UK: Ofcom Promotes Competition In 4G Mobile Auction Plans

Last Updated: 31 March 2011
Article by SJ Berwin's EU & Competition Team

The UK telecoms regulator, Ofcom, has launched a consultation on how it will sell the rights to the 4th generation ('4G') mobile wireless networks. The auction, expected to start in the first quarter of 2012, should enable mobile networks to offer connections that are up to 25 times faster than the average home broadband connection. The 4G auction is expected to be the largest ever, with Ofcom looking to sell equivalent to three quarters of the mobile network spectrum in use today.

In order to encourage competition between the main mobile network operators, (Vodafone, O2, Three and Everything Everywhere), Ofcom plans to auction off the 4G network in five parts and cap the amount of spectrum any one bidder can win. This means that in an auction where at least four companies do not win enough spectrum to provide higher-quality data services, the auction process will be repeated.

The part of the 4G wireless network being sold is at the 800MHz and 2.6GHz bandwidths. 800MHz was historically used by analogue TV which is now being phased out in favour of digital. This will allow much greater capacity for mobile technology, especially because in recent times there has been an increased pressure on mobile traffic with the growth of smartphones that now include high bandwidth data services as standard.

The UK raised a record Ł22.5bn in 2000 when it auctioned the 3G network, however, the 4G auction is not expected to raise anything close to that amount as Ofcom's safeguards are expected to reduce bidding intensity between the operators.

Ed Richards, chief executive of Ofcom said "the auction is not only critical to the future of the UK mobile telecommunications market but is also of significant importance to the wider economy. It will support a wide range of data services that are fast becoming essential features of the modern world".

Ofcom is also seeking to deliver a wider coverage of services. It is proposing to attach a coverage obligation to one of the spectrum licences - in the 800MHz band - which would require the mobile operator to provide a mobile broadband service for 95% of the UK population, as currently rural areas are covered less comprehensively.

The auction had previously been delayed due to legal action by certain mobile operators and it remains to be seen whether any further challenges arise which might jeopardise the proposed timetable.

Ofcom's consultation period is already underway and comments are invited by 31 May 2011.

Competition Appeal Tribunal strikes out claims for damages against UK subsidiary

On 21 March 2011 the Competition Appeal Tribunal ('CAT') struck out certain follow-on actions for damages brought against Mersen UK Portslade Ltd, formerly Le Carbone (Great Britain) Ltd ('Carbone GB').  This was despite a Commission decision being addressed, among others, to Carbone GB's parent company, Le Carbone Lorraine S.A. ('Carbone Lorraine').

In December 2003 the Commission fined Carbone Lorraine €43m for its part in a carbon and graphite products cartel.  On the back of this decision certain purchasers of carbon and graphite products sought damages for the inflated prices caused by the cartel and launched claims against both Carbone Lorraine and its UK subsidiary.  The claims were made under section 47A of the Competition Act 1998, which enables a person who has suffered loss or damage as a result of an infringement of EU or UK competition law to bring a follow-on claim for damages before the CAT.

The claimants argued that it was not fatal to their claim against the UK subsidiary that the parent company, Carbone Lorraine, was the only Carbone Lorraine group company named in the operative part of the decision as having infringed competition law.  They argued that the parent company and subsidiaries form a single infringing undertaking and that the parent company had been named in a representative capacity.  In support of this they argued that regard should be had to the whole decision including the recitals.

The CAT did not however accept these assertions and ruled that there was nothing ambiguous or unclear about the finding of infringement which was specifically made against the parent company. There was no suggestion that the parent was acting in a representative capacity and it was doubtful that there was any legal principle under which it should be assumed this was the case. The CAT made it clear that it will not 'root around' in the decision of a competition authority in order to find a stray phrase that may amount to an infringement decision. 

As there was no finding that Carbone GB had infringed Article 101(1) TFEU in the decision, the CAT ruled that there was no relevant decision on which a section 47A damages action against it could be based.  

Ofgem announces radical reforms to increase competition in UK electricity and gas markets

Ofgem, the Office of Gas and Electricity Markets, has found that competition is being stifled by a combination of tariff complexity, poor supplier behaviour, and lack of transparency.  In addition, the degree of influence asserted on the retail market by the 'Big Six' (British Gas, E.ON, EDF, Scottish Power, npower and Scottish & Southern Energy) has not diminished since Ofgem's last review in 2008.  This is highlighted by evidence that the Big Six have adjusted prices in response to rising costs more quickly than they reduced prices when costs fell.

The announcement is the culmination of a four month Retail Market Review.  In order to make the energy markets work more effectively and to tackle the causes of consumer harm, Ofgem has made initial proposals for intervention.

The most far reaching proposal is to introduce measures to require the Big Six to auction between 10-20% of their power generation. This should increase price transparency and make it easier for new players to enter the retail market, such as supermarkets and other retailers.

The proposals also include:

  • measures to simplify and standardise tariffs in order to make price comparison easier;
  • the possibility of tougher enforcement action to ensure that companies play straight with consumers; and
  • measures to address unfair practices in the non-domestic sector and to increase the transparency of suppliers' costs.

Further, Ofgem has called in an independent accountancy firm to forensically examine companies' returns in relation to the required company accounting disclosures.

Ofgem warns that the energy supply companies have eight weeks in which to engage constructively with Ofgem's proposals.  If firms are found to frustrate the reforms then a referral to the Competition Commission ('CC') may be made.  Such a CC investigation could potentially lead to structural reform of the market.

In addition to the proposals, Ofgem also announced a new investigation into Scottish Power in relation to the significant difference between its standard and direct debit tariffs. Ofgem is also exploring whether it needs to bring similar actions in the non domestic market (where the concerns rest on switching being frustrated).

Comments on the findings and initial proposals are requested by 1 June 2011.

OFT refers acquisition of TrigoldCrystal by MBL to Competition Commission

The OFT announced on 17 March 2011 that it has referred the proposed acquisition of TrigoldCrystal Group Limited ('TrigoldCrystal') by MBL Holdings Limited ('MBL') to the Competition Commission ('CC') for further investigation. The proposed merger has been referred to the CC under the Enterprise Act 2002. The CC now has the basic 24-week statutory investigation period, until 1 September 2011, to form its decision. 

MBL and TrigoldCrystal are providers of mortgage sourcing software products that enable mortgage intermediaries to search for the most appropriate mortgage for particular consumers. The parties also supply mortgage-point-of sale compliance software products and mortgage electronic trading platforms in the UK. The parties are considered to be each other's closest competitors and barriers to entry in this market are also considered to be high.

The OFT has found that the merged parties would have a very high combined market share and that it is unlikely that existing suppliers will be able to compete with the merged entity. Ali Nikpay, OFT Senior Director, stated that the merger "would bring together the two strongest competitors in the supply of mortgage sourcing software in the UK".  The OFT has also disclosed that a significant number of consumers agree with its concerns over the proposed merger, and in particular, the potential impact that it may have on prices, innovation, investment and choice.

This is the fourth merger that has been referred to the CC by the OFT so far in 2011 (exceeding the total number of references made in 2010). The other three references are Stena AB/DFDS Irish Sea ferry services, Ratcliff Palfinger/Ross & Bonnyman and Thomas Cook/Co-op travel agency joint venture (see issues 508, 510 and 511 of Community Week).

The CC would like to hear from all interested parties, in writing, by 8 April 2011.

To view Community Week, Issue 514, 25th March 2011 in full, click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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