It's 3 versus Vodafone in the spectrum auction policy face-off...
There have been fresh calls for caps on the amount of spectrum any one operator can own to encourage newcomers to enter the wireless fray - and shake up the UK's mobile landscape.
Speaking at a Westminster eForum Keynote Seminar in London on Tuesday, professor Martin Cave of the London School of Economics told delegates: "My great fear is that in 30 years' time we'll have four mobile operators [3, Everything Everywhere, O2 and Vodafone] in this country - and they'll be exactly the same as they are now."
"I think that would be a huge loss of potential innovation," he added.
As the appetite for mobile data increases, the biggest UK release for years of the radio spectrum for carrying that data is looming. The auction for the Digital Dividend spectrum released by the switchover from analogue to digital broadcast is due to take place next year.
The UHF Digital Dividend band spectrum lies in the frequencies 470MHz to 862MHz and is especially coveted by mobile operators because transmissions can cover large geographical areas with relatively few transmitters, meaning networks are cheaper to build. Spectrum in the 2.6GHz band is also up for grabs next year.
The next generation of mobile network technology - long-term evolution (LTE) - requires spectrum, as do alternative next-gen mobile broadband technologies such as mobile WiMax. But none of these technologies can properly get off the ground without suitable airwaves - and that means all eyes are on the forthcoming auction.
Cave, who is the author of two independent reviews for the UK government on spectrum reform, said the UK's spectrum landscape has been "a story of delay" since the year 2000 when the original 3G auction took place, noting that existing operators have turned to lawyers to stall further spectrum releases to protect existing businesses.
These delays are likely to have slowed the development of new wireless services in the UK, in Cave's view. "We don't want to have a situation in which the existing suppliers just roll over from one generation to the next," he told delegates at the seminar. "A policy which is designed to promote entry is quite justified."
Brian Potterill, director of telecoms, media and technology strategy at professional services company PricewaterhouseCoopers, also spoke up in support of spectrum caps. "We really do need to look at spectrum caps," he told delegates. "Otherwise we're trying to solve the competition issue with a market process and it simply won't work."
Potterill warned there is also confusion over the ultimate aims of the Digital Dividend auction. "Are we trying to make money [for the Treasury]? Are we trying to create an industry structure that works for the economy?" he said.
The original 3G auctions netted some £22bn for the Treasury - a sum the current cash-strapped coalition might be forgiven for coveting. Yet encouraging similarly massive outlays for new spectrum licences would present a barrier of entry that could inhibit innovative newcomers from entering the market and crowd out smaller players.
There are also social considerations when it comes to spectrum releases: should Ofcom be setting coverage requirements on any new spectrum to ensure rural or less populated parts of the country don't miss out on the resulting technology benefits? It is just such issues the government and telecoms regular have to resolve as the spectrum auction looms.
Last month, Ofcom unveiled proposals to...
...let operators trade portions of underused spectrum with each other in an effort to free up more airwaves, following a government directive to make spectrum tradable at the end of last year.
"The UK's leading the way in moving towards tradable spectrum," added Potterill. "Having indefinite licences certainly moves us away from the distortions of auctions but I would agree that we're still in a position now with the upcoming auction. We don't really know what we're trying to achieve with it."
Lee Sanders, partner at analyst house Analysys Mason, spoke up in favour of auctions as a way to allocate spectrum - but conceded they do tend to favour "the big operators". Sanders said the onus must therefore be on spectrum policy makers to be "a little bit careful in auction design" to take these advantages into account - and correct for them where necessary to protect smaller operators or new entrants.
Sanders noted there have been no new entrants into the mobile market in Europe in recent years - with the exception of the Netherlands, where caps were imposed on a 2.6GHz spectrum auction held last year. This spectrum auction raised just €2.6m but did allow two newcomers to enter the market: Ziggo-UPC and Tele2.
Arqiva's Julian McGougal, head of public policy and regulatory affairs at the comms infrastructure company who was also speaking at the seminar, said leasing spectrum could be a good way to get smaller, more innovative players into the market.
"At the moment, access to spectrum is a considerable barrier to entry. If you can get spectrum at a whole range of tenures - 20-year UK-wide licences from Ofcom, five-year leases over here - if you can get it on a whole range of geographical spreads, if you can get it near to where you want it and a variety of competing sources will supply you, then the barrier to entry drops remarkably," he told delegates.
"If you're a start-up, you're never going to get a 20-year UK-wide licence, but a five-year lease? Where you've got the option to renew on known terms - that could be more your bag."
Kevin Russell, CEO of 3, the UK's smallest operator, was also speaking at the event. He made an impassioned plea to policy makers to think of the little guy when structuring the forthcoming Digital Dividend auction. Russell said 3 believes it will have to win between a third and two-fifths of all the spectrum being auctioned next year to achieve its long-term goal of gaining about one-fifth of the available UK market share.
"Can we do it? Maybe we can. But if you were up against Deutsche Telekom, Telefónica, France Telecom and Vodafone, and the biggest strategic premium, the biggest value uplift they can get over the next 10 years is if 3 disappears from the marketplace, then maybe - just maybe - we'll get squeezed out," he said. "So maybe you should think about how the competitive structure of auction is done."
In the red corner, loudly sounding the opposing view, was David Rodman, head of regulatory affairs at Vodafone UK. Rodman said the past decade or so of spectrum policy can be summarised as essentially a consensus that auctions are the best way to allocate spectrum when demand outstrips supply.
"Skewing an auction in favour of any particular operator by imposing some kind of rules that only apply to a subset of operators might be good for shareholders but is not necessarily good for customers, because the effect of that can be to crowd out operators who can put that spectrum to better use," said Rodman.
Earlier this year the coalition government transferred responsibility...
...for spectrum policy, previously the remit of the Department for Business Innovation and Skills, to the Department for Culture, Media and Sport (DCMS).
Mark Swarbrick, head of UK spectrum policy at DCMS, aired the government's view at the event. He said the key challenges for government and Ofcom are finding ways to speed up spectrum policy and make it more responsive to market change.
"We face an inherent tension between the pace of technological and market change, and the pace of regulatory change," said Swarbrick, adding: "Can we make setting the regulatory process speeded up and can we make it more flexible to adjust to the way the market changes?"
Swarbrick flagged up the government's plan to draft a new Communications Bill - announced by Culture Secretary Jeremy Hunt at the start of this year - noting the government will publish a green paper by the end of the year and plans to consult industry in the interim.
"You can expect to be asked for your initial views well before [the green paper is published]. And I expect spectrum will loom large in those discussions," he said.
"In my experience, everyone in the spectrum world has a view - usually they're mutually exclusive," Swarbrick added.
The seminar also heard that big-bang spectrum releases such as the Digital Dividend aren't going to be enough to fuel the UK's spectrum needs in future - with the LSE's Cave talking up the potential for utilising white-spaces spectrum, unused frequencies between TV channels. Ofcom kicked off a consultation on proposals for white-spaces spectrum late last year.
Cave said: "If we are dealing with an immense demand for spectrum for mobile purposes and the general proposition is that if mobile data traffic is going to double every year for five years then in five years' time it's going to be 32 times what it is today, the demand for additional spectrum will be absolutely enormous. Then we have to find a way either of releasing more spectrum or alternatively transferring some activities done in existing frequencies on to white spaces."