O2: 4G spectrum auction is illegal under EU law

The telecoms company claims that the taxpayer could be £1bn out of pocket

O2 has issued a formal complaint to communications regulator Ofcom stating that the rules set out for the upcoming 4G spectrum auction are illegal under EU law.

In March of this year, Ofcom unveiled plans to include caps on the amount of spectrum that can be bought by any one bidder to maintain a competitive bidding process.

However, the proposals also included plans for "spectrum floors", meaning that each successful bidder has to own a minimum amount of the highly sought-after sub-1GHz spectrum. It is this clause to which O2 has objected.

The ISP said in a statement: "We believe that the proposed spectrum floors are a state aid and are therefore illegal under EU law."

It also added that "the spectrum floors would distort the auction process, allowing all bidders, except Vodafone and O2, to potentially acquire spectrum at discounted prices. Ofcom's own figures suggest this could cost taxpayers £1bn."

O2's concern is that it - along with Vodafone - already owns certain amounts of 900MHz spectrum, which could restrict it from obtaining the more valuable 800MHz spectrum because it is below the 1GHz threshold.

800MHz spectrum, which was previously used for analogue television, is more valuable to telecoms companies as it can travel long distances and penetrate buildings.

"The proposed floors, and the argument that Vodafone and ourselves already have enough sub-1GHz spectrum, are based on the mistaken belief that 800MHz and 900MHz are directly comparable spectrums. They are not," said O2.

"Ultimately, this auction is about new, next-generation services. It is not about 2G and 3G, but about the future. It should therefore be used as an opportunity to provide fair, open and equal access to newly available spectrum."

The spectrum auction is due to take place in the first quarter of 2012.