The 4G auction didn't have to come up £1.2bn short of its target, according to figures published by Ofcom. The telecoms watchdog has gone public with the theoretical maximum that the Treasury could have raised, and it turns out to be £5.2bn, the Guardian reports.
That's more than double the £2.3bn actually raised, and billions more than the £3.5bn chancellor George Osborne budgeted for. So what happened?
Ofcom stresses this figure is purely theoretical. It used a 'second price' rule for the auction, where the highest bidder only pays a little more than the sum offered by the second highest bidder. So the networks will have put in high bids to secure the portions of spectrum they needed, knowing they wouldn't pay the full price. This was intended to make the auction harder to rig.
Critics accuse Ofcom of failing on two counts. An anonymous source at one network told the Guardian, "Ofcom over-engineered the auction and it neither raised the amount that the government was looking for, nor did it ensure that spectrum found its way into the hands of everybody who wanted it."
Ofcom kept prices down by other means, too. It reserved spectrum for Three, which paid less than the others because of its small size. And it imposed caps on how much Vodafone and O2 could buy in the highly sought-after low-frequency bands, seeing as they weren't short of a spot of spectrum beforehand.
Despite the shortfall, Ofcom claims it's "entirely comfortable" with how it ran the auction.
It's not all doom and gloom -- one analyst claims that the Treasury's loss will be good for us punters, as the operators will have more cash to throw at actually rolling out the networks. "The second price rule decreases the amount for the Treasury but operators also have an extra £2bn or £3 bbn to spend on building out the networks," Daniel Gleeson, a telecoms analyst at IHS, told the Guardian.
Competitors to EE's 4G network are expected to launch in the coming months, with a price war on the cards. Three has thrown down the gauntlet by refusing to charge extra for the nippier speeds, which should see EE's prices take a tumble.
Have you invested in 4G? Is it worth paying extra for? Let me know in the comments, or on Facebook.
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Comments 7
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Daedalus 16 March, 2013 13:47
Why do people seem to think that not raising £3.5B and only getting £2.3B is a bad thing? This money comes from the companies and goes to the government therefore it is a tax. The companies have no money other than what they earn through customers, so in the end we pay it in our bills, so we pay the £2.3B raised which is a TAX in another name. Look at it this way, we are only now getting 4G when it has been out in other places for a considerable period of time. The companies got stung for about £10B in the 3G auction so there is less money to put towards 4G. We ended up with bigger bills and slower networks.
Some people think Amazon, Starbucks and others have avoided paying their "fair share of tax", we pay that "tax" in higher prices. So you know what, I am quite happy that Amazon does not pay tax; it means I can order on line, get it the following day in the knowledge that I got what I want, when I want it at the cheapest possible price.
Daedalus
Damien2501 16 March, 2013 15:08
@Daedalus I maybe be permanently damaged by the facepalm I just did :s
Firstly, the networks & other interested parties were not forced to bid for 4G so it's not a tax, it's a purchase from the government.
Secondly, the networks don't pay taxes anyway.
Thirdly, Some parts of the US and have had 4G since late 2010 & not all parts have 4G today. So we are not far behind. And those countries that have had 4G before 2010 really didn't have devices that could take advantage of 4G.
Finally, Amazon & Google may have passed on the savings to the consumer, but have Apple, the banks, energy companies and some retailers passed on the savings to the consumer?? I think not.
Daedalus 16 March, 2013 15:49
Damien2501
The government does not own the air waves; we the taxpayers do. The government owns nothing; we do. Hence any money taken from anyone by the government must be considered a tax.
You are in a way correct that they were not forced into buying 4G licenses, but they cannot run a 4G network without buying a license so in effect they HAVE been forced into buying one if they want to run a 4G network.
You will find that Vodafone are stating tax paid of £2.3billion for the preliminary results in May 2012, it took me about 2 minutes to find that, so where you get no tax paid from I don't know.
"Some parts of the US have had 4G in some parts since 2010", so that would be 2 years before some parts of the UK then, in tech terms I would consider that a considerable period of time.
If someone wants to buy into the Apple "Tax" regime thats up to them, they can spend there money exactly how they want. The point is it is their money that they have freely given over, it has not been extracted from them to have a licence to operate which is in my view a "tax"
A company only has money if 1) People decide in the first place to put money into it because they think that they may get more money back out than went in; investment if you like.
