Ofcom publishes revised proposals for 4G spectrum auction in the UK

New proposals for the sale of 800MHz and 2.6GHz bands reserves spectrum for Three but not Everything Everywhere, as regulator seeks to preserve competition by ensuring the UK has four mobile operators

Ofcom publishes revised proposals for 4G spectrum auction in the UK

UK communications regulator Ofcom has issued its second consultation on the much delayed auction of 800MHz and 2.6GHz spectrum.

Ofcom is persuaded that to ensure continuing competition in the UK mobile market it wants to ensure that there are at least four mobile operators. It is therefore proposing that a minimum amount of spectrum should be reserved for a fourth operator after Everything Everywhere, O2 and Vodafone. This means Three, owned by Hutchinson Whampoa, which holds by far the smallest amount of spectrum among UK operators.

In its original proposals published in March 2011, Ofcom also proposed that Everything Everywhere should have some spectrum reserved, as unlike Vodafone and O2 which both have 900MHz spectrum, it holds no sub-1GHz spectrum.

Everything Everywhere has previously argued that as sub-1GHz spectrum propagates further than 1800MHz, it costs more to build an 1800MHz  mobile network and this puts it at a competitive disadvantage compared with O2 and Vodafone.

However, Ofcom has now decided that as Everything Everywhere holds the most spectrum overall, especially in the 1800MHz band, it does not need to have any spectrum reserved to ensure competition. Ofcom’s reasoning is that the perceived technical gap between what 800MHz and 1800MHz can deliver is much less than previously thought.

There are two provisos to the reservation of spectrum for Three. The first is that although the spectrum is reserved, it does not guarantee that Three will win sub-1GHz spectrum at the auction. It must pay the going price.

The second is that Everything Everywhere is obliged to sell 2 x 15MHz of 1800MHz spectrum under the terms of the merger between Orange UK and T-Mobile UK. Ofcom notes that if the spectrum is sold off before the 4G auction that may remove the need for any spectrum reservation depending on who acquires it.

Ofcom is proposing two safeguard caps: an overall spectrum cap of 2 x 105MHz; and a sub-1GHz cap of 2 x 27.5MHz. This excludes the 2.1GHz unpaired spectrum which has no commercial use currently.

The regulator has also set out revised spectrum portfolios for the fourth national operator:

Group 1 (Smaller portfolios)

Portfolio

800 MHz

1800 MHz

2.6 GHz

1

2 x 10 MHz

 

 

2

 

2 x 15 MHz

 

Group 2 (Medium portfolios)

Portfolio 800 MHz 1800 MHz 2.6 GHz

Portfolio

800 MHz

1800 MHz

2.6 GHz

3

2 x 15 MHz

 

 

4

2x 10 MHz

 

2 x 10 MHz

5

2 x 10 MHz

2x 15 MHz

 

6

 

2x 15 MHz

2 x 10 MHz

 

Ofcom’s preferred option is Group 2, ‘as it would materially increase the probability that four entities would hold sufficient spectrum to be credible national wholesalers after the auction’.

Brian Potterill, director in PwC's telecoms strategy team, noted: 'Ofcom proposes to reserve spectrum to ensure that at least four operators emerge successfully from the auction. Over the last year there has been some debate about the risks of this being considered state aid but also of the impact on prices in the auction, as the fourth bidder may not have the same appetite or capacity to pay the prices that would otherwise result from an unfettered competitive process.

'Most interestingly, Ofcom is no longer proposing that any of the most valuable 800MHz spectrum is necessarily reserved for the fourth bidder. However, spectrum caps imposed on other bidders may still limit the auction prices for this spectrum. With uncertainty over the level of bidding, the minimum reserve prices set for the auction could be critical. Ofcom is keeping its counsel on the levels it proposes until closer to the auction. However, regulators in other European markets have become more aggressive in recent auctions and typical reserve prices are rising.'

Additional proposals

Other proposals in the auction are that some paired 2.6GHz spectrum (probably 2 x 10MHz) be reserved for new providers to promote innovative mobile services. For example, local networks for enterprises’ buildings or consumers’ homes.

In the March 2011 consultation Ofcom proposed a special condition that one of the 800MHz licence holders should roll out a 4G network to 95% of the population. Ofcom is now proposing to strengthen this in one of two ways.

The first option is to increase the obligation to 98% of the population. The second is to require that one 800MHz operator provides 4G coverage that not only matches existing 2G coverage, but also extends it into mobile ‘not spot’ areas, by using infrastructure provided by the £150m announced by the Government in October 2011 to boost mobile coverage in areas with little or no service.

Ofcom feels the second option would make it more likely that mobile broadband services would be provided in locations where they could be most valued by consumers, rather than in areas where it is easiest for a licensee to meet the obligation.

Stakeholders have until 22 March 2012 to respond. Ofcom expects to publish its final design for the auction this summer. The auction process could then start in Q4 2012.

Commenting on Ofcom's proposals to extend 4G mobile coverage, Simon Harris, director in PwC's Valuations team, said: 'Following the revisions to the auction process made by Ofcom in this latest announcement, a competitive process should still be the outcome. Based on other auctions which have taken place, licence fees of £3bn - £4bn could be generated in line with our previous expectations. The desire for sub-1GHz spectrum is likely to be a key driver of competitive tension.'

For stakeholder reaction click here.

 

 

 

Written by Wireless magazine
Wireless magazine

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