3UK Says 4G Auction Is A ‘Boot On Its Head’

Vodafone and Ofcom deny 3UK’s claim that 4G spectrum auction will put it out of business

Mobile operator 3UK has warned that plans to re-use 2G spectrum for 3G, and to auction 4G mobile spectrum, could reduce competition by delaying LTE, the fast 4G mobile broadband service, and forcing 3 to close.

Incumbent operators O2, Vodafone and Everything Everywhere (the merged network of T-Mobile and Orange) were given an advantage in January when the regulator, Ofcom, allowed them “re-farm” 900MHz spectrum – offering  3G services on spectrum previously limited to  2G, said 3’s chief executive, Kevin Russell, speaking at a Westminster eForum meeting in London today. That advantage will be compounded in 2012, he said, as only those with deep pockets will be able to compete in the much-delayed 2.6GHz and 800MHz spectrum auctions.

Plans “put revenue before competition”

Ofcom and 3’s rival Vodafone dismissed the claims, saying that 3 would have plenty of chance to get 4G spectrum, and that 4G services would not be delayed in the UK, because 1.8GHz spectrum currently used for 3G networks is starting to come into use for 4G.

“The amount of spectrum an operator has will determine its market share,” said Russell (pictured). In the long term, an operator with five percent of the available spectrum will have about five percent of the market, he said.

However, at present, 3 delivers about half the UK’s mobile data, on only nine percent of the available 3G spectrum, said Russell – thanks largely to the network’s offer of “all-you-can-eat” data to its pre-paid and contract customers.

“The 2G re-farm rewards under-investment and dramatically distorts indoor coverage,” said Russell “It was not a good decision.”

The original 2G spectrum had a low frequency giving it very good coverage at long distances and indoors – by allowing those with 2G spectrum to re-use it for 3G services, Ofcom had handed them a massive free boost that they had done nothing to earn, said Russell – claiming that no other country had simply left it to the incumbent licence holders.

As a result, “at the auction, we will have to win 30 to 40 percent of the spectrum,” said Russell, adding that as 3 will be up against the likes of Telefonica (O2) and Vodafone, “maybe we will be squeezed out.”

With the merger of T-Mobile and Orange, competition has already reduced, and further reduction would be bad for consumers, and bad for this country’s economic growth, said Russell: “Is the government trading that off for a short-term cheque?”

“Three thinks the sky is falling”

Russell’s claims were “backward looking claims for restorative justice,” and revealed 3’s “fears that the sky would fall in,” according to Vodafone’s regulatory head David Rodman.

Refarming 2G spectrum was not a blank cheque from the government, he said, since it took considerable effort to clear existing 2G users out of it before it could be sued for 3G services.

Operators with no 900MHz 2G spectrum “have enough kit in the ground to replicate anything we and O2 can do in the 900MHz band,” he said.

In fact, if 3 looked at the number of users it has per MHz of spectrum, instead of the amount of data it carries (which is inflated by flat-rate tariffs) it would find it was “flush with spectrum” said Rodman, since it has 2.5MHz of spectrum for every thousand customers, compared with 2.3MHz for Everything Everywhere, 1.9MHz for Vodafone and 1.5MHz for O2.

Russell’s fear of missing out on the auction is also over-played, said Rodman, since “there is over 100M Hz of spectrum on offer,” he said. “It is difficult to conceive that an operator who wants to can’t buy some.”

If operators show signs of spectrum hoarding, he added, Ofcom should implement a “use it or lose it” policy, re-taking spectrum if operators do not offer services on it.

Ofcom was also at the event to defend its auction policies. “Competition is truly alive,” said Professor H. Nwana, partner in Ofcom’s spectrum policy group, saying that the regulator would operate a free auction because “the risk of market failure in a regime of command-and-control is severe.”

Though the re-farming let current holders re-use the spectrum to which they had licences, other moves would “recycle” spectrum “placing it in more economically active hands,” said Dr Nwana – whose first  name is Hyacinth, and is always known simply as “H”.

4G could turn out to be cheap

Ofcom’s auction plans have been criticised for leaving Britain with no 4G services until 2014, but things might be better, according to Lee Sanders of Analysys Mason: “LTE may still happen at 1800MHz [currently used for 3G],” he said. “that could become the third core band [alongside 800MHz and 2.6GHz].”

Low prices for 2.6GHz spectrum in countries like Germany and Austria which have already held their auctions suggest this may be happening, and some may view 2.6GHz as an optional extra said Sanders – in which case the UK’s prices would also be low, and Russell’s fears misplaced.

Sanders suggested that operators sharing their spectrum might be a way forward, but Russell dismissed that large operators would help smaller competitors in this way: “Their boot is on your head. They are not going to let you back up.”

Update: This story was written before Ofcom announced its 4G auction plans. Three has responded favourably to the regulator’s efforts to preserve competition