Operators cautious on new spectrum auction

Mobile operators have reacted defensively to the prospect of fresh spectrum auctions that could lead to renewed competition in the UK's 3G market.

O2 has called for tight controls to be imposed on market entrants, while Orange and T-Mobile refused to comment on the auctions.

O2, along with Vodafone and 3, all sought to downplay the possibility that the auctions might lead to new competition in the 3G market.

Ofcom said this week it would auction its largest-ever portion of radio spectrum, which the regulator believes is most likely to be used for 3G or mobile WiMax. "We have assumed that deployments in the 2500-2690 MHz band [the largest band on offer] will be UMTS FDD, UMTS TDD [both expected evolutions of 3G] or mobile WiMax," said Ofcom.

It is six years since the original 3G auctions, for which the mobile operators paid a total of £22.5bn. Observers say the new licences will be available for a fraction of that price.

An O2 spokesman told ZDNet UK on Thursday that the mobile operator welcomed the auction, but he added: "We would like similar terms and conditions attached, whether it's for old spectrum or new spectrum." He cited 3G operators' obligation to provide service to 80 per cent of the population as an example. Placing such an obligation on new market entrants would rule out single-city deployments of 3G.

Market entrants are also likely to consider providing WiMax services.

One company that is watching the auction process closely is Pipex Wireless, which has a strong interest in WiMax. Referring to the auction, Graham Currier, business development director for the ISP, said: "There are likely to be three or four types of people who may bid. There will be the traditional mobile players who are looking to secure their future. They will try to get as much [spectrum] as possible. Then I would expect there will be new entrants: this will be the first time in seven years [that this kind of spectrum is available]. Then there will be WiMax. The auction might be able to accommodate several of these players."

But Currier refused to say whether Pipex would bid, and he also refused to elaborate on the ISP's plans for WiMax. Pipex Wireless is part-owned by Intel, one of the biggest promoters of Wi-Fi and WiMax, and already controls the 3.5GHz radio band in the UK, which could be used for WiMax.

He added that there was considerable uncertainty over the outcome of the auction, yet he backed the proposals so far outlined by Ofcom. Asked whether Ofcom was milking the industry for as much revenue as possible from the auction, he said: "No. The market [operators] want spectrum, but not at market prices," adding that he supported a free-market approach.

Both O2 and Vodafone are calling on Ofcom to investigate whether 2G spectrum could be used for 3G services. Because the two operators' 2G spectrum is at a much lower frequency than 3G, such a move would noticeably increase their cell sizes and help them offer a better service. Vodafone wants Ofcom to clarify whether this so-called 'refarming' of spectrum will be possible before it embarks on the auction process.

But Ofcom has said that difficulties lie ahead. William Webb, the regulator's chief technologist, said refarming might be unfair and cause competitive imbalances. Webb told ZDNet UK in a recent interview that: "A solution may be found tomorrow, or it might take many years to find a solution that satisfies all parties and seems to be fair and reasonable. We just have to work our way through that particular problem."

Richard Thurston writes for ZDNet UK.