to cough up during the 3G licensing process, said analyst Matthew Howett at telecoms consultancy Ovum.
"The fact they didn't have to pay billions more is without doubt a positive thing," Howett said. "The costs of rolling out a network are significant."
The operators' outlays for spectrum licenses in Britain are also not to be as painful as those of a recent Dutch auction that raised 3.8 billion euros, well above the 800 million analysts had predicted.
Next-generation 4G services deliver speeds more than five times faster than 3G services, enabling smartphone and tablet users to make video calls and consume more and more content.
Services will be launched on the new airwaves from the summer, helping Britain, which got its first 4G service late last year, catch up in the superfast broadband race.
Ofcom - which reduced the degree of competitive bidding partly by reserving some frequency for a fourth operator - said superfast mobile broadband would deliver economic benefits of at least 20 billion pounds to British consumers over the next 10 years. It said almost all of the population would be able to receive 4G mobile services by the end of 2017 at the latest.
The airwaves, some of which became available after the switch-off of analogue television signals, were sold in blocks of 800 MHz spectrum, the so-called golden frequencies suitable for widespread coverage indoor and outdoor, and 2.6 MHz spectrum, to deliver higher capacity in urban areas.
The operator's UK chief Guy Laurence said it had secured the low-frequency spectrum to support the launch of its 4G service later this year. "It will enable us to deliver services where people really want it, especially indoors," he said.
The biggest operator, EE (owned by France Telecom
O2, owned by Telefonica
Ofcom reserved airwaves for a fourth operator in order to keep the market competitive. Hutchison 3G <0215.HK>, the operator of fourth-placed Three, paid 225 million pounds to win the bands, Ofcom said.
BT bid 186.5 million pounds to pick up three blocks of spectrum. Managed networks provider MLL Telecom and HKT (UK), a subsidiary of Hong Kong-based PCCW, were both unsuccessful.
A final stage in the process will determine where in the bands each winning bidder's spectrum will be located, but analysts said this would not significantly raise the total. ($1 = 0.6475 British pounds)
(Additional reporting by Leila Abboud and Limei Hoang; Editing by Jane Merriman and David Holmes)