Ofcom courts controversy with 4G auction plan

On March 22, 2011 Ofcom outlined proposals for the most significant auction the UK will see for at least a decade, with 80% more spectrum up for grabs than during the 3G auctions of 2000. During an auction scheduled for early 2012, a total of 250MHz will be made available across the 800MHz and 2.6GHz bands. Concerned about the possibility that H3G would be hampered in its ability to acquire enough spectrum, Ofcom has designed a mechanism that will guarantee a minimum of four operators in the market.

 

In an attempt to fix distortions from previous allocations it has also capped the amount of spectrum any one operator can acquire in total but, more importantly, in the most valuable sub-1GHz band. The result is that the auction is unlikely to net anything like the amount raised during 2000. Whether Ofcom’s plans will be appealed remains to be seen, but sooner or later these frequencies will need to be awarded one way or another or the UK risks falling behind the rest of Europe.

 

 

Ofcom’s consultation is about how it should award these two spectrum bands in a way that secures the best use for the benefit of consumers. In setting out its preferred option, Ofcom has had to assess the likely future competition in markets for the provision of mobile services after the spectrum has been awarded. To be a credible nationwide operator, Ofcom believes that any one operator is likely to need at least as much spectrum as one of the following minimum spectrum portfolios:

 

The result is that after the auction there will be at least four nationwide operators and that any outcome that doesn’t meet one of the above portfolios will be disregarded and the auction repeated. In other European countries, similar intervention has been made to ensure that a minimum number of operators have access to spectrum sub-1GHz. At least four operators were guaranteed after auctions in Germany, Ireland, Sweden, and Spain.

 

 

The consultation is attempting to deal with many very complex issues and effectively sets out to correct distortions that have arisen from previous spectrum allocations. Ensuring at least four operators can obtain spectrum after the auction is a clear admission that Ofcom values H3G’s disruptive nature and role so far in developing a competitive mobile market. To achieve everything Ofcom is proposing in such a tight timescale is highly ambitious and could be set back by at least 12 months should any operator legally challenge the final outcome.

 

The use of spectrum caps is controversial since they effectively distort what is otherwise a market mechanism designed to allocate spectrum to those who value it most. However, Ofcom is essentially stuck between a rock and a hard place. If it were to leave the auction open it risks a player leaving the market, and further consolidation – possibly to the detriment of consumers. Recent opposition to the proposed acquisition of T-Mobile by AT&T in the US has highlighted the fact that choice is highly valued in this industry.

 

 

 

Outside of the UK, so far only Germany and Sweden have auctioned the 800MHz band. In both cases the regulator sought to protect a competitive landscape by putting in place caps on the amount of spectrum that could be acquired by any one operator. Like Sweden and Germany Ofcom has also associated a coverage obligation to one license to ensure ubiquitous coverage of mobile broadband. The proposed obligation (to ensure speeds of 2Mbps by 2017 to 95% of where the UK population lives) will go some way to achieving the UK government’s broadband ambitions, but will fall short of the 2015 deadline.

 

Given that the licenses could be indefinite in duration and not be taken back for spectrum management reasons for at least 20 years, the importance of getting things right now can’t be underestimated. Operators are likely to focus their response to the consultation around the assumptions Ofcom has made on the minimum amount of spectrum needed to support the services they are planning to launch, and the overall caps these imply.