Ofcom Sets Rules for Spectrum Auction

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Ofcom has announced how valuable airwaves will be released to meet the growing demand for mobile broadband, including new measures to safeguard competition.

Later this year Ofcom will auction licences to use 190 MHz of spectrum in two ‘frequency bands’, increasing the airwaves available for mobile devices by almost one third.

The auction rules are designed to reflect recent market developments and safeguard competition over the coming years.

When auctioning the spectrum, Ofcom will impose two different restrictions on bidders. These will limit the amount of spectrum operators can win in the 2.3GHz band; and place overall limits on the spectrum an operator can win across the 2.3GHz and 3.4GHz bands in aggregate.

First, as we proposed in November last year, Ofcom will place a cap of 255 MHz on the “immediately useable” spectrum that any one operator can hold as a result of the auction. This cap means BT/EE will not be able to bid for spectrum in the 2.3GHz band.

Second, They have decided to place a new, additional cap of 340 MHz on the overall amount of mobile spectrum a single operator can hold as a result of the auction. This cap amounts to 37% of all the mobile spectrum expected to be useable in 2020, which includes not only the spectrum available in this auction but also the 700MHz band.4]
Taken together, the effect of the caps will be to reduce BT/EE’s overall share of mobile spectrum; the company can win a maximum 85 MHz of new spectrum in the 3.4GHz band.

There have been cries in the market that there is a great unbalance between operators.

Dave Dyson, chief executive of Three UK, said: “By making decisions that increase the dominance of the largest operators, Ofcom is damaging competition, restricting choice and pushing prices up for the very consumers that it is meant to protect.

“The mobile market is imbalanced and failing customers. Ofcom has shown little interest in tackling the problem. We will consider our response as a matter of urgency.”

A spokesman for Ofcom responded: “We take all our decisions in the interests of consumers. This auction will keep the airwaves fair by reducing the share held by the largest operator. It will include strong safeguards to maintain a healthy four-player market and allow mobile operators to acquire the airwaves they need to compete.”

ITSPA has broadly welcomed Ofcom’s decision to limit the amount of mobile spectrum that companies can win in the upcoming spectrum auction.

ITSPA Chair Eli Katz stated “Overall, we are pleased that Ofcom has listened to some of the concerns of industry and adjusted their plans according to the changing communications landscape. We believe this is a positive step to ensure that the UK mobile market remains competitive and open to innovation”.

ITSPA had responded to Ofcom’s spectrum consultation in February highlighting the need to resolve the current imbalance between the amount of spectrum being held by each of the four major mobile network operators in the UK. ITSPA agreed with Ofcom’s position that BT/EE should not bid for 2.3GHz spectrum and believe that an overall cap on spectrum is necessary to ensure effective competition.

Eli Katz added “Whilst we welcome the developments as a positive move, we still believe there is a need to review the current wholesale access remedies to support the mobile virtual network operator (MVNO) market. This is a fledgling sector that needs more support to ensure the wider mobile market is vibrant and open to disruption”.

Chris Pateman, CEO of the FCS, commented “Once again, Ofcom has started from the self-fulfilling ‘four legs good, three legs bad’ position which has characterized the UK mobile market for the last 20 years.

Four mobile network operators control 100% of the market. Either directly or through emasculating MVNO agreements or dealer ‘partnerships’ which create the illusion of wholesale competition, but with none of the protections enjoyed by resellers in the fixed telephony space.

The effect is to stifle consumer and business choice with what amounts to a complex monopoly. Meanwhile, both government and the regulator colludes in claiming the market is ‘working well for consumers’.

But let us take comfort from the crumbs of yesterday’s announcement. We are pleased to see Ofcom listened to the industry’s concerns about the risk of too much spectrum being owned by EE/BT. The decision to impose a spectrum cap on the 3.4GHz band as well as the more immediately usable 2.3GHz is especially welcome: it will help reduce the risk of sequestration and monopoly approaches as new equipment becomes available.

FCS has always argued the mobile market is fundamentally broken. The way to fix it is by encouraging real wholesale competition, not by applying spectrum caps.”