Ofcom gears up for 4G auction: Spectrum caps on the table

Regulator begins consultation on how spectrum auction should take place...

Regulator begins consultation on how spectrum auction should take place...

Proposals for the auction of 4G spectrum in the 800MHz and 2.6GHz bands have been announced by regulator and competition authority Ofcom.

The proposals form part of Ofcom's consultation process which will determine the details of the 2012 auction of spectrum, including the Digital Dividend spectrum made available when the UK switches from analogue to digital TV.

Ofcom has proposed introducing caps to the auction, to prevent any one mobile operator holding a disproportionate amount of spectrum, and also minimum spectrum floors to ensure there are at least four spectrum holders at the end of the auction process. Any auctions that do not result in at least four operators winning the minimum amount of spectrum necessary to provide high-quality mobile broadband services would be disregarded under the proposals.

Ofcom is proposing a cap for spectrum below 1GHz to avoid a disproportionate distribution of spectrum.

For spectrum floors, Ofcom has set out five possible combinations of sub-1GHz, 2.6GHz and 1,800MHz spectrum - to ensure at least four operators gain enough spectrum to operate mobile broadband services effectively after the auction.

The regulator has also stated the intention to use the spectrum auction as a way of imposing better mobile broadband coverage in the UK, with the goal of securing mobile broadband coverage equal to current 2G coverage by 2017. It is proposing to attach a coverage obligation to one of the spectrum licences - in the 800MHz band - which would require the mobile operator to provide a mobile broadband service for 95 per cent of the population.

Ofcom is also looking at how to secure better mobile coverage in rural areas - suggesting a supplement to the main coverage obligation that would cover a certain proportion of the population in particular areas, such as rural locations - and encouraging providers to give views on "the feasibility and appropriateness" of the plan.

The amount of spectrum becoming available to mobile operators via the forthcoming auctions equates to three-quarters of the mobile spectrum currently in use, according to Ofcom. The auction, set to take place in the first quarter of 2012, will be the largest ever single auction of additional spectrum.

Mobile spectrum will be up for auction early in 2012 depending on the Ofcom consultation

Mobile spectrum is due for auction early in 2012 but could be delayed by the Ofcom consultationPhoto: Shutterstock

The auction has previously been delayed by legal action from mobile operators, and concerns about the fairness of the auction mechanism persist. Earlier this month there were fresh calls for spectrum caps to ensure the distribution of spectrum does not cement the dominance of the biggest mobile operators in the UK - O2, Everything Everywhere and Vodafone - and squeeze out the smallest player, 3.

Commenting on its auction proposals, Ofcom chief executive Ed Richards said in a statement: "Our role as the independent regulator is to award this spectrum in a way that secures the best use of the spectrum for the benefit of citizens and consumers in the UK. That is why we are proposing to design the auction in a way that not only encourages investment but also promotes competition and delivers wide coverage of services."

However, not everyone agrees with the introduction of caps to the spectrum auction. David Rodman, head of regulatory affairs at Vodafone UK, argued earlier this month that uncapped auctions are the best way to allocate spectrum to the operators that can put it to best use.

When spectrum last went up for sale - via the 3G auction in 2000 - it generated revenues of £22bn for the Treasury. That precedent has led some industry commentators to warn of a conflict in the aim of the auction - whether it is to maximise revenue for the Treasury or to distribute spectrum in a way that safeguards competition.