Ofcom has said it wants four ‘credible national wholesalers of 4G mobile services’ in the UK, and in as such will be preserving spectrum in the auction for a company outside of Vodafone, Everything Everywhere (Orange and T-Mobile’s operator) and Telefonica’s O2 network.

The next largest is Hutchison-Whampoa’s Three Network, which has long been campaigning for this ruling to allow it to compete with the big players. It previously threatened to quit the UK if it did not get fair treatment from the regulator.

All three other operators have conversely been protesting that this favouritism distorts a fair auction, and gives the company an unfair advantage.

It is worth noting that Ofcom has said any fourth operator – so this would not necessarily be Hutchison-Whampoa if another foreign player wanted to join the market.

Sources with knowledge of the matter have told CBR that there has been an expression of interest from two other potential market entrants.

A spokesperson for Three Mobile told CBR that the process was far from a clear win.

"Ofcom’s decision on the structure of the spectrum auction will have a lasting effect on the choice of services and value available to mobile consumers. We are working through the detail of this very substantial document to evaluate what it means for both consumers and competition in the UK mobile market."

As part of today’s announcement, Ofcom has also stated that it will impose limits on the amount of spectrum each bidder can acquire in the auction to maintain competitiveness in the market. Bidders will not be able to buy more than 2 x 105MHz across the entire spectrum, or more than 2 x 27.5MHz below 1GHz.

Interestingly Ofcom still has not specified a final date, simply stating that it wants the auction to get under way ‘as soon as possible’ and ‘by the end of 2012’. The bidding process will begin in early 2013, and mobile operators are expected to start rolling out 4G networks from the middle of 2013, with 4G services being made formally available to retail consumers later that year.

The auction was originally meant to occur 2 years ago, but has been constantly bogged down by lawsuits and bureaucratic mire (see CBR’s feature here).

4G is expected to be worth £75bn to the UK economy when it launches, and may be costing the economy as much as £1 million a day, according to Labour.

The auction will put the 800Mhz and 2600Mhz spectrums under the gavel. Put simply, 800Mhz has a greater reach, but lower speeds and physical penetration, and thus is better suited to rural and suburban areas. 2600Mhz will be used for small scale Wi-Fi and for urban area coverage, as it produces faster speeds, and penetrates much better – ideal for coverage in old, dense concrete or stone buildings.

The two bands add up to 250MHz of additional spectrum, compared to the 333MHz already in use today across the 2G and 3G mobile networks.

Operators such as Everything Everywhere have been attempting to launch 4G on their existing 1800MHz spectrum, but have not been given the green light by Ofcom yet. Ofcom had previously indicated that it was in favour of the proposal, but presumably fears more charges of favouritism and the lawsuits that will possibly follow.

As the report states: ‘A final decision on EE’s application – which is being considered independently of the auction for new spectrum – will be published by Ofcom in due course.’ CBR understands this is expected in two weeks.

Three has also been in discussions with Everything Everywhere to buy some of its excess 1800Mhz spectrum for 4G purposes. This would, however, negate access to the aforementioned protected spectrum for a fourth operator.

Ovum analyst Mathew Ovum told CBR that this was quite an astute move by Ofcom as Three had been "covered in too much cotton wool", and that this would force the company to make some hard commercial decisions, without being too reliant on "state aid."

The auction will be equivalent to three quarters of the total mobile spectrum in use today – some 80% more than released in the 3G auction which took place in 2000. Much of this has been freed up by the clearing of obsolete analogue radio transmissions, such as UHF television and other transmissions which have been migrated to digital transmissions – which is far more efficient.

As part of the auction rules the spectrum bands will be auctioned to bidders as a series of lots. One of the 800 MHz lots will carry an obligation to provide a mobile broadband service for indoor reception to at least 98% of the UK population by the end of 2017 at the latest.

Ofcom says it is doing this to force a decent coverage level nationally, which will also drive the other operators to copy and extend their own coverage in response.

"The 4G auction has been designed to deliver the maximum possible benefit to consumers and citizens across the UK," said Ofcom’s CEO Ed Richards.

In addition to this UK-wide coverage obligation, Ofcom will require that the same operator to provide the same indoor service to at least 95% of the population of each of the UK nations – England, Northern Ireland, Scotland and Wales. Outdoor coverage for a network meeting this obligation is likely to be 98-99% of the population of each nation.

Ofcom has published a draft of the rules and is subject to statutory consultation closing on 11 September.

Howett is more pessimistic, and believes the ruling may still be challenged by the major telcos.

"The importance of bringing 4G to Britain must not be underestimated. The UK has committed to having the best superfast broadband in Europe by 2015, and mobile will have to play an important role in achieving that aim," he said.

"The timetable has always been highly ambitious and has attempted to achieve in a matter of months what took years for 3G. Things could of course still be delayed further if any operator launches a legal challenge – which can now be prepared as we approach the auction. In taking its time to get to this stage Ofcom will be fairly confident they have dotted all the i’s and crossed all the t’s so that in the event of any challenge they will come out on top and be able to get the auction back on track."

Commentary from the major mobile operators [updated]

02:
"Ofcom’s detailed rules for the auction represent a significant step towards 4G launch in the UK. Whilst Ofcom has taken a number of our suggestions on board, they are combined with other changes to the previous proposals. We will need to study the package in detail before responding to the Notice on the Regulations, which puts the rules into law."

Vodafone:
"A competitive market for the next generation of mobile internet services will bring substantial benefits to British consumers, businesses and the wider economy. Ofcom appears to have created a mechanism to deliver the spectrum needed to run competitive 4G services and we welcome the work it has done. We also support the regulator’s desire to see 4G services delivered to as many people as possible. However, we will obviously need to study today’s lengthy documents to make sure they deliver the fair and open auction that this country needs."