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Ofcom seems to have forgotten its remit, and actually that’s no surprise

Ofcom made the wrong choice by putting economists in charge, and is in danger of forgetting its remit, says Simon Rockman

The head of telecoms regulator Ofcom Sharon White has been in place for more than a year and can no longer be regarded as the “New Broom”, the moniker attached to her when she joined from the Treasury, where she was hailed as a rising star.

Ironically, MPs pushed back when Ofsted appointed a head with no teaching experience, but at least Amanda Spielman was the chair of the exams watchdog Ofqual before moving to Ofsted. White has no engineering experience.

One thing to look at might be who she’s recruited. In January the new consumer director, Lindsey Fussell, was appointed. She also came from the Treasury.

This seems an odd source for one, let alone two senior appointments, until one understands the context: it’s not about Ofcom doing the best thing for consumers, it’s about “managing up” and convincing Westminster that it’s doing a good job. That doesn’t necessarily mean that it is.

What is Ofcom’s remit?

Ofcom’s remit is wide, covering not just telecoms but radio communication, broadcasting and postal services. One might think the top and consumer roles would go to someone with an industry, or at least an engineering, background: someone who might grasp the significance of the full duplex radio work being done at Bristol University or the implications of moving Freeview from 700MHz to 600MHz; or someone who has been going to the Mobile World Congress since it was in Madrid (before Cannes); or someone steeped in the world of television.

One new appointee to the content board, Nick Pollard, does have a TV background, but in the main we have economists. Since these are essentially accountants who have made good, one might expect them to be good at predicting things – like a banking crash.

But the bosses of Ofcom have a more important job to do than deciding if it’s okay for Formula 1 and Wimbledon to only be shown on pay-per-view channels, or making sure the police have a working radio service when Airwave is switched off.

That job is making sure that Ofcom looks good to its bosses in government.

Put someone who is well-grounded in broadcast and technology in the hot seat and you might get better decisions, but since pretty much everything Ofcom does has financial implications whatever path is chosen will have nay-sayers. It is far better to have worse, defendable decisions.

Best use of spectrum?

This is why an organisation that’s supposed to make the best possible use of spectrum seems to think the best possible use is to leave it unused. We were supposed to have an auction of 2.3Ghz and 3.4GHz spectrum in January, but it didn’t happen. At the time, Ofcom said the market was uncertain with the mergers of BT and EE and O2 and Three afoot.

This is true, but the claim that holding back is all about consumer choice is not. For money people, “best use of the spectrum” means getting the most from selling it to the networks, or “recognising market value” in jargon.

Time was when “best use” meant providing the best service to the most consumers. Ever since the 3G auctions (which were predicted, no doubt by economists, to raise £500m and which went on to generate £22bn) Ofcom and the government have seen spectrum as precious because it can be sold for lots of money, though Ofcom maintains it was not disappointed that the 4G auction failed to reach the predicted £4bn and says that it designed the auction for ‘maximum consumer benefit’.

But it’s not just the 2.3GHz and 3.4GHz space that Ofcom is thinking about. It’s the much more valuable 700Mhz, which is key to high quality national 4G coverage.

So waiting for market conditions is all about biding one's time and waiting for the right moment to sell the spectrum. It might also have a bearing on other Ofcom policies.

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BT, EE, O2 and Three

It could be argued that Ofcom was very happy with the BT-EE merger because it created a big, rich company and a powerful customer for the spectrum – especially true as it now has everything from backhaul fibre to mobile customers and retail shops, so it has the margins to pay more for spectrum. To deny it that backhaul by splitting off Openreach might be in every other telco’s interest, but it reduces what’s achievable when “recognising market value”.

BT-EE has a lot of spectrum, but only a tiny amount of it – some 4G 800Mhz and 2,600MHz and a minute amount of 1,800MHz – is BT’s: the vast majority was always held by EE. More importantly it has lots of high and little low frequency spectrum. A network needs a good mix: low frequency to properly cover rural areas and high for capacity in cities. BT-EE has so much high frequency spectrum that Vodafone is lobbying for it to give some up.

With O2 and Three, the position is different. The two companies merging gives the resulting entity enough spectrum that it probably doesn’t want to buy any more high frequency stuff. That’s worth drilling down on.

With its holdings skewed to high frequency, BT-EE wouldn’t be that interested in the 2.3GHz and 3.4GHz. But a combined O2 and Three wouldn’t want to bid either, leaving only Vodafone. Even economists can understand that an auction with one bidder won’t work. But if O2 without Three bids against Vodafone, we might see some value recognised.

Therefore it’s better for the economists to rail against the O2-Three merger, even if this means spectrum goes unused, in much the same way oil companies leave oil in the ground or property developers fence off land waiting for the value to pick up. But it’s a bit of an odd strategy for a regulator that has a remit to make the most of the available spectrum.

If the regulator was to fulfil its remit it might decide to forget the auction altogether and just award the spectrum licences on a beauty contest basis. It might even bring in a new player – Virgin Media, Sky and TalkTalk might all do interesting things if they had the spectrum, but would struggle to bid against mobile operators that already have the infrastructure. Giving something away, however, isn’t in the nature of people who come from the Treasury.

So 2.3GHz and 3.4GHz go unused, 700MHz is slated for 2022 and other chunks of spectrum lie forgotten, failing the Ofcom test and failing us as a population.

Simon Rockman is a long-standing IT writer and telecoms expert, and has worked with the likes of Ericsson and Motorola. He is the founder of Fuss Free Phones.

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