Cutting Room:Three fighting for spectrum share

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All eyes are on Ofcom as the spectrum debate carries on with Three continuing to make it known it doesn’t feel it will get a fair deal

There aren’t many of us who envy those working in or for the Government. Expenses scandals, massive job cuts, embarrassing foreign policy fiascos in North African countries – there isn’t much positive to say about working for the Government at the moment (if there ever was).

And closer to our own industry, regulator Ofcom and its chief executive Ed Richards (pictured) find themselves between a rock and a hard place, with the industry holding its breath to see which way judgment on next year’s auction of spectrum will go.

The auction is much needed to keep the UK catching up with rivals like Germany, where LTE is already being launched.

But Ofcom must make the right call in how it will run the auction – or find itself in a quagmire of network fallout.

Obviously, the Government wants to make as much money out of the auction as possible, though no-one is predicting the astronomical levels of the auction of 2000.

But if it allows a no-holds-barred auction-bidding process, the three larger operators – Everything Everywhere, O2 and Vodafone – could make strategically high bids to squeeze its rival Three out of the market – or at least that is the complaint of the latter.

Three chief executive Kevin Russell has been vocal in demands on the regulator to introduce rules into the auction that would give his company an advantage in the next round of bidding.

The company is concerned that it might be forced out of the UK market, and that an Ofcom decision to hold an auction based simply on encouraging the highest bids, could result in further consolidation of the UK mobile market if Three is forced to sell up from a weakened position.

And if this comes to fruition, the Government could face legal battles as well as stirring into action the double headache of competition regulators and consumer groups.

Three is already feeling hard done by, after the Government gave the green-light last year to the re-farming of spectrum, which enabled operators to use the spectrum traditionally used for voice and texts for mobile data services.

From having a 25 per cent share of 3G spectrum, this combination of 2G and 3G spectrum now sees Three’s total share down to 10 per cent.

And to remain competitive post-2012 auction, Three claims it will have to acquire at least 40 per cent of available spectrum.

The resentment lies in the fact its rivals were handed extra spectrum in 2010 at relatively little cost, but Three could well have to pay big to stay competitive, or not compete at all.

But its rivals arguably have a case, too – while Three feels the other networks have had a free lunch in the combined use of 2G and 3G spectrum to deal with increased mobile data demands, the likes of O2 and Vodafone could well ask why Three deserves a free leg-up in the next auction. In other words, pay up or shut up.

At the recent Westminster eForum, covered in this issue on page 14, O2 UK chief executive Ronan Dunne made thinly disguised references to Three’s stance on the auction, saying “there will be plenty of people who want to tell you that this auction is all about the history of who owns which 3G licences” but insisting that the auction should be about “the future”.

He went on to call for “real competition” for the 4G spectrum and added that “any rules that limit the freedom of operators to bid for spectrum in this auction would effectively be a constraint on a business’s ability to grow.

For one operator to claim ‘it’s not fair’ simply doesn’t wash.”

Dunne did concede, however, that the situation may call for “innovative solutions, including sharing” (Ofcom has proposed an open system of trading spectrum, which Three has said will not work as networks will not hand over strategically important spectrum).

Details of the auction are understood to be coming out in the week commencing March 21, if not sooner. The structure of this auction will change the mould of the network world as we currently know it.

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