Ofcom hints at 4G auction strategy

The next generation of mobile communications — currently ill-defined but generally referred to as 4G — will probably be kicked off with another round of spectrum auctions, Ofcom hinted on Thursday.

Speaking at the launch of the regulator's annual report into the communications market, chief operating officer Ed Richards said that Ofcom's "starting point is that we would release [spectrum for 4G services] using the market mechanism".

"Wherever we can we will do it on a liberalised basis," Richards added.

This strategy could be defined as allowing operators to bid for spectrum then "sort it out with end users by making offerings and seeing what works", Professor Martin Cave of Warwick Business School told ZDNet UK on Friday.

Cave was the author of a major study into spectrum review in 2002, and led an audit into public spectrum holdings for Ofcom at the end of last year. His audit recommended that providers of competing technologies should be encouraged to share bandwidth — something that has not happened with 3G.

"Ofcom has committed itself to releasing spectrum into the market via a competitive auction, but with no obligations on which way the spectrum would be used," he elaborated, before suggesting that spectrum trading, a policy authorised by Ofcom in 2004 but not yet implemented, might be the way forward.

"The name of the game has changed totally since the 3G auctions in 2000, as people have exit strategies and means of simply transferring spectrum to alternative users," Cave said. "It is an auction but the rules of engagement are so totally different you'd expect people to pay differently. If you thought the prices were too high you just wouldn't bid and would wait to pick up the spectrum later when people go bankrupt".

Responding to operators' fears over the possibility of spectrum being made available for non-3G technologies such as WiMax rather than being set aside as "3G extension" bands, he said: "It could be in their commercial interest to discourage new technologies unless they themselves are able to participate in them."

4G is likely to involve...

... an evolution of the 3G standard, which has already morphed into high-speed downlink packet access (HSDPA) and will soon incorporate the uplink version of that technology, HSUPA. However, it could also include WiMax (which has just been given a huge boost by US carrier Sprint's backing), possibly as network back-haul to whatever evolves out of 3G.

Whatever shape 4G takes, all operators are keen to avoid the debacle that followed the 3G auctions in 2000. £22.5bn was spent on acquiring spectrum — and the costly obligation to roll out networks across the UK by the end of 2007 — but operators have seen very little return.

As statistics in Ofcom's report show, take-up of 3G services has been low. This confounded the assumption that 3G technology was immediately ready for the market —  in reality, the initial devices were clunky and business cases were underformed. Richards described this assumption on Thursday as "always unwise".

None of the four major UK networks has even a million 3G subscribers. The only major growth story is Hutchison's 3 network, which exclusively sells 3G phones. Even there, 3G data revenue is mainly derived from SMS. People continue to use their phones primarily to make voice calls.

"It's tempting to say we'd like 3G to be further forward," said Richards, "but it's not our role". Nonetheless, he pointed out that operators continue to "experiment and innovate to see what works".

Richards also responded to operator O2's calls for spectrum to be made available for DVB-H, a type of broadcast mobile TV that promises more channels than the imminent DAB-IP systems being touted by BT and Virgin.

"Spectrum is not infinite. It's a scarce resource and in this day and age everybody wants it," Richards said, adding that finding a "sensible and efficient way of allocating it" was going to prove a key challenge in the next two to three years.

He also suggested that "public value" was a key factor in deciding who would receive such spectrum.

Cellular spectrum comprises only 5 percent of total UK spectrum, according to Ofcom's report. The Ministry of Defence has the largest share with 30 percent, despite releasing parts of its allocation to commercial interests over the last decade.