Ofcom announces largest spectrum auction ever

Ofcom has announced plans today for what it says will be its largest ever auction of additional spectrum for mobile services in the UK.

The auction will be for two spectrum bands – 800 MHz and 2.6 GHz. The lower frequency 800 MHz band is part of the digital dividend, which is being freed-up as the UK switches from analogue to digital TV. This spectrum is ideal for widespread mobile coverage. The 2.6 GHz band is at a higher frequency, and is ideal for delivering the capacity needed to deliver higher speeds. These two bands add up to 250 MHz of additional mobile spectrum.

The combination of low and high frequency spectrum available in the 800 MHz and 2.6 GHz bands creates the potential for next generation mobile broadband services to be widely available across the UK, while at the same time having the capacity to cope with significant demand, even in urban centres.

However, Ofcom stated it will introduce floors and caps on the auction, to ensure competition in the market. It said: “The UK mobile market is made up of four national wholesale operators, who sell mobile services to retailers, as well as directly to their own retail customers. Ofcom believes that competition at the national wholesale level is essential to future competition and maximising consumer and citizen benefits. In addition, there would be a significant risk to national wholesale competition if there were fewer than four national wholesale competitors with credible spectrum portfolios for providing higher quality data services.

“To guard against this risk, Ofcom proposes introducing limits both on the minimum and maximum amounts of spectrum bidders can win. These are called auction ‘floors’ and ‘caps’.

Ovum analyst Matthew Howett stated: “Ofcom is attempting to deal with many very complex issues and effectively sets out to correct distortions that have arisen from previous spectrum allocations. By ensuring at least four operators can obtain spectrum after the auction is a clear admission that Ofcom values Three’s disruptive nature and role in developing a competitive mobile market. However, to achieve everything Ofcom is proposing in such a tight timescale is highly ambitious and could be set back by at least 12 months should any operator legally challenge the final outcome.

“The use of spectrum caps is bitterly controversial since they effectively distort what is otherwise a market mechanism designed to allocate spectrum to those who value it most,” continued Howett. “However Ofcom is essentially stuck between a rock and a hard place. If they were to leave the auction open they risk a player leaving the market and further consolidation; possibly to the detriment of consumers.

“Whilst it will be the most significant auction for at least a decade, with 80% more spectrum available than during the 3G auctions of 2000, we are unlikely to see anything like the £22.5 billion bid during that time. A lot has moved on since then including the industry’s expectations of revenues from such data services.

“Given that the licenses could be indefinite in duration and not be taken back for spectrum management reasons for at least 20 years, the importance of getting things right now can’t be underestimated. Operators are likely to focus their response around the assumptions Ofcom has made on the minimum amount of spectrum needed to support the services they are planning to launch, and the overall caps these imply,” he concluded.

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