Ofcom: 4G Auctions Will Be Fair

The forthcoming auctions of 4G mobile spectrum will be fair and keep competition healthy in the UK, the regulator Ofcom has said, in a forum which also probed its strategy for net neutrality and the digital divide.

The UK’s mobile market is among the most competitive in the world, with four large operators and a number of mobile virtual network operators (MVNOs) – such as Virgin Media and Tesco Mobile – offering consumers a broad choice. But regulation is still necessary to ensure that competition remains strong and consumer demands are being met.

This was the message of a Westminster eForum on 1 March, examining the future of the mobile industry. Unlike the fixed broadband market (which is dominated by BT), competition between mobile operators is sufficiently strong that Ofcom can take a back seat on many issues. However, the regulator still has a key role to play with regard to termination rates, digital citizenship and – crucially – managing the distribution of 4G spectrum.

Will the 4G spectrum auction be fair?

In July 2010, the coalition government announced that the long-awaited auction of parts of the UK wireless spectrum would take place in late 2011, following a four-year delay. The auction will mark the advent of 4G technology in the UK, and is expected to fuel an explosion of next-generation services and applications.

“The past 20 years has seen a revolution in mobile technologies and devices that have transformed the way we communicate, learn and do business,” said minister for communications Ed Vaizey at the time. “We want the UK market to remain at the fore of delivering devices like the iPad and smartphones, but they need the networks to continue to improve and increase services.”

The auction was originally scheduled for 2008 but a legal challenge by T-Mobile and O2, demanding clarification of any plans to reallocate the current 2G bandwidth for 3G use, delayed the process. The implementation of high-speed 4G networks has already started in many other countries, putting British businesses at a disadvantage from the outset.

According to David Stewart, director of Ofcom’s Competition Policy Group, the one thing that 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. It is therefore of vital importance that the distribution process is fair and unbiased.

However, this task is more difficult than it first appears. As Ronan Dunne, chief executive officer of mobile operator O2 pointed out, “there are four operators chasing three lumps of spectrum”. He also warned that attempts by the regulator to tinker excessively with the rules of the auction could result in distorted outcomes.

Market closing in

At the start of this year, the chief executive of mobile operator 3UK slammed plans by Ofcom to open up the 2G spectrum for use by 3G services, claiming that the measures could “jeopardise the competitive environment” and even result in the company being sold.

Kevin Russell, chief executive of 3, called on Ofcom to take pre-emptive measures to prevent mobile giants O2 and Vodafone gaining the bulk of the spectrum below 1Ghz, and suggested the watchdog should draw up auction rules that cap the amount of spectrum a single operator can hold.

The company’s head of economic regulation, Mark Falcon, today raised similar concerns about the auction of 800Mhz and 2.6Ghz spectrum, reserved for 4G use, claiming that competition is as much a function of government regulatory policy as market forces.

The merger last year between Orange and T-Mobile in the UK – to create Everything Everywhere – has already reduced competition in the British mobile market, with spectrum consolidation being a key driver in the deal, said 3. If the government and Ofcom get this auction wrong, further consolidation could result.

As well as generating a flood of new high-speed mobile services, the auction of spectrum for 4G services is expected to go some way to solving the problem of broadband provision in rural areas of the country. In December, for example, Arqiva teamed up with networking equipment giant Alcatel-Lucent to trial LTE technology in West Wales, using the 800MHz spectrum.

According to Ofcom, the problem of patching so-called ‘not-spots’ in the mobile network is extremely complex, as even some places in central London are not served. However, Stewart said that 4G networks can form part of the solution to the country’s digital divide. “In a truly converged universe, you have to think about people’s wider communication needs,” he said.

Keeping up the competition

Meanwhile, the regulator has several other areas to monitor, as many of the large Internet players move into the mobile operator space and place increased pressure on data networks. As O2’s Dunne put it, the unprecedented growth of smartphones together with the increasing popularity of social networks means that “the marketplace is coming back towards mobile operators”.

In order to help customers benefit from the digital opportunities on offer, Ofcom needs to continue to assess whether exclusive agreements between handset manufacturers and operators impacts on innovation, for example. It also needs to check whether bundled services, such as Virgin Media’s quad-play offering, act as a barrier to smaller entrants to the market. Meanwhile, the regulator is preparing to publish a consultation on termination rates, regarded by many as the major barrier to growth in voice traffic.

There is also the issue of net neutrality, and whether mobile operators and internet service providers will in the future charge content providers for providing a higher quality of service. This is already happening to some extent, but there are debates to be had in the future over whether giving some types of content priority over others is damaging the open nature of the internet.

Generally speaking, competition in the UK’s mobile market stacks up well compared to other European companies. However, Ofcom needs to be keeping a close eye on the state of the market as new players such as Google and Apple begin throwing their weight around – and be ready to step in as soon as the focus begins to shift away from the consumer’s quality of experience.