UK telecoms regulator publishes statement on 4G auction

On 24 July, the UK’s Office of Communications (Ofcom) published a statement on how it intends to implement the award of spectrum in the 800MHz and 2.6GHz bands.  Alongside various technical annexes, Ofcom has also published the Information Memorandum and draft Regulations for this award.

The award process is scheduled to start in late 2012, with the auction commencing in early 2013. Ofcom will implement the auction using a combinatorial clock auction format.  However a number of alterations have been made to the activity rules relative to those set out in Ofcom’s January 2012 consultation, primarily the removal of the final price cap and associated facility for making capped primary bids and chain bids; and the removal of information provided to bidders that opt in to be eligible to benefit from the competition constraint about the value of a potential ‘competition credit’.

The 800MHz band will be offered using the simpler of the two packaging options proposed in January 2012 with two lot categories – one with a single 2x10MHz lot subject to a coverage obligation, and the second with four generic lots of 2x5MHz each.  In the 2.6GHz band, the paired spectrum will be packaged into  2 x 5 MHz lots and the unpaired spectrum in 5 MHz lots as proposed in the January 2012 consultation.

Ofcom has a responsibility under a Direction from Government to conduct a competition assessment and to take appropriate and proportionate measures to promote competition where necessary.  Ofcom intends to meet this responsibility by ensuring that an entity other than O2, Vodafone or EverythingEverywhere will have one of a pre-defined set of minimum spectrum portfolios after the auction.  These minimum spectrum portfolios are a variant of the medium set of portfolios set out in the January 2012 consultation.  Based on the specification of these minimum spectrum portfolios, a constraint on the auction outcome will be implemented regardless of whether EverythingEverywhere sells the 2x15MHz of 1800MHz spectrum it is required to divest prior to the auction.

The statement also sets out an overall spectrum cap of 2 x 105MHz and a sub-1GHz spectrum cap of 2 x 27.5MHz.  These safeguard caps refer to total spectrum holdings in specified band and remain unchanged relative to Ofcom’s proposals in March 2011 and January 2012.

In relation to 2.6GHz paired spectrum potentially being awarded to concurrent low power users, Ofcom has opted for not reserving spectrum for such users.  The statement sets out that during the auction concurrent low power users will have the opportunity to compete collectively with bidders for 2.6GHz paired spectrum on an individual basis for use at standard power.  Under this scenario, concurrent low power users will be awarded 2x10MHz, 2x20MHz or no 2.6GHz paired spectrum based on bids submitted in the auction.

The option of imposing a coverage obligation on one winner of 800MHz spectrum has been formally set out in the statement.  This obligation will fall on the winner of a specific 800MHz lot of 2x10MHz.  The winner of this lot will need to provide a mobile broadband service for indoor reception to users in an area covering 98% of the UK population and at least 95% of the population in each of the nations. Both obligations will need to be met by 31 December 2017. The obligation should enable consumers in the vast majority of homes within the coverage area to receive a 2Mbps indoor service.

While the specification of the coverage obligation has been modified relative to the two options proposed in the January 2012 consultation, the decision to impose it on one winner, to tie it to a 2x10MHz lot and to set the 2017 deadline have remained unchanged relative to Ofcom’s previous proposals.

Ofcom has proposed a set of market-based reserve prices, with the final reserve prices to be set out in the auction Regulations.

Ofcom’s statement can be found here.

DotEcon has advised on all aspects of auction design and is set to implement the UK 4G auction.

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