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Ofcom prepares for 4G mobile auction

March 22, 2011


Ofcom has today announced plans for the largest ever single auction of additional spectrum for mobile services in the UK, equivalent to three quarters of the mobile spectrum in use today and 80% more than the 3G auction which took place in 2000.

This spectrum is essential to meet the UK’s rapid increase in mobile traffic, fuelled by the growth of smartphones and mobile broadband data services such as video streaming, email, messenger services, mapping services and social networking sites. All of these services depend on spectrum – the airwaves that carry information between customers’ mobile handsets and the internet.

The new spectrum will provide much needed capacity for the fourth generation (4G) of mobile technology, set to deliver significantly faster mobile broadband services – approaching today’s ADSL home broadband speeds.

Ofcom Chief Executive, Ed Richards, said: “The auction is not only critical to the future of the UK mobile telecommunications market but it is also of significant importance to the wider economy. It will support a wide range of data services that are fast becoming essential features of the modern world.

“Our role as the independent regulator is to award this spectrum in a way that secures the best use of the spectrum for the benefit of citizens and consumers in the UK. That is why we are proposing to design the auction in a way that not only encourages investment but also promotes competition and delivers wide coverage of services.”

Promoting competition and coverage

Under measures being proposed by Ofcom, the auction will include a combination of safeguards and coverage conditions to promote competition and significantly widen the coverage of mobile broadband to 95% of the UK population.

New mobile capacity

The auction will be for two spectrum bands – 800 MHz and 2.6 GHz. The lower frequency 800 MHz band is part of the digital dividend, which is being freed-up as the UK switches from analogue to digital TV. This spectrum is ideal for widespread mobile coverage. The 2.6 GHz band is at a higher frequency, and is ideal for delivering the capacity needed to deliver higher speeds. These two bands add up to 250 MHz of additional mobile spectrum.

The combination of low and high frequency spectrum available in the 800 MHz and 2.6 GHz bands creates the potential for next generation mobile broadband services to be widely available across the UK, while at the same time having the capacity to cope with significant demand, even in urban centres.

Competition assessment

In December 2010, Ofcom was asked by the Government to assess how this new spectrum is likely to affect future competition in the mobile market.

Ofcom considers that there are risks to future competition if bidders are free to acquire any amount of spectrum in an open auction. This is because access to new spectrum is scarce but essential for providing the higher speed data services demanded by consumers, such as web browsing and video streaming. The combination of these two factors – scarcity and demand – could create incentives for bidders to bid strategically and reduce the amount of spectrum available to other bidders.

Ensuring at least four national mobile service wholesalers

The UK mobile market is made up of four national wholesale operators, who sell mobile services to retailers, as well as directly to their own retail customers. Ofcom believes that competition at the national wholesale level is essential to future competition and maximising consumer and citizen benefits. In addition, there would be a significant risk to national wholesale competition if there were fewer than four national wholesale competitors with credible spectrum portfolios for providing higher quality data services.

To guard against this risk, Ofcom proposes introducing limits both on the minimum and maximum amounts of spectrum bidders can win. These are called auction ‘floors’ and ‘caps’.

Spectrum floors to ensure four national wholesalers

The least restrictive way to ensure at least four national competitors is through the use of spectrum floors in the auction. This involves disregarding any auction outcomes in which four companies do not win the minimum amount of spectrum necessary to provide higher quality data services. This can involve different combinations of spectrum, each of which could be sufficient to ensure a credible competitor.
Ofcom proposes that this minimum amount should be one of the following five combinations:

  • 2×5 MHz of sub 1 GHz spectrum and 2×20 MHz or more of 2.6 GHz; or
  • 2×5 MHz of sub 1 GHz spectrum and 2×15 MHz or more of 1800 MHz; or
  • 2×10 MHz of sub 1 GHz spectrum and 2×15 MHz or more of 2.6 GHz; or
  • 2×10 MHz of sub 1 GHz spectrum plus 2×10 MHz or more of 1800 MHz; or
  • 2×15 MHz or more of sub 1 GHz spectrum.

Safeguard caps to guard against longer term risks to competition

Ofcom also proposes to put in place safeguard caps to guard against longer term risks to competition from any one licensee holding a disproportionate amount of spectrum. Two safeguard caps are proposed:

  • A sub 1GHz safeguard cap of 2×27.5 MHz, which will mean that no one competitor can obtain more than this amount of sub 1 GHz spectrum.
  • An overall spectrum holdings cap of 2×105 MHz, which will mean that no one competitor can obtain more than this amount of spectrum overall.

Securing wide availability of next generation mobile broadband

Ofcom proposes to include a coverage obligation in one licence for the 800 MHz spectrum. The obligation would require the licensee to provide a mobile broadband service covering 95% of the UK population. It is expected that bidders will factor in the cost of achieving this obligation when making bids for the licence. This should result in coverage for future mobile broadband services that approaches today’s 2G coverage. The date for meeting these obligations would be the end of 2017.

Securing coverage in more rural areas

Statistics on current 2G and 3G coverage demonstrate that coverage varies between areas of the UK, with coverage in more rural areas generally being less comprehensive than in urban areas. This is particularly significant for 3G coverage.

One way of ensuring more uniformity of coverage for 4G services in future would be to supplement the main coverage obligation described above with a requirement to cover a certain proportion of the population in particular areas – for example in certain rural areas. Stakeholders are being encouraged to give their views on the feasibility and appropriateness of this.

Timings

Ofcom wants the benefits of 4G services to be available as soon as possible and we are therefore aiming to start the auction in the first quarter of 2012, subject to this consultation.

The consultation is available here.

Media Briefing Slides

ENDS

NOTES FOR EDITORS

1. The term 4G is generally used to refer to mobile broadband services delivered using the next generation of mobile broadband technologies including Long Term Evolution (LTE) and WiMAX.

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