Cutting Room: lessons to be learnt from 4G affair

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Samantha Tomaszczyk says the lesson Ofcom and the operators should learn is they need to hurry up before the UK falls even further behind its global competitors 

EE’s 4G victory is an important lesson for the mobile industry and its regulator.

If you had told the company a year and a half ago that it would become the first UK operator to offer 4G services, they would probably have laughed in your face.

EE’s road to 4G capability hasn’t been easy, but then forcing a market shift – and trusting that demand will follow supply, rather than waiting for it to precede it – never is.
And this is where EE’s strengths really lie. The simple fact that it owns most of the 1,800MHz band – a frequency well suited to carrying vast amounts of data and so great for 4G – is, despite what O2 and Vodafone say, not enough to explain how it has managed to overtake its competitors in this new market.

So instead of threatening to run to the Competition Appeal Tribunal with cries of how unfair Ofcom is being for allowing EE to use its existing spectrum for 4G, O2 and Vodafone should look to their rival for inspiration. For a start, they need to make sure their network is as up to date as possible, as EE has been doing since Olaf Swantee (pictured) took charge in September last year.

It was Swantee who, encouraged by what he saw across Europe, convinced engineers and investors that the UK didn’t have to wait until the upcoming 800MHz and 2.6GHz spectrum auction to start rolling out 4G. The UK was already embarrassingly behind, with over 40 countries having access to 4G services. Waiting for the auction didn’t make sense – and this is where O2 and Vodafone made their first mistake.

To their credit they were on the right track when, in January 2011, Ofcom made the decision to allow O2 and Vodafone to use their 900MHz for 3G. Just as the two companies have objected to the regulator’s most recent decision, in 2011 EE were smarting, asking Ofcom to tell them “as soon as possible” when they could get their hands on some 900MHz bandwidth.

A cynic would say all that’s happened now is that the tables have turned, in EE’s favour. And to protect themselves from this O2 and Vodafone could have requested, last year or even in 2010, that Ofcom let them use 900MHz – over which they have a monopoly – for 4G.

Now I know what you’re thinking – O2 and Vodafone’s 900MHz is not as good for 4G as EE’s 1,800MHz, primarily because of the quantity each holds, so the former will be at a disadvantage until Ofcom gets its act together and evens out the distribution of spectrum. But had they played their cards right, O2 and Vodafone could now be offering their customers 4G devices which run on 900MHz. Their customers set on 4G would probably opt for Samsung’s bestseller, the Galaxy S III, which uses the band.

Chinese giant Huawei is also producing 4G devices that run on O2 and Vodafone’s spectrum, claiming that they could supply the operators with devices in a matter of weeks. This would have substantially reduced EE’s competitive advantage, as at least O2 and Vodafone would be in the game. It’s preferable to be able to offer a limited range of 4G handsets than none at all, surely.

And perhaps O2 and Vodafone wouldn’t have had to settle for a limited range. In shopping for suppliers of 4G phones that would run on 1,800MHz, Swantee is likely to have visited all the majors, including, Apple, Blackberry, Samsung, Nokia, HTC and Huawei. O2 and Vodafone could have done the same, but for their spectrum. Who knows, if things had gone differently, the new iPhone could have been dual, triple or quad LTE band.

Manufacturers, in general, will try to ensure their supply meets demand. Although with Apple, O2 and Vodafone would have had their work cut out – the Californian-based company was leaning more towards 1,800MHz as more than half the countries that have 4G use this frequency for it.

So that’s what O2 and Vodafone could have done, instead of waiting for Ofcom to finally hold the 800MHz and 2.6GHz auction. EE have spent the last year bracing themselves for their big launch. The Orange and T-Mobile partnership approached the bond market, and borrowed money to invest in its network. There was a certain risk in doing so as there was little demand in the UK for 4G at the time, but Swantee’s world view indicated there soon would be.

In fact, Swantee predicts such demand that EE is understood to be bidding for both 800MHz and 2.6GHz spectrum come the auction. EE is already planning to supply 4G devices for both those frequency ranges, but with a preference for 800MHz – showing that it is desirable to do so on lower frequencies.

Indeed, anything below 1GHz (1,000MHz) is usually called ‘prime’ because it travels further and so you need to install fewer masts, meaning roll-out and maintenance costs are lower. This is just as well, as this is often earmarked as the band most suited to rural areas, where fewer subscribers means there is less of an incentive to invest.

And what could Ofcom have done differently? The regulator arguably has as many lessons to learn from recent events as O2 and Vodafone – basically, it should have auctioned and cleared spectrum by now – but has made a sincere effort to correct its mistakes.

At a meeting last Tuesday with the operators, hosted by newly-appointed culture secretary Maria Miller, Ofcom announced that it will complete the ‘spectrum clearance’ much sooner than planned so it can be used by mobile companies. It is currently taken up by digital TV broadcasters. This has narrowed the time lag between EE’s launch and O2 and Vodafone’s enough for the latter two to agree not to take action against Ofcom for it’s “anti-competitive” decision.

This is the main lesson both operators and Ofcom should learn from the 4G debacle – hurry up, before the UK falls even further behind its global competitors. EE’s current competitive advantage on the 4G market was not ‘handed’ to it, it was there for the taking, and should have been fought over by the three big players. Because if 4G is the future – it is – it will run on all their frequencies.

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