Ofcom rules on spectrum auction caps, but Three says regulator did not go far enough

Ofcom rules on spectrum auction caps, but Three says regulator did not go far enough

UK regulator Ofcom has introduced additional caps on spectrum holdings for future auctions, but Three UK has said the decision is a "kick in the teeth" for consumers

Three UK has hit out at an Ofcom decision to introduce only some limitations on an upcoming 5G spectrum auction, claiming the regulator has not gone far enough.

The CK Hutchison-owned mobile operator said Ofcom’s decision was “a kick in the teeth” for UK consumers, claiming it could “push up prices” by favouring the largest operators, most notably BT (through mobile arm EE) and Vodafone. It follows a long campaign from Three aimed at getting Ofcom to introduce caps at upcoming spectrum auctions.

40MHz of spectrum will be auctioned off in the 2.3GHz band, while 150MHz of 3.4GHz spectrum will also be made available in the auction due to take place later this year. Both bands are expected to play a key role in 5G technologies, but a number of operators had challenged Ofcom to limit how much spectrum BT and EE could acquire.

Following a review, the regulator has imposed two different restrictions on bidders. The first will see the amount of “immediately useable” spectrum available to any operator capped at 255MHz, which will prevent BT/EE from bidding on the 2.3GHz band.

The second restriction will see an additional cap of 340MHz introduced on the overall amount of spectrum a single operator can hold as a result of the auction – the equivalent of 37% of all mobile spectrum expected to be useable by 2020.

The cap means BT can only bid for a maximum of 85MHz of spectrum in the 3.4GHz band, while also limiting Vodafone to a maximum of 160MHz across both bands due to be auctioned.

The caps will also apply to the 700MHz band, which Ofcom said it will continue to make available for mobile in 2020. This band is seen as ideal for boosting rural coverage, as well as strengthening signal for deep inside buildings.

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 allow operators to innovate and build for the future.”

Kick in the teeth

Despite Ofcom going further than it originally planned, Three CEO Dave Dyson was still unhappy, implying the operator could take further measures to prevent BT and Vodafone from accumulating more spectrum.

Three had launched a massive marketing campaign - “Make the Air Fair” - hoping to put pressure on Ofcom boss Sharon White to rebalance spectrum in the UK, and although Ofcom has responded, Three claims it has not gone far enough.

Dyson said: ““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.

“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.”

When Three first launched the Make The Air Fair campaign, which included a cartoon version of Ofcom chief White, it claimed BT held around 42% of all useable UK spectrum, while Vodafone’s share was 29%. Three itself holds around 15%, although this doesn’t include spectrum it acquired with its purchase of UK Broadband, while Telefonica’s O2 held around 14%.

Three and its campaign partners, including wholesaler CityFibre, Gamma Telecom, and TalkTalk, called on Ofcom to limit spectrum shareholding to a maximum of 30% in order to rebalance the market.

5G delays

EE wasn't happy with the decision either, but said it was not looking to delay the process. In a statement, CEO Marc Allera said: “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. We look forward to bidding for additional spectrum in this auction.” 

Dyson’s claim that Three is considering its response shows the operator may not take Ofcom’s decision lying down. Whether this will lead to an appeal or to a legal challenge remains to be seen, but any such action could lead to a delay in the auction process, something that seems to be opposed by Three’s rivals.

O2, Telefonica’s UK mobile operation, also claimed Ofcom has not gone far enough with its ruling. In a statement, Telefonica UK CEO Mark Evans said: ““The announcement from Ofcom falls short of our expectations but it is important we now press ahead with the auction quickly so that the spectrum can be obtained by operators that will deploy it for the benefit of consumers, businesses and ultimately UK plc.”

A number of vendors have already fired warning that Europe faces lagging behind the United States and a number of APAC markets in deploying next generation mobile tech such as 5G due to regulatory delays. If Three presses ahead with an appeal, the UK could face the problem, with too little 5G spectrum available to launch the service in 2019, as is currently planned by BT’s EE.

Even if Three does find some way of appealing against Ofcom’s decision, there is no indication as to what the outcome would be. There can be no doubt that the current allocation of spectrum is unbalanced – Make the Air Fair claims the UK is one of the most unbalanced markets in the world when it comes to spectrum allocation – but the impact of this is difficult to measure.

Both Vodafone and EE have recently unveiled plans for Gigabit LTE services, and deploying these kinds of services is no doubt easier when you have significant spectrum holdings, so arguably this gives them a competitive advantage. Three’s claim that the imbalance causes price rises for consumers is much less clear.

Either way, Ofcom has acted after much lobbying from the Hutch OpCo, but it seems no-one is 100% happy with the regulator’s ruling.

GTB contacted Vodafone UK about this story and is awaiting a statement from the operator.

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