Business Watch: EE must hurry to make most of 4G advantage

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The decision by Ofcom to trim EE’s head start with 4G from a year to six months means the operator must move fast to benefit most from the new technology

Everything Everywhere has finally secured its much-desired head start in the race to win the first 4G customers in the UK.

But it will have to move fast because its head start has been trimmed from a year to six months by Ofcom.

Everything Everywhere’s rivals – led by O2 – were unhappy that the watchdog had changed the rules to let it reuse its existing 1,800MHz spectrum for 4G use immediately.

So they had threatened a protracted legal battle with the company, with the regulator and the government stuck in the middle.

It seems the talks went down to the wire but this week all sides decided against letting the lawyers win the day and struck an entente cordiale.

Along with Ofcom, the government has agreed to make it possible for Everything Everywhere’s rivals to offer 4G by May 2013, rather than October 13 as originally planned.

It’s a sensible outcome for the UK, which is trailing other major economies in the roll-out of 4G services.

The government, which hosted the so-called “peace talks”, is painting it as a victory for common sense.

Maria Miller, the new secretary of state for culture and media, said she was “grateful to the mobile operators for their cooperation in bringing forward vital 4G services.”

Ed Richards, Ofcom chief executive, also claimed victory, declaring: “The actions we have taken with industry and government avoids the risk of significant delay and is tremendous news for consumers who might otherwise have waited a considerable period for the next generation of mobile broadband services.”

Ronan Dunne, chief executive of O2, has been chief aggressor over the issue. But he was pragmatic about the outcome, saying: “In a perfect world we would have all liked to go at the same time. But to have the certainty of being able to launch services in the summer of 2013 is an awful lot better than not having anything until 2014.”

The question now is, will Everything Everywhere take full advantage and hoover up all the best customers before anyone else gets a look in?

The company, created from the merger of Orange and T-Mobile, gets a free run at the all-important Christmas market for 4G and the chance to sell the full benefits of the 4G-capable iPhone 5 exclusively.

It’s a huge opportunity for EE, the new brand Everything Everywhere has chosen for all of its 4G offerings.

EE claims its 4G speeds are “typically five times faster than 3G speeds today”, which compares to an Ofcom 2G/3G speed test from Q4 2010 of 1.5Mbps to a claimed 4G speed of 8-12Mbps.

“The main advantage is likely to be handset-driven, with a range of flagship models supporting 4G on EE, including the all-important iPhone 5, leaving consumers hesitating to buy these handsets on networks that do not make the most of their capabilities,” wrote James Barford at Enders Analysis in a research note for clients.

However, Barford noted that the EE advantage is “not insurmountable” because the operators “could justifiably” claim similar speeds on DC-HSPA+, which will be available on all the flagship handset models on offer this Christmas.

Nevertheless, it’s pretty obvious they’d prefer to have 4G. “4G does sound good, and combined with an impressive headline speed the operators could use it as a competitive marketing tool,” Barford noted.

Plus EE’s 4G network will be virtually empty to begin with, so – providing it doesn’t botch the network upgrade – the speeds on offer will be notably better than current speeds users get on 3G.

EE has said that it plans to reach 16 UK cities by Christmas and 98 per cent of population by 2014.

The other three operators – O2, Vodafone and Three – will need to wait to buy spectrum at the 800MHz frequency at the 4G auction, which is scheduled for January.

The pressure is now on Ofcom to meet the tight timetable for the auction, which will involve the selling off of old analogue TV spectrum to the mobile networks so they can reuse it for 4G services.

It will also have the challenge of making sure the spectrum is usable by May – six months earlier than previously planned.

The Financial Times has reported that four separate working groups have been formed to help accelerate the auction date and the time taken to prepare the airwaves for 4G use.

It says the talks include the early formation of a company called MitCo that will have to prevent any interference with services such as TV. That will be a crucial role, as the fragile Coalition government can’t afford to botch the switchover to digital TV.

A group is also reported to be examining changes required to streamline planning permission for mobile sites.

Experience shows that auctions and roll-outs rarely happen on time so I wouldn’t be surprised if EE ends up getting a longer head start in the end anyway.

But it has given itself a massive amount of extra work by dint of its decision to offer 4G exclusively under the new EE brand.

It has to rebrand all 700 of its shops to the EE brand, which will surely replace Orange and T-Mobile eventually – the company surely can’t justify continuing to invest in three competing brands, whatever it may say about the benefits of market segmentation.

And there is, as Enders noted, “plenty of scope for customer confusion” for Orange and T-Mobile users, who will have to switch brands to upgrade.

Also, Everything Everywhere will have to keep up its prepay and cheaper contract subscriber numbers at the same time as doing the big 4G push.

It remains to be seen how much the networks will have to pay for their 4G spectrum.

Ed Balls, shadow chancellor, this week estimated that the auction could raise £3 billion to £4 billion.

That would be a fair chunk of change but well shy of the £22.5 billion raised by the Labour government for 3G spectrum during the dotcom boom.

The question is, which network operator will benefit the most from the new technology? At the moment, EE looks odds-on favourite providing it doesn’t squander it’s lucky inheritance.

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