Ofcom consults on withholding spectrum from auction as mobile market consolidates

Ofcom said it expects to auction radio frequencies in the 2.3 GHz and 3.4 GHz spectrum bands that are currently owned by the Ministry of Defence (MoD) in the "later part of the 2015/16 financial year". The move is part of broader moves to reallocate spectrum for use by providers of mobile broadband services in light of increasing demands for such services by consumers.

However, of the 190 MHz of spectrum being released by the MoD, the regulator has proposed to "withhold around 60 MHz" from the auction (156-page / 991KB PDF).

The plans have been announced after the announcement of two major merger deals that could alter "market conditions". BT announced in February that it had agreed a £12.5 billion takeover of mobile network operator EE. In March, Hutchison Whampoa, the Hong Kong-based owner of UK telecom operator Three, finalised the £10.25 billion purchase of O2 UK from Spain's Telefónica.

Both transactions are still subject to approval by competition regulators but Ofcom said that uncertainty over how the future telecoms market will look means it is appropriate for it to reduce the amount of spectrum it will make available for mobile operators to buy in next year's auction. It said that auctioning off all the spectrum or delaying the auction altogether to allow for market conditions to become clearer are less favourable alternatives to selling off part of the available spectrum in the auction.

The regulator said the proposals are shaped by its duties under the Communications Act to "further the interests of consumers in relevant markets, where appropriate by promoting competition" and "to secure the optimal use for wireless telegraphy of the electro-magnetic spectrum".

Ofcom had previously consulted on applying a cap on the proportion of spectrum being auctioned off that a single mobile operator could own. However, it said those proposals had to be reconsidered following the announcement of the BT/EE and Three/O2 mergers.

"We would proceed with an auction of the bulk of the available spectrum and award any withheld frequencies at a later date, in light of market conditions," Ofcom said. "We believe this option may be preferable to the alternatives of a) delaying the whole auction until market conditions are clearer; or b) proceeding with an auction of all the newly available spectrum regardless. We believe either of these alternatives could result in an inefficient use of spectrum."

BT's planned takeover of EE is being scrutinised by the Competition and Markets Authority (CMA). Last week, BT applied for a fast-track review of the transaction by the CMA. Ofcom said that the consolidation of Three and O2 will need to be assessed by the European Commission and that it might not be until the second half of 2016 before that deal is completed, if the Commission clears the merger on competition grounds.

Ofcom's consultation on its plans is open until 26 June.