Ofcom’s Next UK 5G Auction Faces Legal Challenge from O2

Mobile operator O2 (Telefonica UK) is today in the news for a second time this week after they issued a “letter before claim” (legal challenge) against Ofcom’s forthcoming auction of the 5G (ultrafast mobile broadband) friendly 700MHz and 3.6-3.8GHz radio spectrum bands, which demands more harmonisation of the spectrum.

Legal challenges against mobile auctions are of course nothing new in the United Kingdom and they often cause significant delays (the early 4G auctions were set back by years). The Government has since tweaked the rules to make Ofcom’s job of tackling such challenges easier, but operators frequently come up with new ways to highlight weaknesses or concerns with the regulator’s plans.

Mobile connectivity is an aggressively competitive environment and radio spectrum is the lifeblood that drives it. Often the more spectrum you control, the better your position (improved coverage and data speeds etc.), which makes it easy to understand why such auctions can be so contentious.

Ofcom’s latest 5G auction has already faced some challenges due to disputes over spectrum caps and the associated coverage obligation, which has since been dropped in favour of the new £1bn industry-led Shared Rural Network plan (i.e. extending geographic 4G mobile coverage to 95% of the UK by the end of 2025).

Telefonica’s New Legal Challenge

Unfortunately the regulator, which recently asked if any operators planned to disrupt the next auction by issuing a “letter before claim“, now faces a new problem after O2 responded by doing exactly that. According to the FT (paywall), the operator wants Ofcom to harmonise the lots of spectrum so that they are contiguous blocks, rather than being sold as fragmented slices.

The reason for this is because 5G works best when it has access to a large 100MHz+ block of contiguous spectrum frequency, which at present is something that only Three UK can field. Ofcom intends to make this possible for other operators via their forthcoming auction and that solution involves a secondary ‘assignment stage‘, which is a final round of bidding to determine the specific frequencies that winning bidders will be allocated.

In other words, winners of 3.6-3.8GHz spectrum will have an opportunity to negotiate their placements within the band amongst themselves. “This will make it more straightforward for bidders to join together the new spectrum they win with their existing holdings, and potentially reduce the level of ‘fragmentation’ in the wider 3.4-3.8 GHz band,” said Ofcom last year.

However, O2 argues that this approach creates a lot of complexity and risk for mobile operators, some of which may well walk away with smaller blocks than others (i.e. leaving them in a weakened position). But the alternative of requiring Ofcom to set who can get what arguably opens the regulator up to even more challenges from those who may disagree with their decisions.

A Spokesperson for Ofcom said:

“People and businesses need fast, reliable mobile services more than ever, so we want to auction these airwaves as soon as possible. We’re really disappointed that one operator has threatened to launch a legal dispute that could slow things down for mobile users and the economy.”

As it stands Ofcom’s auction plans already seem to be stuck in limbo due to the current COVID-19 (Coronavirus) crisis, which has forced them to delay a lot of their plans for 2020/21. The 5G auction was previously targeted to start in Q1 2020/21 (spring), but under the revised plan this has now been listed as 2020/21 (i.e. it could happen at any point over the next 12 months).

We suspect that, given the existing delay, Ofcom may feel as if it has less to lose by simply fighting O2’s challenge and resolving that as quickly as possible. By comparison any fundamental changes to the auction structure at this stage could open up a new can of worms.