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Auctions for 4G and 5G spectrum imminent following Court of Appeal ruling

Formal bidding for spectrum identified as central to '4G' and future '5G' services in the UK is set to commence after the Court of Appeal rejected a legal challenge against the rules set for the auction.15 Feb 2018

Last summer, telecoms regulator Ofcom outlined plans to cap the amount of "immediately useable spectrum" that any one mobile network operator would be allowed to hold following the forthcoming auction. 'Immediately useable spectrum' concerns the 40 MHz of spectrum being made available within the 2.3 GHz band to support 4G services now. A further 150 MHz will be auctioned off in the 3.4 GHz band for future 5G services.

Ofcom's rules prevent MNOs holding more than 255 MHz of "immediately useable spectrum" following the auction, whilst no operator would be allowed to hold more than 340 MHz of the total spectrum that will be available at the conclusion of both auctions – 340MHz is 37% of the total spectrum that will be licensed by MNOs after the auctions.

Due to existing spectrum held by the company, Ofcom's caps mean that BT/EE is prohibited from bidding for spectrum in the 4G auction, and limited to winning up to 85MHz of spectrum in the 5G auction. Vodafone also faces limits on the spectrum it can win in the auctions.

BT/EE had challenged those plans before the High Court, but lost its case in December last year. The High Court similarly dismissed a legal challenge made against Ofcom's rules by Three, which had called for a stricter cap on the amount of spectrum MNOs can win.

Three subsequently lodged an appeal against that decision before the Court of Appeal, but its case was dismissed on Tuesday.

An Ofcom spokesperson said the Court of Appeal had "very firmly rejected Three’s application for permission to appeal on all grounds".

"We welcome this decision, and will now press ahead with releasing these important airwaves," the spokesperson said. "This new capacity will allow mobile companies to offer more reliable reception, and to prepare for future 5G services."

Three defended its decision to pursue a legal challenge against the auction rules set by Ofcom.

A Three spokesperson said: "We are disappointed by the Court decision but our decision to appeal was the right one. First of all this has not caused any delay to the delivery of 5G services to UK consumers which are not expected to rollout until 2019/20, according to Ofcom.  But more importantly, our appeal is about competition in the UK mobile market and spectrum distribution is the single biggest factor in maintaining a competitive market."

"The court process has helped provide clarity on whether there is a genuine 37% cap and, thanks to the hearings, Ofcom is now much clearer that a 37% cap is the level they believe is appropriate to maintain competitive balance," said the Three spokesperson. "However, that cap will not be in place until Q2 2020 but it is vital that Ofcom, as a minimum starting point, sticks to this number when additional spectrum is auctioned off. We still believe that a 37% cap is too high if the policy objective is to have a competitive four player market and we would like to see it set at a lower level in the future."

The main regulations applicable to the forthcoming auctions, as well as accompanying application forms and guidance for bidders, were published by Ofcom on 24 January and came into force on 31 January.

On 25 January, Ofcom published two further auction regulations – a Limitation Order, which the regulator said "limits the number of licences to be awarded for the two spectrum bands", and the Register Amendment Regulations, which "allow Ofcom to publish certain information regarding the licences awarded under the auction regulations". Those statutory instruments took effect on 1 February.

Prospective bidders for the spectrum had to submit application forms to Ofcom by 8 February, as well as make payment of an initial deposit.

Ofcom previously outlined the next steps it would take, which at the time were dependent on the outcome of the case before the Court of Appeal.

"We propose to commence the steps necessary to decide whether to qualify applicants to participate in the auction immediately after application day," Ofcom said. "We will stop short of formally qualifying bidders until after the Court of Appeal’s decision is announced, and all parties know whether Ofcom’s decision to impose an overall spectrum cap at 340 MHz is upheld."