Ofcom Aims to Keep 4 Operators by Capping U.K. Spectrum Bids

U.K. regulator Ofcom said it may impose limits on the minimum and maximum amounts of mobile-phone frequencies that Vodafone Group Plc (VOD) and other operators can bid for in an auction that may raise as much 2.6 billion pounds ($4.2 billion.)

The regulator said it wanted to maintain at least four national operators in the market, according to a statement today. Hutchison Whampoa Ltd. (13)’s 3 unit, the smallest of the four operators, said previously it may be forced out if it fails to win enough spectrum.

“There are risks to future competition if bidders are free to acquire any amount of spectrum in an open auction,” Ofcom said in the statement.

The auction, scheduled for the first quarter of 2012, will sell frequencies equivalent to three-quarters of the spectrum currently being used by operators. Carriers need the bandwidth to cope with surging data demand as users watch films and surf the Web on smartphones including Apple Inc.’s iPhone and handsets using Google Inc.’s Android system.

“This is a fiercely contested area,” said Ofcom Chief Executive Officer Ed Richards. “This is the strategic asset in the market for the next 20 years.”

All the companies are seeking access to the valuable 800 megahertz band of low-frequency spectrum that can travel long distances with fewer expensive base stations.

‘Core Principle’

The number of operators fell to four from five after France Telecom SA (FTE) and Deutsche Telekom AG (DTE) merged their British units to form the largest U.K. provider, Everything Everywhere, ahead of Telefonica SA (TEF)’s O2 and Vodafone. The market may consolidate further without intervention from the regulator, 3 said.

“Ofcom’s proposals set out the core principle that the U.K. must retain four wholesale mobile operators,” 3 CEO Kevin Russell said today. “Against a background of consolidation in the U.K and U.S., we believe this is a clear and strong commitment from government and Ofcom.”

Ofcom said it also planned to impose a coverage obligation of 95 percent of the U.K. population for one license in the 800 megahertz bandwidth.

The auction has been delayed for more than two years as the regulator faced legal challenges. Vodafone and O2 previously opposed restrictions on the amount of low-frequency spectrum that they could bid for.

Dominance

O2 said today it had the opportunity to bid for “sufficient spectrum” to operate higher-speed services, while Vodafone said it was considering the proposals.

Vodafone and Telefonica are the only U.K. companies to hold low-frequency 900 megahertz airwaves. Orange and T-Mobile hold five times as much of the 1.8 gigahertz band than the other two operators combined.

Everything Everywhere said the plans do not reduce the “dominance of the incumbent holders of this spectrum.”

“I hope that the debate doesn’t spill into litigation,” Richards said. “I hope they all recognize that the U.K. needs to move on with this now.”

The U.K. auction will follow the sale of low frequencies in Sweden and Germany, designed to enable operators to roll out fourth-generation networks. The German auction last year raised 4.38 billion euros ($6.2 billion) from the disposal of airwaves previously used to broadcast television services.

Based on the amounts spent in Sweden and Germany, the 800 megahertz band may be sold for between 1.4 billion pounds and 2.4 billion pounds in the U.K., according to Analysys Mason, a research firm in Cambridge, U.K. The sale of 2.6 gigahertz frequencies may be valued at about 225 million pounds, based on bidding in Germany.

To contact the reporter on this story: Jonathan Browning in London jbrowning9@bloomberg.net.

To contact the editor responsible for this story: Simon Thiel in London at sthiel1@bloomberg.net

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