Mobile rivals attack Ofcom spectrum plans


Vodafone and O2 have condemned plans by the communications regulator Ofcom to snatch back part of the radio spectrum they have used since the 1980s to provide mobile phone coverage, and sell it to their rivals for 3G services.

O2 estimates that implementing Ofcom's plan, outlined last September, will cost both companies a total of £13bn - most of which will be passed on to consumers as higher bills and less competitive services, it says - and require 7,000 new mobile phone masts across the country.

In its response to Ofcom's proposals, Vodafone today accused the regulator of making its decision "based on a hypothetical and fanciful version of the future".

O2, meanwhile, contends that "if the proposals are implemented, they will be based on a flawed policy mechanism and will have the certainty of occasioning very substantial costs... and disruption to customers while conferring benefits which are poorly researched, inadequately supported by evidence, wholly speculative and, on a proper view, insufficient to justify the intervention".

In stark contrast, Ofcom believes that reclaiming part of the old 2G (second-generation) spectrum and re-auctioning it to rivals Orange, T-Mobile and 3 will lead to cheaper services, better indoors mobile coverage, fast wireless broadband in rural areas, 10,000 fewer masts across the country, and £6bn worth of benefits to the economy.

As the original providers of mobile phone services in the UK, Vodafone and O2, formerly Cellnet, were granted licences to use parts of the airwaves at 900MHz in the 1980s. In the following decade, the government mandated this part of the airwaves for GSM mobile technology and granted two new GSM licences - at the higher 1800MHz level - to Orange and One2One, now T-Mobile.

In the dying days of the dotcom boom, the government then auctioned a further block of spectrum - at 2100MHz - specifically for 3G services. At that time 3, owned by the Hong Kong-based conglomerate Hutchison Whampoa, joined the market in an auction that raised £22.5bn.

Under a recent European Union decision, however, Ofcom must "liberalise" these airwaves, removing the restrictions regarding which mobile technology can be used in which part of the spectrum - meaning 3G services can be run on the older 900MHz and 1800MHz bands, a process known as refarming.

Putting 3G on these lower frequencies is cheaper than installing the technology at 2100MHz because the signal travels further and fewer masts are needed. The 900MHz band, for instance, is particularly good for getting signals into buildings and remote rural areas.

New entrant 3, which only has capacity on the highest band, has long maintained that it will be put at a massive disadvantage if 3G services are extended to the old 2G bands. In its response to the Ofcom consultation, it suggests the regulator should reclaim all the old 2G spectrum and re-auction it, effectively tearing up the existing mobile phone market and starting again.

Ofcom, however, is proposing liberalising all three bands and reclaiming part of the 900 band, owned by Vodafone and O2, in order to auction it off to the rest of the market in 2009.

In their submissions, Orange and T-Mobile both support this plan - not least because it does not include any reclamation of their 1800MHz capacity. In fact, T-Mobile demands that Vodafone and O2 be precluded from bidding in any auction of 900MHz spectrum.

Both O2 and Vodafone insist that Ofcom's analysis of the market is fundamentally flawed. Vodafone, which describes the regulator's analysis as "manifestly deficient", believes the regulator has exaggerated the benefits of refarming 2G capacity "by at least a factor of 10".

Both companies believe the regulator should adopt a "wait and see" approach: liberalising the market so that operators can trade and sell spectrum to each other, but not reclaiming any of the 900 band while it watches to see what level of demand for new services really exists.

O2, in a particularly forceful 49-page response, warns that if part of its network capacity is reclaimed by the regulator it will have to start forcing customers on to its higher capacity 3G network at 2100MHz, a move that will increase its costs, as it will have to give everyone a new handset, and reduce its ability to invest in new services.

Tesco Mobile, which uses O2's 900MHz network to run its service, has already warned that if Ofcom's proposals are implemented it "may well face capacity constraints... Such constraint of capacity may well not just limit Tesco Mobile's growth opportunities but could have an impact on existing customers and their present usage levels".

O2 warns that Ofcom's plan could also result in the disappearance of cheap SIM-only deals, reducing the access that low-income households have to mobile devices.

"On the basis of O2's well-researched and reliable analysis, Ofcom therefore need to revisit the entire basis of the consultation," it concludes.

A spokesman for Ofcom said liberalising mobile phone spectrum would bring fast wireless broadband into more rural areas and improve in-building coverage, but only if the 900MHz spectrum is freed-up.

"Right from the start we knew that liberalising the use of mobile spectrum would be a difficult, complex and controversial issue. But it is worth pursuing because of the many considerable benefits it will bring for citizens and consumers," he said.

"Ofcom will analyse each response very carefully and will consider the way forward later this year. However, it is worth emphasising that our approach to mobile liberalisation will continue to be to deliver the maximum benefit for citizens and consumers of the UK."

Today's best video

Today in pictures