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Three UK in Formal Legal Threat to Delay Ofcom’s 4G – 5G Spectrum Auction

Wednesday, August 9th, 2017 (10:09 am) by Mark Jackson (Score 1,695)
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Here we go again. Mobile operator Three UK has issued a formal letter before action to Ofcom, which threatens the regulator with a Judicial Review unless they change the rules of their forthcoming 4G and 5G radio spectrum auction in order to more aggressively curb EE’s (BT) dominance.

At present EE holds about 42% of all related spectrum for their mobile services, while Vodafone has 29%, O2 owns 14% and Three UK has 15%. As a general rule the more spectrum you own, the better your services perform (e.g. faster speeds) and the wider your network coverage (assuming operators make the best use of their allocations).

2017 H1 spectrum bands by mobile network operator

Last month Ofcom set out the final rules for their auction of radio spectrum in the 2.3GHz and 3.4GHz bands, which aims to help Mobile Network Operators (MNO) to launch “very fastMobile Broadband (4G and 5G) services by 2020. The rules included a number of caps on the amount of spectrum that any one operator can bid for, which is the solution that will be used to help rebalance the market.

Ofcom’s Bidding Restrictions

* First: As we proposed in November last year, we will place a cap of 255MHz on the “immediately useable” spectrum that any one operator can hold as a result of the auction. This cap means BT/EE will not be able to bid for spectrum in the 2.3GHz band.

Immediately useable spectrum refers to mobile spectrum currently licensed in the 800MHz, 900MHz, 1400MHz, 1800MHz, 2100MHz and 2.6GHz bands and the 2.3GHz band available in this award.

* Second: We have decided to place a new, additional cap of 340MHz on the overall amount of mobile spectrum a single operator can hold as a result of the auction. This cap amounts to 37% of all the mobile spectrum expected to be useable in 2020, which includes not only the spectrum available in this auction but also the 700MHz band (due to become available in 2020).

The mobile spectrum we expect to be useable in 2020 includes immediately useable spectrum plus 190 MHz in the 3.4GHz band as well as 80 MHz in the 700MHz band

However, Three UK has consistently called for a more aggressive spectrum ownership cap of 30%, while rival O2 would have been happy with 35%. Such an aggressive cap could have effectively stopped EE from being able to bid and might also hinder Vodafone.

Meanwhile Ofcom is mindful that EE needs higher frequency spectrum in order to prepare their own 5G services and so completely excluding them from bidding on the 3.4GHz band might have been counter-productive. On top of that it could have reduced the money earning potential of their auction and the Government probably wouldn’t like that.

Suffice to say that Three UK has concluded that Ofcom will not meet their demands and so they’re gearing up for a High Court challenge, which could potentially delay the auction for another year or possibly two (we saw similar squabbling and delays over the earlier 4G auctions).

The operator’s new letter before action, which has been seen by The Telegraph, accuses the regulator of failing to achieve their “own basic objective of avoiding very asymmetric spectrum shares” and it describes the 37% cap as being “simply meaningless.” Three UK then calls on Ofcom to either revoke or remake the rules. It’s worth noting that none of the other operators plan to launch similar legal action.

Elsewhere Three UK’s rivals have frequently noted that the operator’s parent company (CK Hutchison Holdings) has more than enough money to buy a good chunk of spectrum and indeed they’ve had plenty of opportunities to do so in the past too, but haven’t. In addition, Three UK’s recent purchase 5G friendly spectrum via their £250m acquisition of UK Broadband Ltd. (here) might give them an incentive to delay related auctions for as long as possible, although the operator denies having such a strategy.

Ofcom may now have to battle it out in the courts and they’re also rumoured to be considering a new system of temporary spectrum licences, which might enable O2, Vodafone and EE to access the necessary spectrum before the case with Three UK completes.

All of this would have been so much easier had Ofcom and the EU just allowed O2 and Three UK to merge last year (here).

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17 Responses
  1. John

    So much easier for O2 and Three to merge?

    What about the effect it would have on competition?

    Do you really think the combined entity would’ve stopped moaning about the lack of spectrum?

    • 3G Infinity

      John, there are only 2 real networks today as EE shares over 50% of its network with Three (eg towers) and likewise Vodafone shares over 50% of its network with O2, again towers.

      O2 merging with Three would have possibly caused a break in this sharing arrangement, which would increase competition for coverage, but certianly not have reduced competition.

      Three would have gained access to O2’s low frequency spectrum and vice versa.

