Ofcom removes spectrum guarantees for two UK operators

UK regulator Ofcom has outlined yet another set of proposals for its much-delayed spectrum auction, removing rules to reserve sub-1GHz frequencies for Everything Everywhere and 3UK, and extending coverage targets.

The auction of licences in 2.6GHz and 800MHz bands is lagging behind similar sales in other major European economies, partly because of the ongoing row over how sub-1GHz spectrum, valuable for affordable rural coverage, is divided up. Vodafone and O2 have their GSM networks in the 900MHz band, and could refarm that, while EE and 3UK currently have no low frequency spectrum.

This unusual situation led Ofcom to favor reserving some 800MHz capacity for EE and 3UK, to redress the sub-1GHz balance, but Vodafone and O2 have argued that this amounted to state interference, and claimed that their 900MHz holdings were less valuable than the 800MHz frequencies, because they have less global scale. In the face of a potential new round of legal challenges, which could have delayed the late 2012 timeline for the auction, Ofcom appears to have pulled back from its previous stance.

The agency now says it will remove guarantees that 3UK and EE would be reserved a certain amount of spectrum in the 800MHz band. Vodafone welcomed the move, saying in a statement that it brings the UK "closer to a fair and open auction that will benefit the wider economy, increase competition and ultimately lead to the creation of innovative and exciting new services for consumers."

However, operators will still face a system of spectrum caps and floors as Ofcom seeks to keep all four viable (and potentially enable a new entrant bid). The regulator said consumers will receive better choice and pricing of services if there are "at least four national wholesalers of mobile services", which means that operators need the "right quality and mix of spectrum" to keep all four viable. 3UK has argued that, unless its larger rivals are capped, it may be squeezed out of the LTE game and become uncompetitive. Ofcom retains options for reserving "varying amounts of spectrum" to support four carriers, including caps on total holdings as well as, specifically, on sub-1GHz frequencies. Ofcom also plans to earmark some spectrum in the 2.6GHz band "to be shared by a group of companies to deliver innovative new mobile services for consumers", which might include local resources for schools, hospitals or innovation centers.

The regulator has also proposed measures to extend rural broadband availability. This may be done by increasing the coverage mandate attached to one 800MHz national licence from 95% to 98% of the population; or mandating coverage of identified 'not spot' areas, supported by a previously announced government fund of £150m to enhance signal quality in underserved regions. Many believe the latter approach would be more effective, ensuring that the operator's 2% leeway did not fall in the most broadband-deprived communities.

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