Chancellor George Osborne's deficit reduction plans were dealt a blow after the superfast 4G airwaves auction haul fell £1 billion short of expectations.
Telecoms watchdog Ofcom has raised £2.3 billion from selling mobile licences to mobile phone giants Vodafone, EE, Hutchison 3G and O2 parent Telefonica, along with a subsidiary of BT - well short of Government estimates it would provide a £3.5 billion boost to the finances.
The Treasury had allocated £600 million to the Department for Business, Innovation and Skills for science from the auction, but had not allocated the rest to specific programmes. However, the smaller receipt will disappoint the Chancellor, who is struggling to bring down the budget deficit.
But the final outcome will be a relief to phone companies after they paid £22.5 billion to the Treasury in the previous 3G auction in 2000.
Ofcom said the latest auction created strong competition in the 4G mobile market and would see 4G coverage extend far beyond that of existing 3G services, covering 98% of the UK population indoors.
Ed Richards, Ofcom chief executive, said: "This is a positive outcome for competition in the UK, which will lead to faster and more widespread mobile broadband, and substantial benefits for consumers and businesses across the country."
The 4G bidders competed to buy airwaves in two separate bands - the higher frequency 2.6 GHz and lower frequency 800 MHz - with 28 lots up for grabs. Hong Kong Telecom owner PCCW and private-equity backed Buckinghamshire-based firm MLL, which supports fixed and wireless services in the UK, were the only two of the seven bidders to fail to pick up a slice of the spectrum.
After more than 50 rounds of the auction, Vodafone was the highest bidder paying £790.8 million for a mixture of the lower and higher bands. EE, formed from the merger of Orange and T-Mobile, already has access to 4G and was the first to offer a 4G network in the UK. It was the second highest bidder paying £588.9 million for its airwaves.
Under the deal O2's Telefonica has won a spectrum which must provide mobile broadband services for indoor reception to a least 98% of the UK population, and at least 95% of the population in each of the UK nations - England, Northern Ireland, Scotland and Wales - by the end of 2017 at the latest.
Culture Secretary Maria Miller insisted that the auction would deliver a "significant economic boost" to the UK. She said: "Spectrum use is worth more than £50 billion to the UK economy and 4G mobile broadband is a key part of our digital growth strategy so I am delighted the auction has been completed."