Three UK Seeks More Mobile Spectrum from Ofcom to Tackle BT

Mobile operator Three UK has a problem with radio spectrum, it needs more. The operator had hoped to tackle this challenge by gobbling O2, but the EU’s competition body blocked that (here). Now they’re demanding more spectrum security from Ofcom and the regulator may have to deliver.

Admittedly Three UK is an alternative operator with a low cost mould, but such a business also has to make investment sacrifices and in that sense it’s perhaps no surprise to find that the operator still has the least amount of radio spectrum. The gulf even grew a little bit after BT gobbled EE and all without being forced to give up any spectrum to rivals.

Ofcom does not do hand-outs, but after campaigning so aggressively against the proposed merger of O2 and Three UK they could perhaps be said to have an obligation to ensure that both of those operators hold enough spectrum to ensure that they can continue to grow and be competitive. At the same time they can’t easily prevent EE/BT from bidding.

The debate has come to the surface because Ofcom are about to launch another auction of airwaves in the higher frequency bands of 2.3GHz (2350 – 2390MHz) and 3.4GHz (3410 – 3600MHz), which could be used for Mobile Broadband (4G) and or other fixed wireless broadband services.

Most of the aforementioned spectrum is being re-purposed for civil use (e.g. mobile operators) after formerly being used by the Ministry of Defence (MoD) and Ofcom will not hold any operator to a specific coverage obligation, which isn’t surprising because higher frequencies aren’t ideal for coverage focused deployments (they don’t reach very far).

Ofcom has also said that they won’t impose any spectrum caps on the auction because that could “prevent a bidder from buying large blocks of adjacent spectrum“, which is needed in order to support “very fast download speeds” and boosting Mobile Broadband capacity / speed is a clear focus for this auction. On the other hand a smaller player like Three UK might easily be outbid by BT/EE or even Vodafone.

David Dyson, CEO of Three UK, said (FT):

“The combination of BT and EE is incredibly strong financially. It has got the financial ability to out-compete everyone in the market in how much they are willing to pay.

Potentially, given how much spectrum they are already sitting on, BT is incentivised to strategically bid in the next auction to restrict the other operators in the market from increasing their spectrum portfolio … That could make life difficult.”

However Three UK’s rivals might perhaps argue that this is the same operator whose parent, CK Hutchison Holdings, was until last month still willing to sign a £10.25bn merger deal with O2 (Telefonica UK) and they’ve also had opportunities to grab more spectrum before.

But the failure to get that merger approved may have changed the dynamic and CK Hutchison Holdings are already known to be considering their place in the market, especially after it was revealed that the value of Three UK had been written down by more than £6bn in 2015.

Never the less Three UK will be seeking some spectrum security from Ofcom and the regulator’s recent anti-merger decision will surely make those demands harder to ignore. David Dyson has suggested that one option could be to impose “fairly significant restrictions” on BT and Vodafone, such as by forcing them to give up some spectrum before allowing further bids, but this would surely complicate matters (delays).

Ofcom has already set out its close-to-final auction design and they aim to get the process started before the end of 2016 (here), so we should find out fairly soon whether or not they intend to make any significant changes.