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Ofcom to block BT-EE from spectrum bid

Ofcom opens a new consultation on the delayed auction of ex-MoD radio spectrum for mobile broadband, but hopes to bar BT-EE from bidding for parts of it, citing competition concerns

Telecoms regulator Ofcom has proposed to block BT and EE from bidding on one of two lots of radio spectrum being released by the Ministry of Defence (MoD) for 4G and 5G mobile broadband networks, because it would give the UK’s largest mobile operator an unfair market advantage.

In November 2016, Ofcom relaunched the consultation process for the much-delayed auction of two tranches of radio spectrum, which was first proposed under the previous coalition government but put on hiatus at the end of 2015. This was partly because, at the time, the acquisition of EE by BT and the proposed acquisition of O2 by Three – which never materialised – were creating too much market uncertainty.

The auction of 190MHz of spectrum – 40MHz in the 2.3GHz band and 150MHz in the 3.4GHz band – represents over three-quarters of the total amount of spectrum released for 4G networks in 2013 and will, at a stroke, increase the amount of total mobile spectrum available by a third. The 2.3GHz band will help mobile network operators meet current demand for 4G bandwidth, while the 3.4GHz band will be freed up in advance for future 5G networks, said Ofcom.

However, because BT-EE currently holds 45% of immediately useable mobile spectrum in the country, Ofcom has proposed the imposition of a cap of 255MHz on the immediately useable spectrum any one operator can buy, effectively barring BT-EE from the bidding process.

The regulator said it was concerned that if the immediately useable spectrum holdings were to become more unbalanced, competition could be seriously harmed. If BT-EE acquired all of the 2.3GHz band being released, It would own half of the immediately useable spectrum. However, because it has been excluded, its share would actually fall from 45% to 42%.

BT-EE will, however, be permitted to bid for the 3.4GHz spectrum, because it is not currently useable.

“Spectrum is the essential resource that fuels the UK’s economy,” said Philip Marnick, Ofcom Spectrum Group director. “This auction can help ensure that UK consumers can access the mobile data services they need, and that operators can continue to innovate and build for the future.

“The UK has long benefited from strong mobile competition. We are designing the auction to ensure everyone benefits from a market that continues to innovate and serve them well.”

Ofcom has set reserve prices of £10m per 10MHz block of the 2.3GHz band, and £1m for each 5MHz block in the 3.4GHz band, which means it should realise, at minimum, £70m of value from the auction.

Three unsatisfied with Ofcom’s proposals

Dave Dyson, CEO at network operator Three, which owns just 12% of immediately useable spectrum in the UK and had called for a cap to be placed on BT-EE, said he was not satisfied with Ofcom’s proposals because they did not go far enough.

Three had wanted a 30% spectrum cap to be put on the amount any one operator could own. Had it been allowed to acquire O2 earlier in 2016, it would have owned just under 30% itself.

Dyson said Ofcom existed to promote competition and protect consumers, but was “once again” showing it was not willing to make the right decisions to deliver the best outcome.

“It has allowed BT and Vodafone to stockpile valuable mobile airwaves and put genuine choice for consumers at risk. It made empty promises to the European Commission that it would tackle this issue, but it doesn’t have the courage to do so,” said Dyson.

“The mobile industry is failing customers, and Ofcom has showed it has no interest in addressing that. A 30% cap on total spectrum ownership and a spectrum reservation for smaller operators are the only measures that will preserve competition for the benefit of UK mobile consumers.”

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“Today’s announcement represents only a partial victory for Three, which campaigned hard for more favourable conditions. Like O2, its future as a standalone mobile operator is hugely reliant on a successful outcome at the auction,” said Kester Mann, principle analyst of operators at CCS Insight.

“Expect today’s announcement to only be the start of another round of wrangling and protestation from the UK networks that could see the award of licences further delayed. Any additional hold-up works against Three and O2, which are most in need of new airwaves.”

Mann said the restraints placed on BT-EE indicated the regulator was aware that unbalanced spectrum holdings could be damaging to competition. However, he added that by stopping BT-EE from bidding, Ofcom raised reasonable questions as to why it had allowed BT to acquire EE with such little fuss, or any mandated asset divestment.

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