Why 3G over 2G may not happen

We reported about a month ago that Ofcom may theoretically allow those operators with licences for 2G in the 900MHz band (i.e. O2 and Vodafone) to use that spectrum for 3G services as well.

However, the subject came up more recently in our fascinating interview with Prof William Webb, as reported here but sans the "3G over 2G" bit. Space limitations, you see.

Anyway, what he said on the subject was very interesting, so here it is. Think of this as our equivalent of the bonus features on the DVD edition:

"Certainly, the laws of physics are such that 3G would propagate further at those frequencies, and you can understand why that may bring benefits to the operators, but there is a much broader issue that we have to consider here, which is that the 2G licences were granted in a particular fashion. They don't allow 3G usage, and changing them to allow 3G usage creates a number of very complex issues, particularly around competitive dynamics in the UK marketplace, and we just need to work those issues through.

"O2 and Vodafone have the spectrum at 900MHz, [T-Mobile and Orange] use 1800MHz and then of course there's the 3G operator 3, who doesn't have any 2G spectrum at all because they came in as a new entrant at the time of the 3G auctions.

"[The issue is] one of competitive fairness and the potential, if the spectrum were just gifted, let's say, to the existing operators, then there would be some potential arguments that that might be unfair to other operators, and that may distort the competitive dynamics of the different operators. The 2G spectrum was awarded for free. There is now an annual fee called the administrative incentive price, which is charged on the 900MHz and 1800Mhz spectrum, which in some way reflects that they have a valuable commodity that they didn't pay for at an auction, but some would argue that it is not perhaps a full reflection of the market value, particularly of the market value were it to be allowed for 3G. So, given that 3G was auctioned and 2G wasn't, given that different players have got different amounts of spectrum, there is clearly potential for competitive inequalities to emerge, and that might have downstream implications for consumers.

"So that's something that just needs to be worked through – a solution may be found tomorrow or it might take many years to find a solution that satisfies all parties and seems to be fair and reasonable. We just have to work our way through that particular problem until we can come up with a solution to that. To do otherwise – although it might bring cost savings to Vodafone and O2 – could potentially have all sorts of other adverse effects. It could destabilise the competitive playing field. It could cause certain people to decide they won't invest in future in certain technologies because they feel they have been treated unfairly. All those kind of signals can be quite detrimental to the market."