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

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).

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 fast” Mobile 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).