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Ofcom to limit UK 4G spectrum auction

UK regulator Ofcom has announced its intention to hold the country’s largest ever single auction for mobile spectrum services in early 2012. In a move likely to be welcomed by 3UK, the regulator has decided to impose strict caps on the amount of spectrum any one bidder can acquire.

March 22, 2011

3 Min Read
Ofcom to limit UK 4G spectrum auction
The initial proposal was met with strong opposition

UK regulator Ofcom has announced that it will begin the auction of 4G spectrum in the 800MHz and 2.6GHz ranges during the first quarter of 2012. In a move that will draw mixed responses, the regulator has decided to impose strict caps on the amount of spectrum any one bidder can acquire.

Ofcom said that: “There would be significant risk to national wholesale competition if there were fewer than four national wholesale competitors with credible spectrum portfolios for providing higher quality data services.” Such a move is likely to please the market’s smallest carrier, 3UK. Earlier this month, 3UK chief Kevin Russell had called on Ofcom to impose caps on spectrum allocation below 1GHz of bandwidth, saying that the telco ran the risk of being pushed out of the market if it was unable to secure LTE spectrum in next year’s auction.

Ofcom has said it will impose minimum as well as maximum caps and will discount “any auction outcomes in which four companies do not win the minimum amount of spectrum necessary to provide higher quality data services.” No one bidder will be allowed to obtain overall holdings of 2x105MHz. In addition, a sub 1GHz cap of 2×27.5MHz will also be imposed. Ofcom will also require a coverage obligation for one of the 800MHz licences; the winner of that bid will have to offer mobile services covering 95 per cent of the UK population by 2017. According to Ofcom, the auction will sell off the equivalent of three quarters of the mobile spectrum in use today and 80 per cent more than 2000’s 3G sell off.

Ovum analyst Matthew Howett has described Ofcom’s proposals as “highly ambitious”, adding that the auction plans could be set back by as much as 12 months should any operator challenge the final outcome. “The use of spectrum caps is bitterly controversial as they effectively distort what is otherwise a market mechanism designed to allocate spectrum to those who value it most,” said Howett. “However, Ofcom is 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 customers.”

Howett added that while the forthcoming auction “will be the most significant for at least a decade”, we are unlikely to see anything like the £22.5bn bid almost a decade ago. “A lot has moved on since then, including the industry’s expectations of revenues from such data services,” he said. Given that the new licences could be indefinite in duration and not be revoked for spectrum management reasons for at least 20 years, Howett said that the importance of getting things right now should not be overestimated. “Operators are likely to focus their response 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 they imply.”

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