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After many false starts, UK regulator Ofcom is counting down to the auction of 4G spectrum in the 2.6GHz and 800MHz digital dividend bands, which will take place in the first quarter of 2012 and is likely to mandate coverage of 95% of the population by the end of 2017.

The UK was once expected to be the first European nation to auction 2.6GHz licenses, but a series of disputes and legal challenges has pushed it well behind fellow EU countries like Germany and the Nordic nations. When it seemed possible that Ofcom could run the auction as early as 2008, the WiMAX community had high hopes of supporting a major winner, as LTE was not commercially ready, but now the frequencies are likely to go to the major carriers and be used for LTE.

The auction will offer a huge total of 250MHz of spectrum across the two bands - equal to 75% of the entire spectrum in use in the UK now. One of the reasons for the sale's delay has been the row about spectrum caps and/or redistribution. Only O2 and Vodafone have 900MHz GSM spectrum, which is seen as hugely advantageous to the business model, especially in rural areas, now it can be refarmed for 3G or 4G. Proposals to force the two carriers to redistribute some to T-Mobile and Orange (now united in the Everything Everywhere joint venture) failed, but there will be restrictions on how much more sub-1GHz spectrum the other two carriers can obtain.

Ofcom proposes limits both on the minimum as well as the maximum amounts of spectrum bidders can win, to ensure all four cellcos have the chance to remain competitive. The smallest player, 3UK, recently said it would be swallowed up by the others if they were not capped. Under the latest proposals, which still need approval, the maximum amount any one bidder can win will be 2x27.5MHz below 1GHz and a total of 2x105MHz. The minimum purchase would be one of five combinations - 2×5MHz of sub-1GHz spectrum and at least 2×20MHz in 2.6GHz; 2×5MHz of sub-1GHz spectrum and at least 2×15MHz in 1.8GHz; 2×10MHz of sub-1GHz and 2×15MHz or more in 2.6GHz; 2×10MHz of sub-1GHz plus 2×10MHz or more of 1.8GHz; or just 2×15MHz or more of sub-1GHz spectrum.

Ofcom also wants to impose a roll-out obligation on one 800MHz license, well suited to cost effective rural coverage, a policy adopted in Germany. This would require 95% population coverage by the end of 2017. There would also be additional coverage requirements in specific rural areas.

Ofcom said: "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." However, the minimum purchase rules do not seem to leave leeway for new entrants.

There is also a significant risk of further legal challenges to the proposals on caps, which are always controversial, and those could delay the auction further. Mathew Howett, an analyst at Ovum, commented: "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. 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."

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