O2 UK criticises Ofcom’s mobile spectrum auction proposals

10 Jun 2011

UK mobile operator O2 UK, a unit of Spanish telecoms giant Telefonica, has criticised the British telecoms regulator’s plans for the sale of mobile spectrum next year, claiming that some of the proposals amount to state aid. According to the Financial Times, the cellco has claimed that the proposed rules for the auction could allow for discrimination against it, with O2 arguing that ‘spectrum floors’ proposed by Ofcom could see some of its rivals pay around GBP1 billion (USD1.6 billion) less for sub 1GHz spectrum than they would otherwise have to.

As previously reported by CommsUpdate, in proposals unveiled in March 2011 Ofcom said that it aimed to incorporate a number of safeguards and coverage conditions as part of the sale process for spectrum in the 800MHz and 2600MHz bands. Having been asked by the government to assess how the new spectrum might affect future competition in the UK mobile sector, a December 2010 study by Ofcom claimed that if bidders were free to acquire any amount of spectrum in an open auction it could impact competition in the sector. With the regulator claiming that the combination of scarcity and demand could create incentives for bidders to bid strategically and reduce the amount of spectrum available to other bidders, it said it believed that there would be a ‘significant risk’ to national wholesale competition should there be less than four national wholesale competitors with credible spectrum portfolios for providing higher quality data services. As a result Ofcom revealed it would include limits on both the minimum and maximum amounts of spectrum bidders can win, with it proposing that the minimum amount be one of the following five combinations:

2×5MHz of sub 1GHz spectrum and 2×20MHz or more of 2600MHz; or

2×5MHz of sub 1GHz spectrum and 2×15MHz or more of 1800MHz; or

2×10MHz of sub 1GHz spectrum and 2×15MHz or more of 2600MHz; or

2×10MHz of sub 1GHz spectrum plus 2×10MHz or more of 1800MHz; or

2×15MHz or more of sub 1GHz spectrum.

In addition to the restriction on minimum and maximum spectrum awards Ofcom also said that it would set down measures to protect against longer-term risks to competition from any one licensee holding a disproportionate amount of spectrum. In order to achieve this aim Ofcom revealed that there will be a sub-1GHz safeguard cap of 2×27.5MHz – this means that no one competitor can obtain more than this amount of sub-1GHz spectrum – and there will also be an overall spectrum holdings cap of 2×105MHz. In terms of coverage obligations meanwhile, Ofcom has said that one of the 800MHz concessions on offer will include a requirement that the winner to provide mobile broadband services to 95% of the UK’s population; the date for meeting this obligation would be end-2017.

In a response to a consultation on the proposals O2 UK noted: ‘The ‘spectrum floors’ go beyond what is necessary to guard against strategic behaviour and have the side-effect of providing nearly GBP1 billion of unlawful state aid, potentially to bidders which might not otherwise have viable investment cases for 4G.’ Further, the operator also claimed that such state aid would require approval by the European Commission, potentially delaying the sale process. In response to the operator’s claims however Ofcom stated: ‘We are fully aware of state aid rules and would not have made proposals that we considered illegal.’

United Kingdom, O2 UK, Ofcom