Ofcom imposes spectrum caps for LTE auction, splitting operators

Ofcom, the UK telecoms regulator, has decided that the forthcoming LTE spectrum auction will come with strict conditions for how much spectrum operators can purchase, causing some operators to protest, while others have welcomed the move.

The auction, planned for early 2012, has been designed by Ofcom to ensure that the existing four operators have realistic opportunities to obtain valuable spectrum. Ofcom will auction the 800MHz and 2.6GHz spectrum in a series of packages that will enforce restrictions on the minimum and maximum amounts of spectrum that can be won by successful bidders. The idea behind this plan in to ensure competition continues on a reasonably level playing ground for the four operators.

Reaction from the operators has been varied. O2 UK's CEO, Ronan Dunne, welcomed Ofcom's plan, stating in Mobile Today that the regulator had responded to his calls for the industry to explore innovative solutions, including sharing.

Tom Alexander, CEO of Everything Everywhere (EE), was less pleased and requested Ofcom address the issue of an overall spectrum cap which currently ignored the differences of low and high frequencies and the number of customers to be supported.

"In addition, we are concerned that the proposals for the allocation of sub-1GHz spectrum do not significantly reduce the dominance of the incumbent holders of this spectrum," he said in a statement.

The most pleased was 3UK's CEO, Kevin Russell, who said "The January 2011 re-allocation of 2G spectrum has given a huge competitive advantage to Vodafone, O2 and Everything Everywhere. Ofcom's proposals seek to rebalance this in the medium term but there are still immediate distortions that need to be addressed. These include significant coverage, capacity and financial benefits."

Russell had previously declared that, if his company was disadvantaged in the LTE spectrum auction, it might be forced to exit from the UK market.

Vodafone failed to provide any view, only stating that it was considering the Ofcom proposal.

"By ensuring at least four operators can obtain spectrum after the auction is a clear admission that Ofcom values [3UK's] disruptive nature and role in developing a competitive mobile market," Ovum analyst Matthew Howett told Reuters

However, Howell admitted that the use of spectrum caps is a hugely controversial issue given that they effectively distorted what was otherwise an instrument designed to allocate spectrum to those who valued it most. "However Ofcom is essentially stuck between a rock and a hard place. If they were to leave the auction open they risk a player leaving the market and further consolidation; possibly to the detriment of consumers."

For more:
- see this Reuters article
- see this Mobile Today article
- see this Mobile News article
- see this Bloomberg article

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