Ofcom to impose mobile spectrum caps in upcoming auction – Three blasts 37% cap
Written by: Sam Fenwick | Published:
Left: spectrum currently held by main MNOs; right: spectrum to be auctioned in 2017 (source: Ofcom)

Ofcom has announced that the rules governing the auction of 40MHz of spectrum in the 2.3GHz band and 150MHz in the 3.4GHz band (increasing the amount of spectrum available for mobile devices in the UK by a third) will include spectrum caps to safeguard competition over the coming years.

As the regulator proposed in November, it will place a cap of 255MHz on the ““immediately useable” spectrum that any one operator can hold following the auction – preventing BT/EE from bidding for spectrum in the 2.3GHz band as it is already at this limit.

Secondly, Ofcom has opted to place an additional cap of 340MHz on the overall amount of spectrum any one operator can hold after the auction – equivalent to 37 per cent of the mobile spectrum expected to be useable in 2020 (including the spectrum in the auction and the 700MHz band). Three has campaigned for a 30 per cent cap, while O2 has pressed for a 35 per cent cap.

Back in November, Ofcom set reserve prices of £10m per 10MHz lot of the 2.3GHz band, and £1 million for a 5MHz block in the 3.4GHz band.

The regulator states that its final auction rules reflect changes in the marketplace that taken place since it consulted in November, citing its reduced confidence that the 3.6-3.8GHz will be available for mobile use around the same time that the 3.4GHz band. However, Ofcom still intends to make the 3.6-3.8GHz band available for mobile as soon as possible and says that it will shortly publish its preferred approach. Ofcom also cites evidence that operators with lower shares of spectrum cannot easily deliver more capacity by relying on other approaches – strengthening the case for spectrum caps in the auction.

On the other hand, the regulator notes that Three’s acquisition of UK Broadband in February has given it access to 40MHz of mobile spectrum in the 3.4GHz band, together with 84MHz in the 3.6-3.8GHz band. It also highlights the fact that Three and Vodafone both hold 20MHz in the 1,400Mhz band, acquired from a trade with Qualcomm in 2015 and that this spectrum is becoming usable for mobile. It adds that this could be used by Three around 2018, before it can put other spectrum to work.

“Ofcom’s proposal is a kick in the teeth for all consumers and in particular for the near-200,000 people who signed up to the 'Make the Air Fair' campaign,” said Dave Dyson, chief executive of Three UK.

“By making decisions that increase the dominance of the largest operators, Ofcom is damaging competition, restricting choice and pushing prices up for the very consumers that it is meant to protect.

“The mobile market is imbalanced and failing customers. Ofcom has shown little interest in tackling the problem. We will consider our response as a matter of urgency.”

“While we don't agree that spectrum caps were necessary for this auction, our focus remains on investing in our network, using our existing and future spectrum to provide the best mobile experience for our customers across the UK, said EE's CEO, Marc Allera. "We look forward to bidding for additional spectrum in this auction.”

"We welcome Ofcom’s announcement to kick off the auctions this year, said a Vodafone UK spokesperson. "However we also need to see Ofcom and the UK Government support a pro-investment approach to infrastructure investment more broadly to ensure networks can be built out quickly and efficiently."

“Whichever proposals Ofcom put forward, the regulator was always going to draw criticism as it faced the near-impossible challenge to juggle the divergent needs of the UK’s four national networks,” said Kester Mann, principal analyst, Operators, CCS Insight.

“...Three’s immediate response represented a stinging attack on the regulator following months of campaigning for more favourable conditions. Spectrum is vital to it turning around its precarious position in the UK and re-energising a disruptive strategy. However, it now needs to push ahead with a bold strategy for the auction and invest strongly to counter criticism from rivals that say it has shied away from previous opportunities.

“The sale is every bit as vital for O2, which has a similar spectrum holding as Three, but more than twice as many customers. It also desperately needs a positive outcome at the auction, but today’s announcement at least offers some clarity to parent Telefonica, as it seeks an IPO of the UK business later in the year.

“The sale has already been a drawn-out affair and it is in the UK’s best interest to press ahead in accordance with Ofcom’s revised timetable. Any challenges or legal appeals against today’s statement would further delay the availability of much-needed spectrum, which would go against the best interest of UK consumers.”

Philip Marnick, Ofcom’s spectrum group director, said: “Spectrum is a vital resource that fuels the UK’s economy. We’ve designed this auction to ensure that people and businesses continue to benefit from strong competition for mobile services.

“We want to see this spectrum in use as soon as possible. With smartphones and tablets using even more data, people need a choice of fast and reliable mobile networks. These new airwaves will support better services for mobile users, and low operators to innovate and build for the future.”

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