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What Ofcom’s new proposals mean for UK operators

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UK regulator Ofcom has announced revised plans to promote competition in the country ahead of the country’s 4G spectrum auction.

The spectrum in the 800MHz band that is becoming available, freed up from the nationwide switchover from analogue to digital TV,  is equivalent to three quarters of the mobile spectrum in use today. The refarmed 800MHz band will be auctioned along with higher frequency airwaves in the 2.6GHz band at the end of 2012.

Ofcom believes that consumers are likely to receive better services at lower prices in the future if there are at least four operators in the market and without the right quality and mix of spectrum, an operator might struggle to compete with other national wholesale providers. So ahead of the second round of consultation with telcos, Telecoms.com takes a look at the impact Ofcom’s revised plans will have on operators in the UK.

Everything Everywhere

Everything Everywhere, the company formed by the merger of T-Mobile and Orange in the UK, currently has no spectrum in the 900MHz band, but owns a lot of spectrum in the 1800MHz bands, which it is currently using for 2G services.

When the two firms decided to merge, the European Commission (EC) assessed the merger and one of the conditions  proposed in order for the deal to get the go-ahead was that the operator had to give up some of the 1800MHz spectrum that the two firms owned – a total of 2x15MHz of 1800MHz spectrum.

Ofcom had previously said that it would guarantee both Everything Everywhere and 3UK, or a new entrant to the market, sub-1GHz spectrum in order for them to deploy LTE. However, the new proposals see the regulator withdraw that guarantee from Everything Everywhere.

“Ofcom had to do something to make everyone else happier and Everything Everywhere less happy, so that they could get this through without legal challenge,” said Matthew Howett, analyst at Ovum.

“On balance, Ofcom decided that Everything Everywhere’s holding of 1800MHz is sufficient for the operator to use in order to deploy LTE, rather than worry about it getting access to 800MHz for that. Ofcom has said it believes the benefits of operating LTE at 1800MHz, in some instances, are higher than operating at 800MHz. That’s because 1800MHz allows more capacity, which is important.”

Of course the operator itself was not happy to hear the news and a spokesperson told Telecoms.com: “Everything Everywhere is very disappointed to see that Ofcom has again reversed its proposal to ensure all mobile operators hold a minimum amount of sub 1GHz spectrum. Ofcom is missing a huge opportunity for the UK to address the imbalance in sub 1GHz spectrum holdings, which has damaged consumer interests for the last 20 years, and is a situation which is now threatening to continue.”

The company argued that the importance of sub 1GHz spectrum has been recognised by other regulators across Europe and supported by economic analysis.

“All of the regulators bar Ofcom have made vigorous efforts to support healthy and sustainable competition by ensuring that the imbalance of sub 1GHz holdings is redressed,” said the spokesperson.

However, it should be stressed that things could yet change if Everything Everywhere decides to divest its 1800MHz spectrum before the auction, rather than during it.

According to Howett: “If this spectrum is auctioned before the joint award of 800MHz and 2.6GHz it could remove the need for any spectrum reservation. This is not insignificant given the growing interest in launching LTE at 1800MHz.”

3UK

3UK is likely to be quite happy with the new proposals because either it or potentially a new entrant to the market, is guaranteed spectrum in the sub 1GHz band. However, if 3UK, or a new entrant acquires some of the 1800MHz from Everything Everywhere before the spectrum auction, Ofcom would not necessarily guarantee them spectrum in the 800MHz band.

“It’s up to 3UK to decide whether it values spectrum in the 1800MHz band more than the 800MHz band and decide whether it participates in the bidding of Everything Everywhere’s 1800MHz band before the auction,” said Howett.

“It needs to spend time doing cost benefit analysis to find out what works for its business. However, if a new entrant comes along and secures some 1800MHz spectrum, which is not very likely but still a risk nonetheless, 3UK can mitigate the risk by bidding for 1800MHz or by bidding aggressively for 800MHz. Ofcom can’t be any more fair to 3UK than it is being.”

O2 and Vodafone

Vodafone and O2 are likely to be the happiest to hear of Ofcom’s revised proposals. Everything Everywhere has been disadvantaged by the revisions, and there has been no decision by Ofcom to take back any 900MHz spectrum from the two companies.

A Vodafone spokesperson told Telecoms.com that the revisions bring 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 new services for consumers”.

However, the firm said that it still does not completely understand the regulator’s rationale for protecting a fourth operator.

The spokesperson also outlined its plans for rolling out LTE, and suggested that the company will be ready to roll out the technology when bidding is over.

“In the UK, Vodafone has already moved well beyond the testing phase for 4G. We have run three trials of the technology in the UK over the last three years and the international team of engineers who launched Vodafone’s 4G network in Germany over a year ago are already in this country, working closely with our own technical specialists.”

So, Ofcom has been in an unenviable position to try to remain fair to each of the operators but also promote competition and conclude the auction as speedily as possible. However, according to Howett, the regulator has not done a bad job.

“The decisions Ofcom takes now are likely to affect the level of competition in the sector for at least a decade. Striking a balance was never going to be easy. The set of proposals now on the table appear to leave everyone with something to be optimistic about, but at the same time requires compromises to be made. Perhaps Ofcom have got it right?”


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