You can’t see it (at least not without a special app), touch it, smell it, taste it or hear it – but mobile spectrum is one of the cornerstones of Britain’s future economic growth.
It is also a scarce commodity, which is why Ofcom, the telecoms and broadcasting regulator, has today confirmed plans to impose a cap on the amount of spectrum any mobile operator may be allowed to own.
The move comes ahead of auctions, in September and October this year, of spectrum needed to expand 4G services and roll-out new 5G services during coming years.
Under Ofcom’s proposals, no mobile operator will be allowed to own more than 37% of all spectrum. It is aimed at curbing the dominance of Vodafone, which has 29% of useable spectrum and especially the market leader EE, owned by BT, which has 42%.
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It is also aimed at bolstering the position of the smaller operators, Spanish-owned O2, which has 14% and Hong Kong-owned Three, which has 15%.
The decision, confirming Ofcom’s preliminary report published last November, is controversial. O2 had wanted a cap to be imposed at 35% while Three wanted it at just 30% of useable spectrum.
Dave Dyson, Three’s chief executive, has called the ruling a “kick in the teeth” for consumers, adding: “By making decisions that increase the dominance of the largest operators, Ofcom is damaging competition, restricting choice and pushing up prices for the very consumers that it is meant to protect.”
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He said Three, which has previously threatened to take Ofcom to court over the issue, would “consider our response as a matter of urgency.”
Three, along with TalkTalk and some other telecoms operators, previously backed a campaign, ‘Make the Air Fair’, that campaigned for a cap of 30%. Almost 180,000 people wrote to Ofcom in support.
Ofcom, however, is insisting it has done enough to ensure a healthy four-player market.
Philip Marnick, Ofcom’s spectrum group director, said: “Spectrum is a vital resource that fuels the UK’s economy.
“We’ve designed this auction to ensure that people and businesses continue to benefit from strong competition for mobile services.
“We want to see this spectrum in use as soon as possible. With smartphones and tablets using even more data, people need a choice of fast and reliable mobile networks.”
So, who’s right? Well, it’s worth noting that, when Three began campaigning on this issue, some of its competitors were swift to point out it could have bought more spectrum in the previous 4G auction but chose not to.
And yet this is the second time that Three has been aggrieved by the regulator. BT was allowed to buy EE for £12.5bn early last year, but around the same time, Ofcom was urging the European Commission to block Three’s proposed £10.5bn takeover of O2. The Commission agreed.
Accordingly, Ofcom was in an awkward position. Had it agreed to the cap sought by Three, it would effectively have been admitting it was wrong when it told competition authorities there were no serious issues raised by BT’s takeover of EE.
The regulator will also have been mindful that, the last time it tried to equalise spectrum ownership, it was accused in some quarters of delaying the roll-out of 4G across the UK.
It is also worth noting O2 has raised no big objections to Ofcom’s decision today. Its chief executive, Mark Evans, has admitted that the regulator’s ruling “falls short of our expectations” but said he was now keen to “press ahead with the auction quickly” – a sentiment that has been echoed by Vodafone.
Shares of both Vodafone and BT have fallen slightly on the news, reflecting market sentiment that this is a setback for both companies, albeit a minor one.
Three will be furious but, had Ofcom not taken any action at all, EE’s share of spectrum could have risen to 49%.
In a zero sum game, a decision from the regulator that leaves everyone grumbling probably means the regulator has got it right.