UK fires 4G starting gun - Over 3 million 4G/LTE connections forecast within two years

Two UK operators have been given the go-ahead by the regulator to launch 4G services, raising the prospect that the country’s first LTE network could be live by year-end.

The latest data from GSMA Intelligence forecasts that the market will surpass 3 million LTE connections within two years (Q3 2014), with all four UK mobile operators expected to have launched commercial 4G services by the end of 2013.

Ofcom last week granted market-leader Everything Everywhere (EE) permission to use its existing 1.8 GHz spectrum for LTE, effectively giving it the green light to launch a 4G service ahead of a fresh round of LTE-focused spectrum auctions due to take place at the end of the year.

EE then sold a 2x15 MHz chunk of its 1.8 GHz spectrum to the country’s smallest operator, 3 UK. The deal to divest about 25 percent of its assets in this band was a regulatory condition imposed on the merger between Orange UK and T-Mobile UK that created EE in 2010. However, with EE having a deadline of September 2013 to divest the spectrum, 3 may not be in a position to launch 4G services until Q4 2013.

The transaction will double the amount of spectrum held by 3, which previously only held 3G licences at 2.1 GHz, and Ofcom confirmed that the operator will be able to use its new airwaves for 4G services. 3 subsequently announced a deal with Samsung to build-out an LTE network that will commercially launch next year. EE has previously said it could launch services this year once it was given the go-ahead by the regulator.

According to GSMA Intelligence, EE is set to command a 40 percent share of the UK LTE market by Q3 2014, followed by O2 (25 percent), Vodafone (22 percent) and 3 (13 percent).

While recent developments have cheered those concerned that delays to the auction process had put the UK at risk of falling behind rival markets in 4G, not all stakeholders are happy. O2 and Vodafone, the country’s second- and third-largest operators, respectively, both lobbied against allowing EE to use its 1.8 GHz airwaves for 4G, arguing that such a move would give the market leader an unfair, first-mover advantage over its rivals.

In a document outlining its decision, Ofcom concluded that the advantages of allowing EE to launch 4G early outweighed any short-term competition concerns. “Although we consider it likely that EE will enjoy a competitive advantage during the period before other operators are able to launch their own LTE services, we consider on the evidence available that any such advantage is unlikely to result in an enduring advantage which distorts competition to the detriment of consumers,” the regulator said.

Vodafone said it was “frankly shocked” by the decision, while O2’s verdict during the consultation period was that, by granting EE’s refarming request, Ofcom would be creating “a monopoly provider of 4G national wholesale services for a period of at least 18 months.”

The spectrum holdings of both Vodafone and O2 are concentrated mainly at 900 MHz, where they hold 2x17.4 MHz blocks each. While the two operators were successful last year in lobbying Ofcom to allow them to use 900 MHz for 3G as well as 2G services (despite objections from EE and 3), it is a spectrum band not widely used for LTE deployments. With minimal 1800 MHz spectrum (2x5.8 MHz each), Vodafone and O2 are both relying on acquiring enough LTE-suitable spectrum in the forthcoming 800 MHz and 2.6 GHz auctions. While the pair will bid independently of each other they intend to jointly build-out their new networks as a JV. EE and 3 have a similar alliance.

Following numerous delays, Ofcom announced in July that the auction process will begin by year-end and will conclude next March, with services using the new bandwidth likely to be rolled out in the second half of 2013.

The 800 MHz band is part of the digital dividend spectrum resulting from the switch from analogue to digital TV signal, and is aimed at ensuring wide coverage. The 2.6 GHz spectrum band is more suited to delivering the capacity for higher speeds. The mix is aimed at achieving wide coverage and delivering the necessary capacity to cope with demand in urban areas. A total of 250 MHz bandwidth is up for grabs.

Joss Gillet, Senior Analyst, GSMA Intelligence:

Everything Everywhere is set to benefit from a 12-month head start in the commercialisation of LTE services. Its success will depend on its network coverage plans, as well as its portfolio of devices and service tariffs. TeliaSonera launched the world's first LTE networks in Sweden and Norway in late 2009. But despite this first-mover advantage, the operator's early LTE adoption was dampened by a lack of compelling LTE devices, expensive tariffs and limited network coverage. However, EE may avoid many of these problems as the global LTE market has evolved rapidly over the last two years, with innovative pricing structures and the increasing availability of attractive smartphone models. EE’s focus at launch will be on LTE-enabled dongles and (possibly) tablets compatible with its 1.8 GHz band - with LTE smartphones likely to arrive either late this year or in early 2013. In common with other 4G operators in the region, the UK market leader is likely to adopt speed-based mobile broadband tariffs with a premium charged for LTE services that will come under the operator's new '4G' brand. For UK consumers, the arrival of LTE will mean that the cost of data per GB will decrease as the highest speed tariffs typically also have the largest data allowance, but it also means that a subscriber upgrading from HSPA+ to LTE on a typical 10 GB data allowance plan is likely to pay in the region of an additional EUR 15 per month, as noted in our recent report.

United Kingdom, LTE share by operator, Q3 2014 forecast
Source: GSMA Intelligence