Britons Could Have 4G in 2012 Under Revised Spectrum Auction Plan

Ofcom’s originally proposed auction rules “divided opinion among the four mobile network operators who, we have discovered, rarely agree on matters concerning spectrum allocation,” the Commons Culture, Media and Sport Committee said in a November report. One bone of contention was Ofcom’s plan, which remains in the current proposal, albeit slightly altered, to reserve some spectrum for the smallest player, Hutchison 3G UK (Three) or a new entrant, Howett told us. Another hot issue was the plan to let Everything Everywhere (EE), a joint venture by Orange and T-Mobile, start 4G early in 1800 MHz spectrum it already holds in return for reserving spectrum for Three, he said.

The new package (http://xrl.us/bnhz3i) has no substantial changes, Howett said, but Ofcom has done a lot more work to justify its position in the hope that it can surmount any legal challenge. The regulator confirmed its view that U.K. consumers will be more likely to benefit from better mobile services at lower prices if there continue to be at least four credible national wholesale providers, it said. Without setting aside spectrum for Three or a new entrant, there’s a material risk that there will be fewer than four operators, it said. EE, Telefonica (O2) and Vodafone won’t be able to bid on the reserved spectrum, it said. The new proposal makes some changes to the amounts and frequencies of spectrum to be reserved, it said.

The proposal also caps how much spectrum each bidder can acquire, to cover the risk of asymmetric holdings after the auctions that could lead to lower competitiveness, Ofcom said. There will be an overall spectrum limit of 2 x 105 MHz and a sub-1 GHz cap of 2 x 27.5 MHz, it said. The caps will cover all the spectrum in the auction and existing mobile spectrum holdings at 900 MHz, 1800 MHz and 2.1 GHz, excluding 2.1 GHz unpaired spectrum, it said.

Ofcom will require the winner of an 800 MHz 2 x 10 MHz license to provide a mobile broadband service for indoor reception to users in an area within which 98 percent of the population lives, it said. That operator will also have to provide the service to an area in which at least 95 percent of people of each of the U.K.’s nations -- England, Scotland, Wales and Northern Ireland -- live, it said. Both obligations must be met by Dec. 31, 2017, it said.

The revised package sets reserve prices for the various spectrum lots that reflect several risks, Ofcom said. These include: (1) The case where a fourth national wholesale provider doesn’t obtain the spectrum when it would be in consumers’ interest that it did so. (2) The possibility that spectrum goes unsold, preventing it from being put to productive use. (3) Risks that bidders engage in collusion or artificially reducing their demand.

The proposal also deals with the troublesome issue of potential interference to reception of existing terrestrial DTV services from new mobile services in the 800 MHz band. Up to 2.3 million households may be affected, Ofcom said. The plan set out decisions on how to put in place government rules on managing coexistence, including assistance to those likely to find it difficult to install a filter, it said. Comments on the new proposal are due Sept. 11. Ofcom said it will draw up auction regulations in the fall, and invite applications to bid before year’s end. Operators are expected to start rolling out 4G networks from mid-2013, and to begin offering services later that year, it said.

The detailed auction rules “represent a significant step towards 4G launch in the UK,” an O2 spokesman said by email. While the regulator took some of the operator’s suggestions on board, they are combined with other changes to previous proposals which O2 will have to study in detail, he said. Ofcom appears to have created a mechanism to deliver the spectrum needed for competitive 4G services, a Vodafone UK spokesman said. However, Vodafone must review the lengthy documents to ensure they'll deliver the fair and open auction the country needs, he said.

While there are still some elements of the proposal “which we don’t think are in the interest of competition or consumers,” Ofcom is moving in the right direction, said an EE spokesman. “We need to get this process moving now before the UK falls further behind the rest of the world,” he said by email. The auction is only one step toward bringing 4G to the U.K., he said. The next milestone will be the regulator’s response to Vodafone’s request to deploy 4G over its existing 1800 MHz spectrum without further delay, he said. Ofcom’s decision on the structure of the auction “will have a lasting effect on the choice of services and value available to mobile consumers,” said a Three spokesman. The company is reviewing the document, he said.

Ofcom tried to make the proposal as water-tight as possible so it wins any legal challenge, Howett said. Many believed that allowing EE to start 4G early on its 1800 MHz spectrum was the consolation prize for reserving spectrum for Three, “but this has faced its own set of problems” which Ofcom didn’t deal with in the proposal, he said. Everyone is eagerly waiting to learn the outcome of the matter, he said.

Though 80 percent more spectrum will be available than for the 2000 3G auction that raised £22.5 billion ($35 billion), this auction will likely generate a mere fraction of that amount given the use of spectrum caps and a “realisation from the industry that revenues aren’t there to support such large outlays,” Howett said in a research note. He said that given the “insatiable appetite for data” from U.K. consumers, “we can be quite certain that it will be a hotly contested auction” with all players keen to ensure they get enough spectrum to support the growth in demand.