BT, Vodafone Face Bidding Restrictions in U.K. Wireless Sale

Updated on
  • Regulator Ofcom limits operators to even out holdings
  • Auction expected by Macquarie to raise 652 million pounds

Ofcom, seeking to even out carriers’ rights to the airwaves and spur competition, will apply a cap on the amount of immediately usable spectrum any one operator can own.

Photographer: Chris Ratcliffe/Bloomberg

The U.K.’s communications regulator plans to limit the amount of wireless spectrum BT Group Plc and Vodafone Group Plc can buy at a coming auction, a long-awaited decision that risks being appealed.

Ofcom will cap the amount of immediately usable spectrum any one operator can own, which will prevent BT and its EE wireless unit from bidding in the 2.3 gigahertz band. The regulator will also limit how much any carrier can hold of overall spectrum that’s expected to be usable by 2020, affecting both BT and Vodafone.

The regulator, seeking to even out carriers’ airwaves rights and spur competition, announced the rules Tuesday following consultations over an initial proposal last November. The frequencies being offered will improve fourth-generation networks and support fifth-generation technologies set for roll-out starting around 2020. Any appeals could delay 5G.

“We want to see this spectrum in use as soon as possible,” Philip Marnick, Ofcom’s group director of spectrum, said in a statement. “With smartphones and tablets using even more data, people need a choice of fast and reliable mobile networks.”

Ofcom is auctioning off 40 megahertz of 2.3 gigahertz spectrum, which is supported by smartphones already on the market, and 150 megahertz of 3.4 gigahertz spectrum, which will be important for 5G.

The U.K. is one of Europe’s most imbalanced wireless markets, where the former monopoly BT currently has 42 percent of the immediately usable spectrum after buying EE last year, Ofcom said. Vodafone has 29 percent, CK Hutchison Holdings Ltd.’s Three UK has 15 percent and Telefonica SA’s U.K. division, O2, has 14 percent.

The sale is expected to raise 652 million pounds ($840 million), with O2 spending the most at about 300 million pounds, Guy Peddy, an analyst at Macquarie Capital in London, wrote last month in a note.

The auction’s design was anticipated and is “largely inconsequential” for the competitive positions of BT and Vodafone, given their existing holdings and ability to bid at future auctions, Dhananjay Mirchandani, an analyst at Bernstein in London, wrote Tuesday in a note. 02 and Three will probably bid aggressively in the upcoming sale, he said.

Ofcom’s limit of 37 percent on any one company’s share of spectrum by 2020 doesn’t go as far as some had wanted. O2, the U.K.’s second-largest mobile carrier after EE, had lobbied the regulator for a maximum of 35 percent. Three UK had called for a cap of 30 percent, which would have forced BT and EE to sell holdings to participate in the auction.

Three UK, the most vocal carrier on the matter, argued the auction design allows the larger operators to become more dominant, with its Chief Executive Officer Dave Dyson calling it a “kick in the teeth for all consumers.” Dyson has previously suggested Three UK could appeal the rules if the regulator didn’t follow its recommendations.

Ofcom said Tuesday that Three UK’s acquisition of UK Broadband, announced in February, boosts the carrier’s spectrum position and “very significantly” reduces any concerns the regulator had about the company’s capacity from about 2020 onward.

Others appeared eager to move forward. The auction design “falls short of our expectations but it is important we now press ahead with the auction quickly,” O2 CEO Mark Evans said in a statement. EE CEO Marc Allera said in a statement that while he didn’t think any caps were necessary, “we look forward to bidding for additional spectrum in this auction.” Vodafone said it welcomed Ofcom’s announcement, but needs to see the regulator and U.K. government support a pro-investment approach to infrastructure investment.

The U.K. regulator expects bidding to begin as early as October, if the rules aren’t appealed like in the past 4G auction. The challenge of that sale of 2.6 GHz spectrum took 14 months to resolve and contributed to holding up the awarding of those rights until 2013, delaying the U.K.’s deployment of 4G networks. The upcoming auction was already delayed by the process to approve BT’s takeover of EE.

Companies other than traditional mobile carriers could also be attracted. Arqiva Group Ltd., which provides connections for mobile operators through its towers, this month acquired more spectrum that could be used for 5G as it works to set up a fixed-wireless access network for service providers as an alternative to running fiber-optic cables all the way to a customer’s home or business.

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