On July 24, Ofcom published their third and (hopefully) final consultation on the proposed auction, which is now targeted to be held in the first quarter of 2013, with the application process planned to take place in the last quarter of 2012.
Ofcom’s latest set of proposals is substantively similar to its previous proposals in January 2012, with some refinements in the light of further studies in the meantime and representations made by stakeholders. The essential features of the latest proposals are:
- Reservation of a portfolio of spectrum bands for a fourth national wholesaler, either H3G or a new entrant.
- Safeguard caps on the amount of spectrum that will be allowed to be held by any wholesale operator following the auction: an overall cap of 2 x 105MHz and a sub-1GH spectrum cap of 2 x 27.5MHz.
- Coverage obligation to apply to a 2 x 10MHz lot within the 800MHz band, which will be both frequency and technology neutral. However the licensee will be able to meet the obligation with any frequencies that it is permitted to use.
- Spectrum packaging in the form of two types of lot for the 800MHz band (one for the 2 x 10MHz with the coverage obligation and the other for the remainder in lots of 2 x 5MHz); for the 2.6GH band, 2 x 5MHz lots for paired and 5MHz lots for unpaired spectrum.
- Reserved prices (e.g. £250,000,000 for 2 x 10MHz of the 800MHz, carrying the coverage obligation) for the different lot categories.
- No reservation in favour of low-power shared use of 2.6GHz spectrum but bidders for low power use to be allowed to aggregate their bids so as to better compete against the bidders for standard use.
- Spectrum trading to be permitted for individual standard-power licences; low-power licences at 2.6GHz to be tradable only where the number of licensees in the band is not increased. (Ofcom will consider after the auction whether to allow leasing of mobile spectrum licences generally).
- Licences to be of indefinite duration, with an initial period of 20 years and thereafter revocable for spectrum management reasons on 5 years’ notice.
- The level of annual licence fees for 900MHz and 1800MHz spectrum to be adjusted after the auction to reflect full market value having regard to the sums bid in the auction for 800MHz and 2.6GHz spectrum.
Coverage obligations - 2017
The main obligation attaching to the one lot of 800 MHz spectrum will be that users in an area within which 98% of the UK population lives should be able to receive a 2Mbps mobile broadband service both outdoors and at some indoor locations within the vast majority of premises. Ofcom recognise however, that the precise service level that a single user receives will depend on, for example, the user’s location within a cell, the usage of other nearby users, and the location of those users within the cell and surrounding cells.
There will be an additional coverage obligation attaching to this 800 MHz lot, requiring the licensee to provide the same 2Mbps service to an area in which 95% of the population of each nation (i.e. England and Wales, Scotland and Northern Ireland) lives.
Both obligations will have to be met by 31 December 2017.
There had previously been suggestions raised by respondents (e.g. BT) that the imposition of a coverage obligation on the 800MHz lot would be tantamount to a State Aid in that the reduced price resulting from the coverage obligation would constitute a grant of such an aid to the bidder. Ofcom roundly reject this argument, principally on the basis that the reduced valuation of the licence (if any) would reflect a public service obligation imposed on the successful bidder, and any competitive advantage to the bidder would be as a result of the bidder’s own investment in meeting that obligation.
Until the DTT users of certain channels in the 800 MHz band have been re-located to alternative spectrum, the 800 MHz band will not be fully available for use by mobile services. Clearance will take place gradually and regionally between the end of 2012 and October 2013.
Although the 3G auction raised the staggering sum of £22.5bn from the winning licensees, and although a much greater amount of valuable spectrum is being offered in the proposed 800 MHz/2.6 GHz auction, the FT (26.7.12) is apparently doubtful that much more than £4bn will be raised in this case.