Broadcasters, mobile phone companies and internet giants will be able to buy up parts of the most valuable block of broadcasting spectrum to come on the market under plans being drawn up by Ofcom, the communications regulator.

Ed Richards, Ofcom’s chief executive, is expected to announce next month that he has defied pleas from the BBC, ITV and Channel 4 to reserve for them surplus spectrum freed up as analogue television is switched off between 2008 and 2012.

Instead, the 120 megahertz of prime spectrum, which has been likened to property in Mayfair, will be sold off to the highest bidder in the hope of generating a multibillion-pound windfall for the Treasury.

Ofcom is already understood to be preparing to use a new auction technique - the combinatorial clock auction – to allow companies to bid for several chunks of the spectrum simultaneously. The auction is expected to be held in 2009 or 2010 and should raise more money than any other asset sale since the third-generation mobile phone auction of 2000. It should hand Gordon Brown a windfall in what may turn out to be the run-up to a general election.

The third-generation mobile phone auction recouped £22.5 billion as five phone companies risked financial ruin to win licences.

The spectrum auction is not expected to raise that kind of sum and Ofcom is believed to have resisted Treasury pressure to commit to a sale forecast.

However, given the quality of the spectrum, it would be a disappointment if well over £1 billion was not raised.

Ofcom itself has valued the surplus spectrum to be worth between £5 billion and £10 billion over the next 20 years, although the regulator insists that this is not a sale value.

Up for grabs are portions of the 120 megahertz radio spectrum, which are being freed up once the more efficient digital technology replaces traditional analogue.

Located in the heart of the so-called “sweet spot”, the frequencies are sufficiently versatile that they could be used to develop a new mobile phone network as well as additional digital television and multimedia services.

Ofcom’s combinatorial clock auction is being developed by the regulator with specialist advice. Unlike a conventional auction, Ofcom will set a price for chunks of the spectrum to be sold and bidders will have to indicate if they are willing to accept the prices. The regulator will then increase the price in stages until only one bidder remains.

In an extra twist being considered, the price paid may be that at which the runner-up pulls out because Ofcom does not want buyers to overpay.

Mr Richards signalled the spectrum auction during a related announcement, in which he unveiled a plan to allow the launch of three – eventually to become four – high-definition channels on Freeview. They are likely to be shared equally between the BBC, ITV, Channel 4 and subsequently Five.

That idea had been fiercely resisted by the broadcasters until the last few weeks because they had hoped that the Ofcom could be forced into giving them some of the free-up spectrum instead.

“Some months ago Ofcom was a lone voice on this,” Mr Richards said yesterday. “There is now a high degree of recognition that this can and should be done.”

One part of Freeview that is owned by the BBC will be upgraded to the more efficient MPEG 4 coding and DVB-T2 transmission standards. By 2010 that block will be able to carry 20 normal channels or up to four high-definition channels, although viewers will have to buy a new set-top box to pick up the extra services.

In theory the regulator will seek proposals from Britain’s “public service broadcasters” – the BBC, ITV, Channel 4 and Five – as to how the upgraded portion of Freeview could be used, but the broadcasters have already agreed how to divide up the frequencies among themselves.

The first three channels are expected to be high definition versions of ITV1 and Channel 4’s core channel, plus the newly approved BBC high definition service, which will be a mixture of BBC One, BBC Two and BBC Sport content.

James Purnell, the Culture Secretary, implied that political lobbying was unlikely to get the scheme overturned when he expressed government support for the Ofcom plan. He said that the proposed upgrade “promises very significant benefits for viewers”.

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