UK operators outraged by Everything Everywhere 4G headstart

A few months from now the boldly named Everything Everywhere may be able to boast it is the only 4G operator in the UK. Courting the ire of other mobile networks, communications regulator Ofcom this week took the controversial decision to let the T-Mobile-Orange tie-up launch LTE services later this year using its current 1800MHz spectrum holdings. Vodafone and Telefónica-owned O2 will have to wait until the auction of new airwaves, likely to happen early next year, before they can hope to join it in the 4G market.

A few months from now the boldly named Everything Everywhere may be able to boast it is the only 4G operator in the UK. Courting the ire of other mobile networks, communications regulator Ofcom this week took the controversial decision to let the T-Mobile-Orange tie-up launch LTE services later this year using its current 1800MHz spectrum holdings. Vodafone and Telefónica-owned O2 will have to wait until the auction of new airwaves, likely to happen early next year, before they can hope to join it in the 4G market.

Not surprisingly, those rivals are outraged by Ofcom’s move. “We are frankly shocked that Ofcom has reached this decision,” said Vodafone in a statement. “The regulator has shown a careless disregard for the best interests of consumers, businesses and the wider economy through its refusal to properly regard the competitive distortion created by allowing one operator to run services before the ground has been laid for a fully competitive market.” O2 said it was “hugely disappointed” with a decision that “undermines the competitive environment for 4G in the UK”.

Vodafone is particularly aggrieved that Everything Everywhere is also reported to be in discussions to sell 2x15MHz of its 1800MHz airwaves to Hutchison’s 3. Ofcom had demanded a spectrum divestment as a condition of the merger that brought Everything Everywhere into existence, but Vodafone thinks a sale to 3 would fundamentally change the balance of the forthcoming 4G auction, which Ofcom had previously “over-engineered” to protect the UK’s smallest network operator. Like Everything Everywhere, 3 would be able to use any 1800MHz frequencies it acquires to launch 4G services ahead of the 4G auction.

For its part, Ofcom reckons that “varying Everything Everywhere’s 1800MHz licenses now will deliver significant benefits to consumers, and that there is no material risk that those benefits will be outweighed by a distortion of competition”. No doubt, the UK is already a long way behind some other European countries, not to mention the US and parts of Asia, on the rollout of 4G services. Consumers in sparsely populated communities, where broadband connectivity is poor, could certainly benefit from the introduction of a high-speed wireless technology requiring less upfront investment than the fixed-line alternatives. City-dwelling internet addicts might also appreciate a zippier mobile service.

But it is hard to agree with Ofcom that allowing one operator to launch 4G ahead of its rivals will not distort competition. History shows that telecoms markets are notoriously difficult for new entrants to crack, while operators that establish an early lead usually retain it. Everything Everywhere may have a headstart of only several months—allowed, as it is, to provide 4G services from September 11 this year—but that could be enough to poach bandwidth-hungry customers from rivals, sign users up to long-term 4G contracts and build an unassailable position.

What’s more, the 4G auction is already long overdue, having been held up by wrangling over its rules, and there is no guarantee the process will be under way by early 2013, as Ofcom hopes. Although Vodafone and O2 now have more incentive than ever to see it begin, both Everything Everywhere and 3 have been given a similar motive for delaying it further, as Vodafone points out in its statement.

Perhaps Ofcom felt that by doing Everything Everywhere and 3 a favor it would dissuade them from hindering proceedings. In any case, neither has much to complain about. Ofcom’s earlier decision to reserve a slice of valuable 800MHz spectrum for a “fourth operator” in the 4G auction was an obvious concession to 3 that ran into opposition from Vodafone and O2. Their objections may be less vociferous now that Everything Everywhere has 4G in view. The technology is finally coming to the UK, but in a more haphazard way than many would have imagined.