O2 Says Ofcom’s 4G Auction Plans Are Illegal

Mobile operator O2 has hit out at Ofcom’s plans for the auction of 4G spectrum, claiming that the method of selling off additional bandwidth to mobile operators is illegal under EU law.

Ofcom announced last year its plans to auction 800MHz spectrum for 4G mobile services in 2012. It will also auction off some 2.6GHz spectrum – an event expected to take place in the first quarter of next year. The auction will mark the arrival of 4G technology in the UK, and is expected to fuel an explosion of next-generation services and applications.

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

800MHz and 900MHz not comparable

“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,” said O2 in a statement.

“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 £1bn.”

The operator goes on to demand that Ofcom either revisits its spectrum floors proposal or discards the floors all together.

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 LTE.

“While we understand Ofcom’s desire to ensure that the UK remains one of the most competitive mobile phone markets in the world, to do that by giving the largest player in that market control over even more of the nation’s airwaves seems completely nonsensical,” a Vodafone spokesperson told eWEEK Europe.

“The European Commission has already requested that Everything Everywhere sell some of its spectrum holdings to prevent a distortion of competition, so it would be odd if the effect of the rules that Ofcom lays down for the forthcoming auction was to guarantee it even more.”

Other operators also unhappy

Meanwhile, Everything Everywhere, which is now the UK’s largest mobile operator following the merger of Orange and T-Mobile UK, 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. “That five to one ratio isn’t an effective redistribution.”

Finally, 3UK has warned that Ofcom’s plans to “re-farm” 900MHz spectrum for 3G services, and the auction 4G mobile spectrum, could reduce competition by delaying LTE, and forcing 3 to close.

“Healthy competition is critical for UK consumers using mobile services and Ofcom and the government must address the significant competitive distortions they have now created in pushing through the reform of spectrum currently used for 2G mobile services,” said Kevin Russell, chief executive of 3, back in January. “This can only be done through the structure of the spectrum auction planned for 2012.”

Speaking at a Westminster eForum on 1 March, David Stewart, director of Ofcom’s Competition Policy Group, said the regulator’s top priority was ensuring the forthcoming auctions of 4G mobile spectrum are fair and keep competition healthy in the UK.