Is Three's call for a judicial review just a stalling tactic?

We’ve been expecting it since the earnings call, but Three has now made it official. It will be making a legal challenge to Ofcom’s reforms to the 5G spectrum auction.

During the earnings call, CEO Dave Dyson got his excuses in early stating a review would not cause any negative impact on the 5G journey, because it would only take three months. He constantly asserted no decision had been made, but it was a pretty transparent PR-exercise of prepping the market for a judicial review, attempting to make some justification for the saga.

Rumours of such legal action have been circulating for a while, essentially since Ofcom put forward a 37% cap on spectrum ownership, well above the 30% demanded by Three. Since then we’ve seen moaning, leaning on the PM for intervention and a bizarre publicity campaign depicting Ofcom CEO Sharon White as a superhero, but Ofcom could not be swayed. The rest accepted this cap, perhaps realizing they dodged a bullet, but the monotonous drone from Three has continued.

Three has complained that such the 37% cap is meaningless as the big boys would still own more than the cap after the auction, even with the restrictions. But you have to have some sympathy with Ofcom, there is only so much it could do. Removing spectrum from the current players would have resulted in a catastrophic legal case which would have delayed things much further. Also, such a move would be slightly contradictory to the economic freedoms allowed by the UK free market.

“We confirm that we intend to seek a judicial review before the UK courts in relation to the competition measures that will apply in the upcoming spectrum auction. Ofcom are aware of the decision,” said a Three spokesperson. “We anticipate a short process and a court decision by early 2018. Ofcom does not expect commercial 5G services in the UK before 2020, so this short process will not impact the availability of 5G to UK consumers.

“It is absolutely vital that the regulator gets this auction right for the long-term benefit of all consumers. For a relatively short process, we feel it is a proportionate response to request an independent review of Ofcom’s proposal, which we feel unduly puts at risk its stated objective of a competitive four-player market and is to the detriment of UK consumers.”

First and foremost, we’re scratching our heads a bit here. Now your correspondent does not claim to be a mathematical genius, but a three month review does not take us into 2018. We understand that the claim has not been submitted by Three yet, but surely if it was that worried about delays, it would be doing so pretty quickly. The definition of three months is already being stretched pretty thinly.

Of course, Ofcom was not very sympathetic to the Three cause. “Our auction will help support the UK’s four-player mobile market, which has provided choice and value to customers for many years,” said an Ofcom spokesperson. “We want to see new spectrum in use as soon as possible, so operators can build for the future and the UK can start benefitting from 5G mobile by 2020.”

What is quite interesting is Three’s position of being the champion of the consumer. Whether it is the ‘Make the Air Fair’ campaign, or its constant battle against the big boys of the telco world, it has always made clear these are selfless actions. It’s for the consumer, of course, not the spreadsheets on the accountants laptop. But ultimately, it is the consumer which will lose out here.

During the earnings call last week, Dyson was convinced a judicial review would only take three months, therefore there would be little or no negative impact on the road to 5G. But ask yourself this, how many times has a judicial review been conducted as quickly as three months? Not many.

Now here is the conspiracy theory, Three wants, or perhaps needs, the delay.

Going back a couple of years, Three was among the first to realize the power of 3G. But there was a general feeling the industry overspent on the revolution. This led to a sense of scepticism when it came to 4G, which may explain why Three was late to market with 4G. All the good work which had been done in years prior was being undone. Three was no-longer the UK mover and shaker. This is perhaps a reason for wanting a delay, as there are suspicions Three might not be ready for 5G.

In acquiring UK Broadband, Three also collected some spectrum licenses which will put it in a good place for the 5G-gasm. But, these frequency ranges are not ready for the mass market. To ensure these assets are ready for commercial deployment, a delay in launch of 5G might be required to optimize its kit for such assets. There certainly isn’t confirmation of such a theory, but it kind of makes sense.

Some might assume that the reason the spectrum auction cap was set at such a level for the likes of BT is because of Three’s UK Broadband acquisition. It now has assets which put it in a position to deal with the capacity demands of 5G. But, if there is a slight delay in realizing the potential of these assets, Three will fall behind in the 5G race, just as it did in the 4G instance.

It’s quite a theory, and will ultimately result in a net loss for the consumer who won’t be able to take advantage of the services as soon as we would hope. But that doesn’t seem to be a concern here. The champion of the consumer is proving to be the spoilt brat that we have come to expect, looking for as much support as possible from Ofcom in battling the bigger boys.

Let’s be clear here as well, Three has the potential to compete with the big boys financially, it is after all owned by CK Hutchison, which reportedly pocketed a profit of about €630 million by selling Hutchison Global Communications, a fixed-line service provider in Hong Kong. For the first six months of 2017, CK Hutchison reported net profits of $2.04 billion. It’s not short of a quid or two.

Some might also point out that its attempted acquisition of O2 would also counter claims it is pro-competition and spreading the wealth position. The newly formed brand would have been an MNO monster, but of course since that didn’t happen, Three needs another way to even the playing field. Ambitious investments don’t seem to be one the table anymore, so why not use a bit of creative legal work to level things out.

Should such a theory prove to be true, some might argue fair enough. Don’t be fooled by the innocent act of other MNOs here; if they were in Three’s position they would certainly pull out all the stops to gain an advantage competitors. After all this is about making money. They might complain now that delays are negative, and they just want to get on with it, but they are sitting quite comfortably.

Ultimately, the loser here will be the consumer. Three months is a very optimistic view on a judicial review, and what happens if Three actually wins!? How long will the delay be then. Six months? Nine months? A year? There will be appeals, another research project by Ofcom, another public consultation, and then we get to where we are now. Are there any guarantees that there won’t be another case put forward like this one by someone else?

We at Telecoms.com do not have a crystal ball, and for all we know, the review might only take three months. But one thing we can almost guarantee is that this is not about fairness for the consumer. Letting the free market run its course will work out well for the consumer, but this is all about making money and not losing the Game of Telcos.