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UK Treasury could have raised £3bn more in 4G auction

According to Ofcom's figures, the Treasury could have raised billions more for the 4G spectrum bands it flogged to the networks.

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.