Fool's Eye View

[ October 27, 2000 ]

The Next Auction

By Rob Davies (TMFEssex)

Carburton Street, London -- You've got to hand it the Government. It is a quick learner. After raising £22b from selling airwaves to telecom companies for mobile phones earlier in the year it is now selling more of the ether. This time it is Broadband Fixed Wireless Access -- or BFWA -- in the 28 GHz and 40 GHz Bands. You've never heard of it? Well you will.

Yesterday the Government announced that all 12 bidders passed the pre-qualification stage, although Orange has subsequently withdrawn. The bidders are:

Atlas Communications
Broadnet
Chorus Communications
Energis Local Access
Faultbasic
FirstMark Communications
Formus Communications
Norweb Telecom
Priority Wireless
Unica BFWA
Winstar Communications

So what exactly are they are bidding for?

The prizes are three spectrum licences in the 28GHz band in each of 11 English regions as well as Scotland, Wales and Northern Ireland for the next 15 years. Reserve prices vary from £4m to £100,000 per licence and the press is speculating that the total amount raised might be as much as £1b. These licences will allow the owner to transmit broadband (i.e. high-speed) data to homes and small businesses over the crucial "last mile" by wireless rather than through phone lines or cables. So it treads directly on the toes of British Telecom (LSE: BT.A), Telewest (LSE: TWT) and NTL (Nasdaq: NTLI).

This sounds, and indeed is, quite powerful. Freeing up and selling this spectrum will allow broadband access to many people who would otherwise have been denied it by not having access to either broadband cable or telephone connection. BT has been very slow in rolling out ADSL, but even when installed it will not reach customers more than 5.5km from a local exchange. The government estimates that 15% of BT's customers will not have access to ADSL for the foreseeable future. Cable has an even smaller coverage; it is only available to 51% of residential customers.

And for those who do have access to rivals connections this new system will provide some much needed competition. Its only universal alternative will be satellite, although with a range of only 5 km there will still be areas that may not be economic for BFWA to service.

This table from the Radiocommunications Agency website provides a useful summary of broadband access technologies.

It is clear that the wireless local loop is going to be a key part of the strategy to bring broadband access to large parts of the country. To promote a rapid roll out of this service the winners will incur a "use it or lose it" obligation. But the incentive to get their money back after buying a licence will be pretty strong anyway.

I have no idea how much it will cost to build this network, but it must be good news for the Information Technology Hardware sector in general, and Marconi (LSE: MONI) and Filtronic (LSE: FTC) in particular with their skills in broadband communications and radio frequency data transmission respectively.

Where Next?

The telecoms sector discussion board is a good place to go and the RA site has all the details you need on the auction.