Ofcom set to delay 4G auction

Network operator Three believes the larger networks are deliberately holding up proceedings

Communications regulator Ofcom has indicated that the much-anticipated auction for next-generation 4G spectrum licences may not be held in the first quarter of 2012 as was expected.

The UK's smallest mobile network, Three, has spoken out against the possible delay, suggesting that larger networks are deliberately holding up proceedings by threatening legal action.

"Ofcom has been explicit in its aim to begin the 4G auction as soon as is practicable and this remains our objective," said an Ofcom spokesperson.

"However, this is a complex area, involving a large number of technical and competition issues that we need to consider and resolve before finalising proposals.

"For example, a very high proportion of households in the UK rely on digital terrestrial TV – Freeview – which needs to be relocated before 4G can be rolled out. This kind of complex problem needs to be properly addressed before we award the spectrum."

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

The 800MHz band can travel further and is likely to boost 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.

In June of this year network operator O2 issued a response to Ofcom's proposals for the 4G auction and complained that it would be illegal under EU law.

Its complaint was that proposals to include caps on the amount of spectrum bought by any one bidder were technically "state aid" and therefore illegal.

Although no formal legal action has been taken against Ofcom, Three believes that any delay to the proceedings will leave it in a weaker position compared with its competitors.

This is largely due to the fact that in January of this year Ofcom introduced new measures that allowed networks to refarm 2G airwaves for 3G services.

The larger networks had spare 2G spectrum and have been able to extend their capacity for 3G roaming as a result. However, Three did not have any spare spectrum and consequently is looking to obtain 4G spectrum as soon as possible.

"There is a growing realisation of the role mobile can play in meeting the government's universal broadband commitment by 2015. Any significant delay risks impacting this and will further weaken competition to the detriment of UK consumers," said David Dyson, CEO at Three.

Dyson argued that the refarming of 2G spectrum has "created an incentive" for larger networks to delay the auction.

"Ofcom and the government need to ensure their plans are not undone by narrow self interest," said Dyson.

However, Ofcom has pointed out that even if the spectrum auction is delayed until the second quarter of 2013, it is unlikely that this will impact consumers of 4G, as the rollout of the network isn't planned until 2013, which should remain unaffected.

"We note that because these technical issues need to be satisfactorily resolved before new networks can be built, it will not be possible for mobile operators to start rolling out 4G networks until 2013 at the earliest, regardless of when the auction itself actually takes place," explained an Ofcom spokesperson.

Rob Bamforth, principal analyst for Quocirca, argued that although the timeline may not be a major concern to the market, opening up opportunities for smaller, more innovative companies should be a core focus.

"The potential delay is no great surprise to me, as it did look a little rushed. The concern that I have with the spectrum auction is that it often seems a little bit harder for the smaller companies. In this case it's Three, but also some of the other players who are likely to be more innovative than the major operators," said Bamforth.

"My hope is that if it is delayed, it is being delayed so that some more intelligent thinking can be put into the process to make it more open.

"Often these things end up being a straightforward bidding war where the company with the deepest pocket wins, and that's often the incumbent rather than a new entrant," he added.

"I think that Ofcom has historically been a bit too close to the major players. You can't say that there is anything suspicious about this, it's just market dynamics. However, Ofcom should not only be looking to make money out of the spectrum in the short term, but actually add value to meet national needs."