Ofcom lays out rules for 4G auction

Ofcom has set out its proposed rules for the upcoming 4G spectrum auction, with the aim of ensuring there is sufficient competition and coverage when the high-speed mobile broadband technology is deployed in the UK.

Ofcom's proposed spectrum auction rules should ensure a competitive 4G market in the UK, says chief Ed Richards. Photo credit: David Meyer

The regulator's proposals were published on Tuesday. If they survive consultation — interested parties have until 31 May to respond — there will have to be at least four operators in a position to wholesale 4G connectivity to mobile virtual network operators (MVNOs) such as Tesco Mobile. In order to achieve this, Ofcom wants to set a minimum 'floor' for the amount of 4G spectrum held by each of the big operators.

"The auction will be a very substantial moment in the history of spectrum management and the commercial use of spectrum in the UK," Ofcom chief executive Ed Richards said at the proposal's launch in London on Tuesday. "It is arguably the most significant event ever in terms of the sheer volume of the spectrum being released."

Spectrum auction

The spectrum that will go up for auction in the first quarter of 2012 resides in the 800MHz band and the 2.6GHz band. Overall, there is 80 percent more spectrum becoming available in this auction than all the 3G spectrum allocated just over a decade ago.

The 800MHz band is currently used for analogue TV broadcasts, and will not be available for nationwide redeployment until the end of 2012. It offers less bandwidth than the 2.6GHz band, but services using 800MHz can propagate over further distances.

This is why — in a move that should ensure significant rural coverage — Ofcom has proposed that one of the companies to successfully bid for 800MHz spectrum should be obliged to build out their service to cover 95 percent of the UK population by the end of 2017, with a minimum service speed of 2Mbps.

Describing this condition as providing a "step-up in capacity and a step-up in coverage", Richards pointed out that 3G licence obligations require only 90 percent national coverage, and at much slower speeds.

Wide availability

Ofcom has also proposed reserving some 2.6GHz spectrum for small bidders that might want to roll out low-power, localised networks whose users can roam onto national 2.6GHz networks when they leave, for example, their office or campus.

The auction will be a very substantial moment in the history of spectrum management and the commercial use of spectrum in the UK.

– Ed Richards, Ofcom

Richards said he expected operators to start rolling out 4G services — which will most probably use the long-term evolution (LTE) standard already being deployed in the US, Sweden, Japan and elsewhere — early in 2013. He said 4G services should offer speeds of at least 4Mbps, roughly comparable to the speeds most people achieve now on their DSL fixed-line broadband connections.

"We want to encourage investment, we want to see networks deployed, but we also want to promote competition as well," Richards said. "We also want to ensure there is wide availability of those services... It's competition alongside that investment which delivers those benefits, not only in the short term but in the long term as well."

Richards said there will be a "risk to competition" if unrestricted bidding is allowed. For this reason, it has set out the spectrum-holding floors and caps that will also ensure no single operator can get too much of an advantage over its rivals.

The caps do not just include the spectrum coming up for auction. They limit the amount of sub-1GHz spectrum any one company can hold — O2 and Vodafone already have 900MHz 2G spectrum that Ofcom has recently said they can 'refarm' for 3G services, so they would have to give some of that up if they wanted to buy a very large amount of 800MHz spectrum.

'Commitment to investment'

Ofcom has shown a "commitment to stimulating investment in mobile broadband", says 3 chief Kevin Russell. Photo credit: David Meyer

These floors and caps are designed to ensure that 3 in particular will be able to stay in the mobile broadband game once 4G is rolled out. It is the smallest operator but, following the merger last year of T-Mobile and Orange into Everything Everywhere, Ofcom's mandated minimum of four wholesale-capable 4G operators will almost certainly have to include 3.

"Ofcom's proposals set out the core principle that the UK must retain four wholesale mobile operators," 3 chief Kevin Russell said in a statement. "Against a background of consolidation in the UK and US, this is a clear and strong commitment from Ofcom and the UK government that will stimulate investment in mobile broadband and protect UK consumers."

"The January 2011 re-allocation of 2G spectrum has given a huge competitive advantage to Vodafone, O2 and Everything Everywhere. Ofcom's proposals seek to rebalance this in the medium term, but there are still immediate distortions that need to be addressed. These include significant coverage, capacity and financial benefits," Russell added.

Richards told ZDNet UK that it is "very important that we do not presume" there will be only four wholesale-capable 4G operators after the auction. "What we have done is proposed a framework [and we are] expecting a good, robust discussion about this. The framework ensures a minimum of four national wholesalers, and it's not for us to prejudge that," he said.

Economic circumstances

Richards also refused to speculate as to how much the auction will raise. He said such predictions would be a "fool's game" and pointed out that "it all depends on economic circumstances at the time". The 3G auction, which raised £22.5bn for the government in 2000, happened at the height of the dotcom boom, he noted, and recent Swedish and German auctions for 4G spectrum produced very different outcomes.

I hope all interested parties recognise the UK needs to move on with this now. It's not in the interest of consumers for there to be any more delay.

– Ed Richards, Ofcom

If the auction occurs in early 2012, as Ofcom hopes, it will already be almost four years behind the regulator's original schedule for a 2.6GHz auction. The delays have been caused by a variety of reasons, chiefly due to operator litigation around the spectrum refarming issue. The operators argued they would not know how much to bid for new spectrum until they knew how much use they could get out the spectrum they already held.

Richards hopes the new Ofcom consultation does not also spill over into the courts. "That would delay the award, and if it delays the awards there is only one loser — the British consumer," he said.

"I hope all interested parties recognise the UK needs to move on with this now... and accept that a judgement has got to be made," he added. "It's not in the interest of consumers for there to be any more delay. I'm not going to get into who did what... the past is the past [but there is a] danger that we become laggards."