2) The company then produces products or services that other people want to buy, hopefully at a greater amount than it costs the company to produce those products or services: a profit.
Apple are very good at 2) up to now and have been at 1) but are less so at the moment looking at the share price. The point is this is money freely given by investors or customers.
The money for the 4G licence is not money any of those companies would have stumped up if they did not have to, so its not a purchase its a tax!
Off topic a bit from 4G, but you really need to look at just how much of your money goes in tax, not just income tax, but NI, thats a tax under another name, the 5% insurance tax, the stamp duty when you buy your home, the tax on petrol, beer the purchase of just about anything with VAT and then there are the import duties on just about anything levied by the EU, it all makes your tech cost more. For politicians off all colours to pee against the wall, although socialists seem to do the best job of it, they certainly win in the how high, far and hard you can pee other peoples money away.
Damien2501 16 March, 2013 17:28
So tell me who put the government in power to work on our behalf? I think people did. And they have not been forced to buy 4G, no one is forcing them to run a 4G network in the first place.
I just Googled "Vodafone tax avoidance" I think you'll find pretty interesting historical results.
And we are not that far behind. We are more or less on the same level as most of the EU, and well ahead of the developing world. We have got 4G in the major cities. The most popular consumer tech products in the US, like the iPhone & iPad didn't have 4G until 2012 - iPhone 5 was unveiled a day after the first 4G network in the UK launched.
There are some tax avoiding companies that have passed on savings to consumers but there are many more that haven't. Energy, finance and telecommunications are essential to people but there isn't much choice in those industries, that's why people are paying ridiculous amounts for those products.
Hardworking people & small businesses are paying taxes but it's the people & large corporations (by the way corporations are not people) that can afford to pay more are not paying any or less than less well off people & small businesses as a percentage.
And I ain't a commie, I'm a centrist.
CaptainPicard 16 March, 2013 21:40
I know this is off topic, I think successive governments are to blame for all the problems we have. They just don't enforce the laws of the country to those that are well off. I don't blame Apple, Amazon, Voda and the rest for not paying taxes - it's the governments fault that we have loopholes that can be exploited by certain people and corporations.
Back on topic, EEs tariffs are ridiculous now but I think it's the norm for 4G - I strongly doubt Voda, O2 and Three will have better 4G deals than EE, even if 4G licences were given away for free by the government and if they subsidised 4G infrastructure, I think they will still charge a premium for 4G.
Daedalus 17 March, 2013 07:05
Ah CaptainPicard gets it to a certain extent. It should be everyones duty to minimise (AVOID) paying tax. By this I mean that if there are legal ways for you to reduce your tax bill you should take them. Vofafone may well avoid paying tax, but it is legal for them to do so and in fact it is there duty to do so. Paying tax means bigger bills for us users. OK they may not reduce the bills and give it as a dividend to investors instead, they will not sit on it (well whats left after they have paid tax on the dividend) but reinvest it in to lets say Damien2501's company who then employ more staff. And guess what they pay income tax, and NI and some of them buy a 4G phone and use it. Thats the way it works, if there is less tax to pay in the round, we can all have 4G because its cheaper, or at least we have more of our own money in our pockets to decide that yes I will put some of the extra I have to 4G.
Damien2501 17 March, 2013 14:21
Daedalus, Vodafone has billions in cash reserves, that it attained from ripping people off and legally avoiding tax, and that is increasing every year - and you believe it's wrong for them to voluntarily pay a small fraction of that money (4G license) to essentially help out their customers indirectly?
And you are right, investment does lead to jobs - but not necessarily in the UK. For Example, 'Daedalus Investment' an American investment company decides to invest in 'Damien 4G', a UK 4G network so it can expand towards Europe. Most jobs created will be in Europe and not the UK. 2 years later Daedalus demands that Damien outsource its call centres to India and reduce services - which leads to UK job losses. I can find many examples of investment, mergers & acquisition in the UK that lead to job losses.
And this is unrelated, if I was in charge I would get rid of NI & most taxes and have one low income tax everyone has to pay no matter how much they earn, low VAT & corporation tax - and I'm sure someone like you would agree with me on those points. Also, UK businesses & individuals have billions in savings & cash reserves - I would also have a one off 20% tax on savings, which will help finance those measures I suggested & solve our current problems.