LONDON -- This morning brought news from Ofcom that Vodafone (LSE: VOD ) (NASDAQ: VOD ) and BT Group (LSE: BT-A ) (NYSE: BT ) have won contracts to deliver superfast mobile broadband services, known as 4G, in the U.K.
After more than 50 rounds of bidding, five companies won the spectrum auction comprising a total of 250 MHz, auctioned in two separate bands: 800 MHz and 2.6 GHz. The other three companies were Everything Everywhere, Hutchison 3G U.K. and Telefonica U.K. The spectrum licenses are all indefinite in length, and there will be no further license fees for at least 20 years.
Services are expected to begin rolling out within six months, while Ofcom believes that "almost the whole U.K. population will be able to receive 4G mobile services by the end of 2017 at the latest."
Paying and gaining the most, for the total sum of 790 million pounds Vodafone has acquired the spectrum of 2 x 10 MHz in the 800 MHz band and 2 x 20 MHz in the 2.6 GHz band, plus an additional 25 MHz of unpaired spectrum in the 2.6 GHz band. U.K. chief executive Guy Laurence commented:
We've secured the low frequency mobile phone spectrum that will support the launch of our ultra-fast 4G service later this year. It will enable us to deliver services where people really want it, especially indoors. This is great news for our customers. The next generation of mobile Internet services will bring real benefits to both consumers and businesses.
BT has secured a license for 2 x 15 MHz of FDD and 20 MHz of TDD 2.6 GHz spectrum, won at a price of 186 million pounds. Chief executive Ian Livingston said:
We are pleased to have secured this spectrum. We have said that we do not intend to build a national mobile network. Instead, this spectrum will complement our existing strategy of delivering a range of services using fixed and wireless broadband. We want our customers to enjoy the best possible connections wherever they are and this spectrum, together with our investment in fibre broadband, will help us achieve that.
4G capability will provide Vodafone and BT's business and consumer customers with an enhanced range of mobile broadband services, and will develop the next generation of mobile Internet services using long-term evolution -- or LTE -- technology. Research measuring 4G speeds will be conducted at the end of 2013.
Elsewhere, Everything Everywhere paid 589 million pounds for 2 x 5 MHz of 800 MHz and 2 x 35MHz of 2.6 GHz, Telefonica U.K. paid 550 million pounds for 2 x 10 MHz of 800 MHz, and Hutchison 3G U.K. paid 225 million pounds for 2 x 5 MHz of 800 MHz. MLL Telecom and HKT Company were unsuccessful bidders. All proceeds from the auction will go to HM Government.
BT's shares rose 1.2%, 3.24 pence, to reach a five-year high of 280.14 pence in early trade, while Vodafone's dropped 0.2% to 163.20 pence -- although this is likely a continued knock-on effect from many analysts' downgrades in recent days following speculation that it is considering an expensive takeover of Kabel Deutschland.
BT trades on a forecast yield of 3.4%, while Vodafone currently offers a 5.8% income. However, with well-respected City analyst Neil Woodford selling his entire holding of Vodafone from the Invesco Perpetual High Income fund that he manages, are shares in this sector reliable to hold for the long term?
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