UK: The 4G Auction - We Are Off To The Races!

Last Updated: 15 August 2012
Article by Stephanie Liston

On the eve of the London Olympics 2012, Ofcom issued its statement setting out plans for the 4G spectrum auction.

Ofcom's announcement on Tuesday, 24 July 2012, together with its Statement and associated documents have been long awaited. Though in the UK we are behind the US, Australia and many other countries in Europe in auctioning 4G spectrum, it is not too late. Ofcom has so far held to the latest timetable. It appears to have been thoughtful in its approach to the comments received in the two rounds of consultation.

To recap, the 4G auction will offer spectrum in the 800 MHz (digital dividend) and 2.6 GHz frequency bands. The 800 MHz band is ideal for providing mobile coverage over wide areas and the 2.6 GHz band offers high capacity.

As a fundamental remit, Ofcom is obliged to promote the interests of citizens and consumers. Establishing the most competitive market possible has proven very successful in achieving this objective. Evidence of this is clear following increasing competition and competitive services generated by the functional separation of BT and the success of local loop unbundling in the UK.

Ofcom acknowledges that in the next generation it is wholesale services competition rather than expensive infrastructure competition that will best promote competition. The imposition of caps on spectrum holdings and reservation of a package of spectrum for a fourth competitor are key pieces of the Ofcom proposition that should keep the UK highly competitive. It should also be kept in mind that the market will not be limited to four competitive operators. There are numerous MVNOs in the market with significant and growing brands.

We do not believe in this auction that operators need worry about unintended consequences. The traffic that is generated by the creation of new services should benefit all of the stakeholders as well as citizens and consumers.

H3G may be concerned that it absolutely must win the fourth licence. This may have price implications if there is significant competition for that position. There may be reduced interest now in the low power licences in the 2.6 GHz band due to Ofcom's relaxation of mechanisms that originally favoured such bidders.

All of the operators will gain from a speedy auction following significant delay. However, the delay so far should not have the effect of materially holding up the deployment of new services. Barring any further litigation or need for additional consultation, Ofcom expects applications by December 2012 and the bidding process for spectrum to take place in the first quarter of 2013. If there is a delay beyond this point there will be serious risk of damage to the economy - both nationally and internationally. The prices are unlikely to move in the trajectory or amounts bid in 2000 for 3G spectrum. One of the Government's stated purposes in the 3G Auction was to maximise the revenue raised for the spectrum. With lessons learned and with, Ofcom as the new independent regulator, this is no longer a goal.

If, however, the MNOs are hungry for the amount and type of spectrum they want and if the bidding consequently becomes highly competitive, then prices may well go higher than the £2 billon to £4 billion anticipated at this time.

Based upon the way Ofcom has approached the Statement, we would be surprised if there is further litigation from any of the operators at this stage of the process. We think they will be generally satisfied with the direction of travel. That said, there may well be the odd devil in the detail.

The biggest problem and risk of delay may be caused as a result of the Everything Everywhere Consultation in which Ofcom have proposed a variation of Everything Everywhere's ("EE") licence to allow it to offer LTE services under its existing 1800 MHz licence. This would provide EE with an opportunity to roll out 4G services before any of its competitors. Vodafone and O2 have objected to the proposal because they believe it would provide EE with an unfair first mover competitive advantage.

A different Ofcom team is working on the Consultation. We think it is interesting and perhaps tactical that the results of the EE Consultation and the Statement have not been released at the same time. A delay in the Consultation will go some way to lessen the concerns of Vodafone and O2 as to the commercial advantage that EE might be able to gain through an early launch of 4G services.

The Statement reinforces Ofcom's movement from an emphasis on infrastructure competition to a focus on wholesale services competition. Operators should thus be able to focus on research and development and new products and services rather than incur unnecessarily duplicative infrastructure rollout and upgrades. Revenue and margins should be positively effected. This approach should fundamentally contribute to innovation, economic success and enhance services to consumers and citizens.

Responses to the Statement are due by 11 September 2012. If we stay on course – applications will be expected in December 2012. The auction and spectrum award is anticipated for the second quarter of 2013. Ofcom expects the spectrum to be available nationwide at the end of 2013.

Watch this space!

Originally published August 9, 2012

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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