Ofcom solves UK’s 4G dilemma

Either Ofcom has been spectacularly serendipitous or it has played a canny game. The UK telecoms regulator this week said it would be able to release spectrum earmarked for ‘4G’ LTE services sooner than it had originally thought possible. The announcement will soothe the tempers of Vodafone (Newbury, UK) and O2 (London, UK) executives, who were infuriated by Ofcom’s earlier decision to give rival EE (London, UK) a 4G headstart using frequencies it already owns. But did the regulator plan it this way from the outset?

Either Ofcom has been spectacularly serendipitous or it has played a canny game. The UK telecoms regulator this week said it would be able to release spectrum earmarked for ‘4G’ LTE services sooner than it had originally thought possible. The announcement will soothe the tempers of Vodafone (Newbury, UK) and O2 (London, UK) executives, who were infuriated by Ofcom’s earlier decision to give rival EE (London, UK) a 4G headstart using frequencies it already owns. But did the regulator plan it this way from the outset?

Essentially, Ofcom now reckons the spectrum being cleared for 4G services will be ready in spring 2013, five months sooner than previously planned. If the auction were also brought forwards, Vodafone and O2 could theoretically start providing commercial services just six months after EE, a merger between T-Mobile (owned by Deutsche Telekom of Bonn, Germany) and Orange (Paris, France) whose 4G launch is scheduled for October 30. Vodafone and O2 had feared that EE’s lead would be as much as 18 months.

Before it gave EE permission to refarm its 1800MHz spectrum for use with LTE, Ofcom was under considerable political pressure on the issue of 4G. The UK market was at an impasse, with operators objecting to Ofcom’s various proposals for a 4G auction. Hutchison 3 (Hong Kong), the country’s smallest player, thought authorities should reserve it a slice of valuable, sub-1GHz spectrum – especially useful in rural areas – because of its weak spectrum hand. Its rivals complained this would amount to illegal state aid. While the disagreements dragged on, operators in other parts of Europe were busy rolling out 4G services. UK politicians grew worried the domestic 4G deadlock might put the country at some kind of competitive disadvantage. More recently, Ed Balls, the shadow chancellor, has suggested the proceeds from a 4G auction could pay for tax breaks to kick-start the economy.

Ofcom may have thought its controversial decision on EE would break the deadlock. No doubt, the move would run into bitter opposition from EE’s rivals, but it would also give them an incentive to make way for the 4G auction, even spur its commencement. Having granted EE a favour, Ofcom could probably count on its support. Meanwhile, Hutchison 3 acquired a portion of EE’s 1800MHz holdings that Ofcom had required T-Mobile and Orange to sell as a condition of their merger. The small operator, too, was probably satisfied.

Of course, Ofcom has been widely criticized for handing EE an advantage, while Vodafone and O2 have even threatened legal action against the authority. Hence this week’s announcement aimed at winning friends. Following discussions with Digital UK (London, UK) and Arqiva (Winchester, UK), the broadcasters freeing up the 4G airwaves, Ofcom has been able to secure the earlier release of these assets, it claims. But Ofcom probably knew the spectrum-clearance programme was running ahead of schedule months ago.

Such reasoning implies the regulator was prepared to suffer rebuke and, possibly, court action. Nor do the latest developments necessarily mean it is in the clear. Yet to believe Ofcom stumbled on the fortunate circumstance that Digital UK and Arqiva were easily beating their clearance targets, one has to assume it paid no heed to their work over the past few months. Either way, Ofcom may finally have struck on the solution that brings 4G to the UK and keeps everyone happy.