Ofcom fudges spectrum decision with token BTEE auction sanction

UK telecoms regulator Ofcom has made a concession to smaller operators in the next spectrum auction but it is token at best.

At stake is the 40 MHz of 2.3 GHz spectrum and 150 GHz of 3.4 GHz spectrum that will be made available for auction next year. This represents the first opportunity to address big a piece of the total spectrum pie is accounted for by each operator for some time. The underdogs, as you would expect, have been vocal in imploring Ofcom to use this opportunity to level the playing field, ideally via forced redistribution from BTEE, which currently owns by far the most.

Ofcom’s solution to this is to say that BTEE is not allowed to bid for any of the new 2.3 GHz spectrum as that would give it too much. There’s some strange maths involved in Ofcom’s rationale, however. It is proposing a 255 MHz cap on the amount of ‘immediately usable’ spectrum – i.e. 2.3 GHz band and below – owned by any one player, adding that BTEE currently accounts for 45% of what’s already out there and would account for 42% of the total when the extra 40 MHz of 2.3 GHz spectrum is added.

But as a footnote to the press release Ofcom says the current total amount of mobile spectrum in the market is 647 MHz, although this does include some 3.4 GHz owned by UK Broadband subsidiary Relish. 45% of 647 is 291, so by Ofcom’s own maths BTEE is 36 MHz over the threshold. Stopping BTEE from bidding on the new 40 MHz does nothing to solve that issue.

Three, which has been the most vocal in its pleas for aggressive Ofcom intervention, is not at all happy with this Ofcom fudge – hardly surprising since it wants the total share of spectrum to be capped at 30%. BTEE is still free to bid for the 150 MHz of 3.4 GHz that is being earmarked for 5G, and would have almost half of all the spectrum if it grabbed all of it.

“Ofcom exists to promote competition and protect consumers but it has once again shown it is not willing to make the big decisions needed to deliver the best outcome for the UK,” said Three UK CEO Dave Dyson. “It has allowed BT and Vodafone to stockpile valuable mobile airwaves and put genuine choice for consumers at risk. It made empty promises to the European Commission that it would tackle this issue but it doesn’t have the courage to do so.

“The mobile industry is failing customers and Ofcom has showed it has no interest in addressing that. A 30% cap on total spectrum ownership and a spectrum reservation for smaller operators are the only measures that will preserve competition for the benefit of UK mobile consumers.”

As ever Three is playing the underdog card aggressively here, as well it might, although it’s questionable how good for the market such intervention would be. A source inside EE reminded Telecoms.com that Dyson is conveniently overlooking the forced divestiture of 1800 MHz spectrum it got on the cheap from the formation of EE, the fact that Three currently has a considerably higher ratio of spectrum to subscribers than BTEE, and that its failure to bid successfully in previous auctions is its own fault.

Kester Mann of analyst firm CCS Insight posed a good question about UK competition in general. “The proposed restraints placed on BT/EE show that Ofcom is concerned that spectrum asymmetry could harm UK mobile competition over the coming years,” he said. “However, they also raise questions as to why the BT/EE merger was waived through with such little fuss, without any apparent need to mandate divestment.”

EE CEO Marc Allera, meanwhile, kept his cards close to his chest. “While we don’t agree that competition measures should be introduced for this auction, we will now examine Ofcom’s detailed proposal carefully and respond to the consultation,” he said. “We are unique in our ambition to expand 4G coverage to 95% of the UK’s landmass by 2020, further than any other UK network has done, and will continue to use our spectrum and network to ensure UK consumers benefit from being at mobile technology’s leading edge.”

This move by Ofcom looks like an attempt to look like it’s doing something, while at the same time trying not to rock the boat. The result is a classic British fudge that does little to address the concerns of the underdogs but makes them seem ungrateful for not welcoming those few concessions they did get. BTEE will probably be happy with the decision and now the stakes look higher than ever for the upcoming auction.

UPDATE – 15:00 21/11/15: On further inspection it looks like the Ofcom 45% for BTEE is drawn from a total usable spectrum total of 567 MHz, not only leaving out the Relish 40 MHz but also 40 MHz of 1500 MHz spectrum Qualcomm flogged to Vodafone and H3G last year. This is at best confusing and at worst creative accounting. Come on Ofcom, you can do better than this.