4G spectrum auction: What are the issues?

Communications regulator Ofcom has launched a consultation that will see it propose a cap on the amount of spectrum that can be bought by any one mobile network in the 4G auction scheduled for the first quarter of 2012.

The auction will see companies bid for two spectrum bands: 800MHz and 2.6GHz.

The 800MHz band can travel further and is likely to benefit from the expansion of broadband into rural areas, while 2.6GHz carries more information at a faster speed and is likely to be used in urban areas.

The two bands add up to 250MHz of additional mobile spectrum, 80 per cent more than was available in the 3G auction in 2000.

Ofcom has suggested that typical speeds of 4Mbit/s can be expected from the 4G service, similar to the average broadband speed installed in homes.

The body's proposal to cap the amount of spectrum any one mobile network can buy aims to encourage healthy competition and will come as a relief to the smaller players in the industry.

"There would be a risk to future competition if there were unrestricted bidding," said Ofcom chief executive Ed Richards at a press briefing this morning.

"We are concerned about having fewer than the four national wholesale competitors that currently operate in the market."

Mobile operator 3 recently expressed concerns about being squeezed out of the market by its competitors paying lucrative sums for large amounts of spectrum.

3 is the smallest of the four UK mobile network operators, the others being Vodafone, O2 and Everything Everywhere.

Richards said that if the bidding gets to a level that no one is prepared to pay and a bidder has dropped out, the bidding will be wound back to a position in which there are still four wholesale competitors.

However, Ofcom said that it has not made any forecasts regarding how much the auction will bring in.

"We are not going to get into that game of how much the auction will raise. Who knows? It is not something we are willing to do," said Richards.

Each mobile network cannot buy more than 2 x 27.5 MHz of sub 1 GHz spectrum or 2 x 105 MHz of overall spectrum at the auction.

Ofcom has also proposed that there are "spectrum floors", ensuring that each purchase obtains a minimum amount to effectively compete at the national level.

The consultation document also indicates that Ofcom is not ruling out the possibility of more than four competitors entering the bidding.

"It is important to realise that we are not ruling out the potential for some of those licensees to be new national wholesale entrants," it said. "We would not be surprised if one or more prospective new entrants were to bid for the minimum spectrum portfolios that we have identified."

This occurred in Sweden where two of the bidders were potential new entrants.

"It is very important that we do not presume the answer to whether more than four bidders will enter the auction," said Richards.

"We are proposing a framework that ensures a minimum of four national wholesalers. I emphasise a minimum. If more want to come in and take place, it is not our place to judge that. We wouldn't be uncomfortable with it."

Richards also said that he hopes mobile operators do not object to any of the proposals that Ofcom has put forward, as he would like the auction to take place in a timely manner, avoiding delay to the spectrum release.

"This [spectrum auction] is a fiercely contested area, and this is something I do not have a problem with," said Richards.

"However, I hope this debate doesn't spill out into litigation, because that will delay things, which affects the consumer. We will do everything we can to ensure that this schedule plays out."

The consultation for the auction runs until 31 May 2011, and Ofcom is aiming to start the auction in the first quarter of 2012.

It expects operators to start rolling out 4G networks at the start of 2013.