Ofcom's 4G plans "irrational" and risking UK's competitive mobile future: Three UK

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Dave Dyson, CEO of Three UK, has said that Ofcom's current proposals for the auction of LTE spectrum could risk future competition in the mobile market. However, he refused to confirm reports that the operator is considering an imminent legal challenge to Ofcom’s plans to auction LTE spectrum.

In a speech at a Westminster eForum event this morning, Dyson said that it is essential that Ofcom ensures that Three is given access to 800MHz spectrum. Three fears that it is about to be priced out of chunks of the LTE auction, leaving it at considerable commercial disadvantage.

Critically, it believes that analysis used by Ofcom that played down the technical advantages of owning sub 1GHz spectrum was flawed. That analysis led, in part, to Ofcom dropping previously-held plans to reserve an 800MHz block for a fourth player (in effect, Three UK).

“I am calling on Ofcom to reconsider its technical analysis and position on low frequency spectrum and to more closely follow every other regulator in Europe. A conclusion to the contrary would be irrational, questionable, and unnecessarily risks future competition in the UK mobile market,” he said.

However, he stopped short of confirming that Three would move to a legal challenge if its demands were not met, saying instead that it would keep its options open. Of course, Three is unlikely to make any move untli Ofcom has made public the results of its second consultation on the auction, which has just closed.

Dyson also denied that its intended rollout of 42Mbps HSPA+ was designed to “buy it time” to consider a legal challenge to the auction. The timing of this network upgrade, he said, was in response to rising data bandwidth demands, and the delay in commercial availability of HSPA+ 42Mbps software until the summer of 2012.

Dyson said that Three UK now carries 40% of all UK mobile data traffic, and that on average its contract customers use 800Mb of data a month, up from 200Mb a year ago. In certain areas, Dyson said, Three retail stores are being instructed not to sell too much mobile broadband, as the operator doesn’t have the capacity to serve too many users in that area.

Competitive landscape distorted
To meet this rising demand, and to remain competitive, Three wants all players to be given assured 800MHz spectrum in the auction. Alongside that it wants a re-evaluation of 900MHz spectrum, and thinks the simplest way to achieve this would be to value it at the prices paid for 800MHz spectrum in the LTE auction. It says this would realign the UK back to the situation it had in 2002, when there was "genuine balance" in the industry.

“It is clear to me that a distortion of the competitive landscape has occurred,” Dyson said. “This is important because ultimately the amount spectrum an operator has will dictate market share.”

An operator in a four player market must have at least 15% spectrum holding, to ensure the 15% market share at which it can become commercially viable, Dyson said. Three is concerned that 900 and 1800MHz re-farming has distorted the position around 3G. Now it feels that it is about to be cut our of chunks of 4G action as well.

Sub-1GHz spectrum

Sub-1GHz spectrum comes with specific advantages, Dyson said. He added that this was “something that Ofcom itself appeared to recognise a year ago, and which every other regulator in Europe has recognised”. Since then, however, Ofcom has re-evaluated the benefits of sub1GHz spectrum, stating that its worth is less important that previously stated. As a result it withdrew the assurance of 800MHz spectrum for Three, as the likely fourth LTE player.

But Dyson said that Ofcom’s technical re-evaluation had been “flawed”: and he accused Ofcom’s evaluation of not even being based on GSM standards.

“Ofcom did appear to have a solid position with respect to the advantages of low frequency spectrum. Now they have changed their view and say the advantages are less clear. It is our view that the technical modelling of their changed conclusion is flawed, not least because it didn’t follow GSM standards. It remains to be seen if they re-conclude with a decision more consistent with their European peers,” he said.

Re-evaluate 900MHz spectrum
Dyson also alleged that that O2 and Vodafone continue to receive a competitive advantage from the re-farming of spectrum at 900MHz for 3G use. He would like to see Ofcom re-allocate or re-auction 900MHz spectrum, to recognise its worth. This has been done in much of the rest of Europe, he said.

The simplest way to value 900MHz spectrum would be to price it at the same levels paid for 800Mhz spectrum in the 4G auction, Dyson said. This had in fact been an Ofcom proposal at the time of allowing 3G refarming, but Dyson said he feared Ofcom was now considering a much more complicated mechanism, which would only impact on transparency.

Vodafone and O2, of course, are not keen on the 800MHz price determining the price of a renewed 900MHz licence. It would mean that every bid they made in 800MHz auction would also in effect be a bid for 900MHz spectrum. 

Everything Everywhere’s LTE1800
Dyson also said that he thought allowing Everything Everywhere to use its 1800MHz spectrum for LTE was unfair, and would give EE competitive differentiation in the market without the operator having paid any extra for the privilege.

Kip Meek, of EE, said that in fact the operator had already agreed to dispose of 1800MHz spectrum as a condition of its merger, a measure specifically designed to limit its ability to roll out LTE in its 1800MHz spectrum. To limit it again now, due to an arbitrary “start date” for LTE, would not make sense, Meek said.

Just today, however, Ofcom said it was extending its consultation period on its proposal to allow 1800MHz LTE.