Everything Everywhere to Sell UK Spectrum to Three
This week we draw attention to two important developments relating to the rollout of LTE. The U.K.’s largest mobile operator, Everything Everywhere, has agreed to sell sections of its 1800 MHz spectrum to smaller rival, Three, for a price reportedly in the vicinity of £450 million. The 1800 MHz spectrum is considered optimal by many for the delivery of LTE (4G) services, which provide considerably faster and improved capabilities for popular activities such as web browsing, file transfer, video, games and music.
The eventual sale of top-tier spectrum was mandated by Ofcom, the British regulatory agency, as a precondition for approval of the merger of Orange and T-Mobile to form Everything Everywhere, which took place in 2010. Further portions of the 4G spectrum are scheduled to be sold at auction before the end of 2013. Meanwhile, Everything Everywhere has been granted regulatory approval to debut LTE service in the U.K. as early as 11 September. However, we feel a rollout of such importance is unlikely to be accomplished in just two weeks’ time, leading us to doubt that 4G will be coming to the U.K. before the fourth quarter of the year.
In a related development, Telekom Austria Group has selected Ericsson to provide LTE infrastructure for its customers in Austria and Croatia. This initiative is an outgrowth of a multi-standard radio access network contract between Telekom Austria and Ericsson, which is creating a system by which the operator can make use of multiple mobile communications standards on a single network. Under the present agreement, Ericsson will also upgrade Telekom Austria’s 2G and 3G networks.
In our view, subscribers worldwide are becoming hooked on the speed and enhanced capabilities LTE offers relative to 3G and earlier networks, and their thirst for such capabilities will only grow over time. Given the rather fickle nature of consumers, we believe many will swiftly abandon operators with earlier generation networks for competitors offering LTE. This is the potential situation Vodafone and Telefonica face in the U.K. as a result of Ofcom’s approval for Everything Everywhere to begin offering 4G services now.
We consider this abandonment risk to be particularly acute with respect to younger, more technologically sophisticated users with whom operators desperately want to develop long-term relationships. Therefore, we are advising MNOs around the globe to move as swiftly as practicable in the rollout of LTE (including lobbying regulators where and as necessary). Doing so will help to ensure continued relevance in the marketplace. The alternative is to develop a reputation as a technology laggard, which would likely result in a torrent of customer defections.
We also find it noteworthy that Europe, one of the world’s most developed and technologically advanced regions, has lagged behind other markets, for example Asia, with regard to LTE implementation. As a growing number of European companies, such as Everything Everywhere and Telekom Austria, move toward deployment of high-speed networks, any European provider that is late to the game in rolling out LTE could find its competitive position in peril in short order.