Everything Everywhere should not profit from spectrum sale, say MPs

A committee report details concern over the operator's spectrum sale and says 4G auction needs to held asap

Mobile operator Everything Everywhere (EE) should not be allowed to enjoy a windfall profit from the sale of its 1800MHz spectrum, according to a Commons culture, media and sport committee report released today.

In 2010 the European Commission agreed that Orange and T-Mobile could merge to create EE with the proviso that it sell 25 per cent of its 1800MHz spectrum, in order to comply with competition law.

EE has to make the sale before the upcoming 4G spectrum auction, which is expected to take place in the final quarter of 2012.

The report from the Commons Culture, Media and Sport Committee argues that some of the profit EE makes from such a sale should be reinvested back in the network, as the spectrum was originally given to it for free.

"The sale by Everything Everywhere of some of its spectrum allows a private company to profit substantially from the sale of a public asset," the report states.

"We acknowledge that unless companies can profit from the sale of their spectrum, there is no incentive for them to divest any of their holdings.

"However, we recommend that the government and Ofcom investigate mechanisms by which a proportion of the proceeds of any sale could be used to the benefit of consumers.

"For example, Ofcom should explore whether it could compel Everything Everywhere to ring-fence a proportion of this windfall for investment in its network."

Although EE has paid an estimated £160m in licence fees for the 1800MHz spectrum since it acquired it in 1991, the initial deal involved no outlay on the part of the carriers, so EE stands to make a significant profit on the sale.

Everything Everywhere should not profit from spectrum sale, say MPs

A committee report details concern over the operator's spectrum sale and says 4G auction needs to held asap

The Financial Times' has estimated that the spectrum is worth £450m, but EE has said that the likely worth of the spectrum is too "commercially sensitive" for it to speculate on.

Ofcom commented during the government committee's review into the matter that it does not expect EE to make an excessive profit from the sale of its spectrum.

"We are about to revise the annual licence fees for the 1800MHz spectrum. Any acquirer of the divested 1800MHz will not pay what EE currently pays; they will have to pay the same full market value price that every other 1800MHz licensee will have to pay," said Graham Louth, director of spectrum markets at Ofcom.

"Therefore, I struggle to see why anybody would be willing to pay EE a very large price to get hold of that spectrum if they are going to have to pay the full market value for it."

The committee also commented on Ofcom's plans for the upcoming 4G spectrum auction, arguing that Ofcom should ensure the process is not delayed any further.

Ofcom confirmed last month that the auction will not be held in the first quarter of 2012 as was originally intended, and has been pushed back to the fourth 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 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.

The delay is a result of complaints from the network operators. In June of this year 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.

Three has complained that O2 is deliberately holding up proceedings because it has extra capacity in its 3G spectrum.

"Ofcom has had a very difficult job adjudicating between competing and polarised interests, and we are concerned that constant disagreement and special pleading from the four mobile network operators appears to have further delayed the spectrum auction," said John Whittingdale MP, chair of the committee.

"We believe that the basic rules for the auction that Ofcom has laid down are sensible and fair, and that further delays will result in the UK falling further behind in this vital area. The auction needs to proceed as soon as possible."