Spectrum dispute returns to the UK

O2 has accused Ofcom’s measures for the forthcoming UK 4G auction of being “illegal under EU law”.

The UK mobile operator, which is owned by Telefónica, believes the proposed spectrum ‘floors’ could potentially “distort” the auction process and allow other operators, excluding O2 and Vodafone, to acquire spectrum at discounted prices. It has said that this could potentially cost UK taxpayers £1 billion in lost revenues which Ofcom could have otherwise generated from the auction.

O2 said: “We believe that the proposed spectrum floors are a state aid and are therefore illegal under EU law. The spectrum floors would distort the auction process, allowing all bidders, except Vodafone and O2, to potentially acquire spectrum at discounted prices. Ofcom’s own figures suggest this effect could cost taxpayers £1 billion.”

O2 is responding to the draft rules published by Ofcom in March for the 4G auction scheduled for early next year. The rules feature a series of spectrum caps and floors, which attempt to ensure each operator receives a substantial amount of the sub-1GHz bandwidth.

“The proposed floors, and the argument that Vodafone and ourselves already have enough sub-1GHz spectrum, are based on the mistaken belief that 800MHz and 900MHz are directly comparable spectrums. They are not. Our response to Ofcom clearly explains why,” O2 continued.

O2’s response raises fears that the UK’s allocation of the 800MHz and 2.6GHz bands which enable 4G networks could face further delays. The date of the UK 4G auction has already been heavily delayed due to disputes between the country’s mobile operators over the distribution of existing spectrum.

The UK was famously first to auction 3G in 2000, but with European countries such as Germany and Sweden having already completed 4G auctions, and many other European nations at least finalising 4G auction plans, the country now appears to be lagging behind.

Other UK mobile operators, however, are yet to issue statements regarding the 4G auction rules.

Matthew Howett, senior analyst at Ovum, explains that Ofcom and the UK mobile operators are still struggling to find a way to resolve the dispute over the country’s existing spectrum imbalance.

“If you look at what has happened elsewhere in Europe, there have been similar problems but most regulators have first dealt with the existing spectrum imbalance and then went ahead and planned the auctions for the new frequencies,” said Howett.

“In the UK, we know from the past and previous rumblings [between mobile operators] that they couldn’t resolve it amongst themselves so that’s why Ofcom tried to take control of that distortion with spectrum ahead of this auction. We are at the last chance saloon with this now.”

At this late stage, Ofcom seems unlikely to be pressured into changing from its stance on spectrum caps and floors. Howett, however, believes there could be scope for the UK regulator to revisit the configuration of its spectrum floors to take into consideration the needs of operators.

“Operators have a strong incentive to change Ofcom’s approach as there is a lot of money at stake, and they have to try and tip it in their favour. At the same time they want to get hold of these frequencies so they can offer these new services and deal with this capacity constraint they currently face from the huge explosion in mobile broadband and data,” said Howett.

“At some stage the auction has to get underway and it just needs to be decided when that is.”

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