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Summary

On July 11, 2017, Ofcom announced its proposed rules for the auction of the 2.3GHz and 3.4GHz spectrum bands which was postponed in 2016 following the EC's decision to block the acquisition of O2 by H3G. The proposal will be under consultation until August 14, 2017, with a final statement on the auction regulations expected by early September, before the auction begins in late October. The proposed rules include a spectrum cap and sets out the reserve price of £70m ($90.4m) for 190MHz of spectrum across the two bands. Ofcom expects the additional frequencies to help meet the growing mobile broadband demand by allowing operators to increase their network capacity and also to support 5G mobile. However, the decision to introduce a cap on the amount of spectrum each MNO can hold has received a mixed reaction from operators.

Ofcom's auction rules attempt to more evenly distribute spectrum among UK operators

The auction of 190MHz of technology-neutral, high-capacity spectrum in October 2017, will see the total amount of airwaves available for mobile operators increase by almost one-third. 40MHz will be auctioned in lots of 10MHz, with a reserve price of £10m per lot inthe 2.3GHz band.Thisbandis already supported by mobile devices, so these frequencies can be used immediately after release. 150MHz will be auctioned in lots of 5MHz, with a reserve price of £1m per lot inthe 3.4GHz band. This band is not currently supported by mobile devices and will, therefore, only be usable in a few years' time; it has, however, been identified by the EC as crucial to the rollout of 5G. Currently, the bands support Freeview TV and wireless microphones, and are well suited to improving indoor and rural coverage.

Despite there being considerable variations in the amount of spectrum operators hold, the UK mobile market remains one of the most competitive in Europe, mainly because it operates with four national MNOs. The regulator is keen to preserve this level of competition and so has proposed a spectrum cap of 255MHz on immediately usable spectrum (which refers to the 800MHz, 900MHz, 1400MHz, 1800MHz, 2100MHz, and 2.6GHz bands, and now also the 2.3GHz band). It has also introduced a cap of 340MHz on the total amount of immediately usable and unusable spectrum holdings per operator. Previously, it was thought that a cap might not be required to level the playing field if additional spectrum could simultaneously be released in the 3.6–3.8GHz bands to alleviate any competition concerns. It now seems, however, that these frequencies will not be available nationwide for some time, according to Ofcom.

The cap on immediately usable spectrum will mean that BT/EE will not be able to bid for spectrum in the 2.3GHz band as it already holds 255MHz of spectrum. This compares to Vodafone's 176MHz of usable spectrum, Three UK's 90MHz, and O2's 86MHz. The overall cap on the total spectrum a single operator can hold is equal to 37% of all mobile spectrum that is expected to be usable in 2020. This cap will limit the amount of spectrum BT/EE will be able to purchase in the 3.4GHz band to 85MHz, as well as limit Vodafone to a maximum gain of 160MHz across both the 2.3GHz and 3.4GHz bands.

Ultimately, the aim is to ensure that this scarce resource is more evenly distributed among operators and to reduce BT/EE's overall share which stands at 45% of current usable spectrum. This is because operators with lower shares of spectrum, such as Three UK (12%) and O2 (15%), cannot easily deliver more capacity, which puts them at a disadvantage. However, BT/EE has not been in favor of these caps during the consultation process as they could be detrimental to its customers due to the fact that the largest operators actually own less spectrum per customer than the smaller ones. Meanwhile, Three UK has been disappointed by the plans having previously suggested a 30% spectrum share cap to ensure a more even distribution and prevent large operators from bidding strategically to restrict the amount of frequencies competitors receive. However, considering that Three UK recently acquired UK Broadband, which has access to 40MHz of spectrum in the 3.4GHz band and 84GHz in the 3.6–3.8GHz band, the operator has managed to significantly increase its share of overall spectrum usable in the future. This has reduced Ofcom's concerns over competition and led to the regulator to settle on a higher cap than Three UK would have wanted.

Appendix

Further reading

UK (Country Regulation Overview),TE0007-001097 (January 2017)

Spectrum Requirements for 5G, TE0007-001111 (February 2017)

"Ofcom consults on expanding mobile use to the 5G candidate band 3.6–3.8GHz," TE0007-001080 (October 2016)

Author

Sarah McBride, Analyst, Regulation

sarah.mcbride@ovum.com

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