U.K. Carrier Three Calls for Caps on Wireless Spectrum Sales

  • ‘Strategic bidding’ by Vodafone, EE denies others: Three CEO
  • Three U.K.’s Dyson: Could double customers in three years

Three U.K., the mobile-phone carrier blocked from merging with rival O2 earlier this year, called on British regulators to cap purchases of new wireless spectrum so the smaller companies can compete with Vodafone Group Ltd. and BT Group Plc’s EE.

“Strategic bidding” by Vodafone and EE, whose former-monopoly parent still controls the U.K.’s fixed-line network, denies Three and O2 access to more capacity, Chief Executive Officer David Dyson told reporters Tuesday in London. He said the two larger companies are taking advantage of weaknesses at Ofcom and said Three supports government plans to strengthen the U.K.’s telecom regulator’s mandate.

Lack of local scale at CK Hutchison Holdings Ltd.’s Three impedes its ability to spend as much as larger rivals, but with a fair spectrum allocation, the carrier could double its subscribers in three years, Chief Financial Officer Richard Woodward said. Dyson pointed out that regulators allowed BT to acquire mobile-phone provider EE earlier this year while preventing his company from completing its plan to buy O2 from Telefonica SA.

"I don’t think Ofcom looking at BT and EE is unfair,” Dyson said. “Everyone expected them to have to divest spectrum. Ofcom needs stronger powers so it can regulate the market in a way that benefits consumers.”

A proposed Digital Economy bill seeks to strengthen Ofcom’s decision-making powers by limiting opportunities for appeals.

BT declined to comment. Vodafone said in an e-mail that Dyson’s comments were “pretty surprising” and that Three has had “ample opportunity” to bid for spectrum when it’s become available. A recent U.K. National Audit Office report on 4G auctions said Three itself used strategic bidding. 

Matthew Howett, a TMT analyst at Ovum, said Dyson’s comments were designed to pressure Ofcom to split off and possibly redistribute spectrum now owned by BT. Howett said Three could ask Ofcom to force BT to give up spectrum in the 2.6 gigahertz range, which is valuable because it works with most mobile phones. If EE refuses to comply, the regulator could impose limits on the quantity of spectrum EE and others can buy in future auctions.

"Before BT and EE got together, Ofcom hadn’t considered rules limiting carriers’ spectrum," Howett said. “But I’d be surprised now if Ofcom doesn’t set a cap on future auctions.”

Ofcom decided to delay its spring spectrum auction after O2 and Three announced their intention to merge earlier this year, a deal that was ultimately blocked by the European Commission. Ofcom will set out plans to award spectrum in the 2.3 gigahertz to 3.4 gigahertz frequencies later this year, a spokesman said.

The planned 10.25-billion pound ($13.7 billion) purchase of O2 was blocked by EU regulators in May on concerns over competition and customer choice. Three will now have to grow organically and isn’t considering other opportunities at the moment, Dyson said.

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