  2. Michael

    We really don’t want another delay. But I agree with Three, ofcom has allowed an imbalance. Vodafone and EE have too much spectrum, especially EE. The smaller operators need a chance for more. Ofcom need to listen more.

    • Me

      They have had a chance several times. They have failed to bid enough. That’s hardly Ofcom’s fault. Basically they want a cap so they can get the spectrum cheap. Hardly a clever move by UK to sell off assets cheap to those who WHINGE loudest.

    • G.Lee

      IMO Three need to put up and shut up…. make an investment not expect things to fall there lap…. If I remember right too, if it wasn’t for EE selling Three some 1800mhz spectrum Three’s 4G would probably be worse than it is now.

      O2’s got an excuse to be stingey, the fathering company is near enough broke last time I looked at them, though things might be looking better for them this time around.

  3. Alex

    Anyone have any great solutions to this problem and what Ofcom should do? I can’t think of anything better than the plan Ofcom has currently gone with.

  4. MikeW

    Is the imbalance really an unfair one?

    On the one hand, the imbalance came about because Ofcom allowed Tmobile and Orange to merge, while refusing to allow O2 and Three. That’s where Ofcom should have acted to alter the balance – on existing spectrum allocation.

    On the other hand, the imbalance also came about because Three and O2 just weren’t as willing to bid for spectrum, and hand over the money for it, in previous auctions. This aspect is down to relative business decisions, perhaps now showing O2 and Three to have been too conservative.

    And, of course, EE doesn’t get it’s spectrum for free. It still has to pay the price that resulted from fully competitive auctions.

    The question is whether O2 and Three should now gain a benefit from those poor/conservative decisions, by being allowed to bid in a less competitive (and thus likely to be lower priced) auction? I’m not sure that is a fair result either.

    • 3G Infinity

      MikeW, Three to its credit running an average of 6.9GB per month per user versus the rest of the operators who struggle to manage 2GB per month per user.

      In that sense Three is a victim of its own success, low priced all you can eat plans.

    • MikeHunt

      Not sure about low prices anymore, they’ve raised PAYG AYCE to £35 and montly AYCE to £28.

      I blame this largely on the T-Mobile aquisition and the stopping of their unlimited plan.

  5. Me

    Crap article… Nobody seems to have noticed that Three bought a SHEDLOAD of spectrum when it bought UK Broadband. However the cap they are complaining about would not cover that, so that’s all fine then. They are not as disadvantaged as they make out. Any journo worth the name would have researched their story first!

    • 3G Infinity

      the ‘Shedload’ of spectrum is 5G capable when it arrives, for now its 4G LTE Advanced Pro – and the handsets are still not there with thses bands built-in. Give it another 12 months.

    • MikeHunt

      Galaxy S8 is LTE-A+ capable.

    • Alex

      @Me
      Crap comment… Mark has pointed out in a very recent article that Three bought a SHEDLOAD of spectrum when it bought UK Broadband. Any commenter worth the name would have researched their story first!

      @Me, everyone can make mistakes including you, it is not helpful being confrontational.

      Mark, keep up the great journalism.

    • Strange comment too as the above article even references the UKB purchase.

      Elsewhere Three UK’s rivals have frequently noted that the operator’s parent company (CK Hutchison Holdings) has more than enough money to buy a good chunk of spectrum and indeed they’ve had plenty of opportunities to do so in the past too, but haven’t. In addition, Three UK’s recent purchase 5G friendly spectrum via their £250m acquisition of UK Broadband Ltd. (here) might give them an incentive to delay related auctions for as long as possible, although the operator denies having such a strategy.

  6. G.Lee

    Three messed up first time with 4G, they need to fix it for 5G, fact they have got a head start with their recent acquisition means fronting a bit of cash this time could have positive effects.

    Right now, there network (4G wise) is appalling, I hate to think what it could of been like if the EE deal for a bit of 1800mhz never came to be.

    Either way I still spend most days being kicked off 4G and stuck on just a congested or barely operational 3G… I’ve been using them for couple of months and honestly think this will be my last, can’t even get Spotify streaming to stay online when moving about, never had that issue with EE/Virgin/Vodafone regardless of 4G/3G..

  7. Gavin

    Three are just playing the legal game to slow down 5G rollout. So they can get away with investing in 5G for longer. They did the same with 4G, so I would not take any notice of Three’s winging. Hopefully the court will through out the case, due to there track record.

  8. MikeHunt

    One wonders if Three are after revenge for their refused O2 bid.

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