On December 18, 2018, the UK regulator Ofcom published its consultation proposal on the award of the 700MHz and 3.6–3.8GHz bands, which should be auctioned by 2Q20. A total of 200MHz of spectrum will be up for auction: 80MHz in the 700MHz band and 120MHz across the 3.6–3.8GHz band. This should significantly increase operators' spectrum holdings, particularly of 5G-suitable frequencies. In the design of the award, Ofcom has tried to address possible competition concerns by using spectrum caps and to ensure that mobile coverage improves through the use of coverage obligations.
Operators must be incentivized to bid for coverage obligations during spectrum auctions
Through the award of the 700MHz and 3.6–3.8GHz bands, Ofcom aims to encourage operators to improve mobile coverage, maintain strong competition in the market, and ensure sufficient and timely allocation of spectrum. Consequently, the regulator has taken the decision to introduce a spectrum cap as well as coverage obligations.
The UK telecoms market generally operates well with ongoing innovation and relatively low prices compared with other markets internationally. However, it is important that strong competition is maintained, and so certain detrimental outcomes of a spectrum auction must be avoided, such as a result that sees very asymmetrical shares of spectrum among operators. Some regulators have sought to introduce spectrum caps to prevent a situation like this from arising. Ofcom too has proposed to impose a cap of 37% on the total proportion of spectrum an operator may hold for mobile services. This is equivalent to 416MHz of spectrum and would limit the amount of spectrum that EE could acquire during the award to 120MHz, while Vodafone would be limited to acquiring a further 190MHz, and Three would be limited to acquiring 185MHz. This is the same cap that Ofcom originally set during the previous auction in 2018, but some of EE's competitors may still feel that the operator is not restricted enough. Given that previous spectrum auctions in the UK have experienced delays due to legal challenges over spectrum caps, it remains to be seen whether any operators choose to contest it again. Three in particular has campaigned for some time for a 30% total cap.
In addition to a spectrum cap, Ofcom is proposing to include coverage obligations in the award for two winning bidders, each obligated operator will be required, within four years, to
extend good outdoor data coverage to at least 90% of the UK
improve coverage for at least 140,000 buildings that they do not already cover
provide coverage from at least 500 new mobile-mast stations in rural areas. This will ensure operators transform coverage in areas where it is lacking, rather than meeting the rules by just boosting existing signals.
The award will follow the form of a combinatorial clock auction (CCA) to allow bidders to choose to bid on packages made up of spectrum in different bands and with different coverage obligations. The 700MHz band will be auctioned in six lots of 2×5MHz, with a reserve price in the range of £100–240m ($129–309m) per lot, and four lots of 5MHz, with a reserve price of £1m per lot. The 3.6–3.8GHz band will be auctioned in 24 lots of 5MHz, with a reserve price in the range of £15–25m ($19–32m) per lot.
As the coverage obligations will require significant investment from operators, this will be reflected in the price for frequencies that carry these rules, which could be discounted by as much as £300–400m ($386–515m). It is crucial that regulators provide incentives for bidders to bid for a coverage obligation alongside spectrum to ensure that coverage is improved. However, in this case, Ofcom is not mandating that operators bid for a coverage obligation as well as spectrum allocations. Here it will be imperative then that the discount offered to those bidding for a coverage obligation is high enough to encourage operators to bid. While roaming obligations could also be imposed on operators who acquire spectrum, Ofcom has chosen not to include this obligation in this auction. Instead, the proposal outlines the possibility that mutually agreed roaming arrangements onto a host network would count toward the fulfillment of coverage obligations, provided the service onto which the obligated operator roams meets the obligation requirements.
5G Service Provider Tracker: 4Q18, GLB007-000195 (January 2019)
Spectrum Auction Tracker: 2018, GLB005-000094 (October 2018)
Spectrum by Operator in Europe: 2018, GLB005-000051 (May 2018)
Sarah McBride, Analyst, Regulation