Spectrum Starved Three UK Asks Ofcom to Tackle BT / EE’s Mobile Power

The CEO of mobile operator Three UK, David Dyson, has once again called on Ofcom to level the market by limiting BT’s (EE) ability to bid on new radio spectrum in the forthcoming auction of airwaves for the higher frequency 2.3GHz (2350 – 2390MHz) and 3.4GHz (3410 – 3600MHz) bands.

It’s fair to say that the EU’s recent decision to block a proposed £10.25bn merger between Telefonica UK (O2) and CK Hutchison Holdings (3UK) hasn’t exactly gone down too well at Three UK’s head office (here) , leaving the operator scrambling to establish a new way forward.

Three UK was somewhat banking on the deal to help it level the playing field of spectrum ownership with rivals BT (EE) and Vodafone, but Ofcom helped to scupper that plan. The regulator feared that the move would reduce the number of primary UK mobile networks from four to three and thus result in higher prices for consumers, as well as a less competitive market.

However Ofcom now faces a dilemma because the approval of EE’s merger with BT, which occurred without any major concessions being extracted, has meant that the United Kingdom’s market is now dominated by two large mobile networks and it’s easy to see the differences. Spectrum ownership is the lifeblood of any mobile network.

The suggestion being put forward by Dyson is that Ofcom should address this imbalance by restricting bids, which might for example prevent BT/EE from bidding on the new bands because they already own more than 30% of the total spectrum (they hold around 42%); this could also seriously restrict Vodafone’s ability to bid as they own 29%.

Dyson suggests that both BT/EE and Vodafone have plenty of unused spectrum and might therefore be encouraged to engage in strategic bidding, which would make it difficult for Three UK and O2 to secure a good slice of the new airwaves. Similarly O2 isn’t exactly cash rich at the moment and are in the process of preparing to float on the market (IPO).

David Dyson said (BBC):

“If you’ve got one or two players in the market that dominate spectrum then there is always a fear that innovation is slower because you don’t have people pushing each other.

If [BT/EE] were to bid on this spectrum, it would most likely be a mechanism to stop ourselves and O2 strengthening our position, which would effectively be anti-competitive.”

On the other hand EE has today demonstrated their plans for LTE-A Cat 9 (4G+) technology, which will allow customers in certain areas to achieve ultra-fast Mobile Broadband speeds of 300Mbps+ by making greater use of their existing radio spectrum (here). The approach is nothing new and was first discussed all the way back in February 2015, but their decision to announce this on the same day as Three UK’s moan does represent interesting timing.

Equally EE and Vodafone might well question why Three UK, which seems to be in reasonably good financial health, hasn’t previously tried to acquire more spectrum when it had the chance or whether it’s right that they should now be allowed preferential access to new airwaves on the cheap.

A Spokesperson for EE told ISPreview.co.uk:

“We have never stopped using our spectrum to deliver the very best network experience for customers. We pioneered 4G and we are a leader in network speeds. Today’s announcement of new Cat 9 technology keeps the UK a step ahead, providing even more capacity and some of the highest mobile download speeds in the world.

We are unique in our commitment to expand 4G coverage to 95% of the UK’s landmass by 2020, further than any other UK network has done, and will continue to ensure the UK stays at mobile technology’s leading edge.”

Bickering and legal threats are nothing new in the mobile industry. Indeed Ofcom has already had to delay its auction after Three UK pressured them to wait until both of the proposed mergers had been decided (here).

Meanwhile Ofcom has already said that they won’t hold any operator to a specific coverage obligation or impose 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 boost Mobile Broadband capacity (this is a clear focus for their auction).

However if Ofcom doesn’t act then they run the risk of allowing one operator to build a new monopoly in the mobile market, which would perhaps run counter to their supposedly pro-competition approach in other areas. We can see plenty more disputes ahead when the regulator publishes their final consultation in the next few weeks or months.