Irate Mobile Operators Make For A Fair 4G Auction

Watching mobile operators argue over 4G spectrum is like watching a bunch of toddlers squabble over a toy box. Each company is desperate to grab as many toys as it can and, if it thinks that its competitors’ collections are bigger than its own, it throws the whole lot out of the pram and claims the process is unfair.

Today 3UK became the latest operator to accuse Ofcom of illegal favouritism. The company is disgruntled because Ofcom decided in January to allow mobile operators in the UK to “re-farm” 900MHz spectrum – offering 3G services on spectrum previously limited to 2G . This gave incumbent operators O2, Vodafone and Everything Everywhere a competitive advantage, as they owned the majority of the 2G spectrum, says 3UK.

In its response to Ofcom’s consultation, 3UK claims that “insufficient weight has been placed” on the link between the 4G mobile spectrum auction, scheduled for 2012, and the re-farming of 2G spectrum. The company said that Ofcom needs to come up with “certain modifications and clarifications” that take into consideration the “competitive distortions” that could have followed January’s re-farming.

Operators kick off

The news follows O2’s claim last week that the method of selling off additional bandwidth to mobile operators is illegal under EU law.

Ofcom’s proposal states that Vodafone and O2 already own part of the spectrum below 1GHz, so a minimum amount of new 800MHz spectrum should be reserved for rival operators. However, O2 argues that 800MHz and 900MHz frequencies cannot be treated in the same way, describing the proposed spectrum floors as “a state aid”.

O2′s concerns have been backed up by Vodafone, which points out that Ofcom – in its desire to protect the UK’s smallest operator 3 – is inadvertently guaranteeing spectrum at 800MHz for Everything Everywhere, which it claims already has plenty of spectrum to run 4G services.

Meanwhile, Everything Everwhere recently voiced its own concerns that the auction will favour Vodafone and O2. “The way the auction rules could play out now, it is perfectly possible Vodafone and O2 will have five times as much sub-1Ghz spectrum as either Three, Everything Everywhere, or anyone else”, Kip Meek, the company’s Director of Public Affairs, told the Telegraph newspaper on 3 June.

Suffice to say, no one is happy. All the operators think they’re getting a raw deal, and are kicking up a fuss to try and get the auction process skewed in their favour. This is perhaps not surprising given that the one thing UK operators fear above all else is being left behind in the race for good spectrum – as this will dictate their ability to expand and offer new services over the coming years.

However, there is a risk that, by embarking on legal action, operators could delay the auction process, meaning that the industry will have to wait even longer before it can offer 4G services.

Shooting themselves in the foot?

The UK government’s culture department has issued a statement saying it is essential that spectrum is released “as soon as possible,” and Google and Skype have also waded in to the debate, urging regulators to ensure that mobile operators do not engage in anticompetitive behaviour or block services that threaten their revenues.

It is unlikely that Ofcom will make any wholesale changes to its rules at this stage. The watchdog has already said it is keen to make sure the auction is as fair as possible. If any of the operators did take the matter to court, they would be shooting themselves in the foot, as they are under just as much pressure to start offering 4G services as the content providers.

Ofcom expects fourth generation mobile technology to deliver more than three times the capacity of existing 3G technologies, using the same amount of spectrum. The infrastructure will undoubtedly be expensive, but the advent of 4G in the UK is expected to fuel an explosion of next-generation services and applications – meaning more business for mobile operators. The auction has already experienced numerous setbacks; the operators would be crazy to want to delay it further.

The fact that all of the major mobile operators have complained about the auction rules is probably a sign that Ofcom is on the right track. Perhaps if one of the key players had been smugly sitting back, saying nothing, there would be cause for concern; but as everyone seems to think they are being treated unfairly, the likelihood is that the rules don’t benefit any one opeartor.

The operators have expressed their views. The best thing they can do now is to sit tight, let Ofcom focus on preparing for the auction, and get ready to make the most of whatever spectrum they can get their hands on.