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O2: 'Ofcom's state aid 4G auction is illegal'

Not happy that rivals will get preferential treatment

O2 this week slammed Ofcom's upcoming 4G spectrum auction, describing the method of selling off additional bandwidth to mobile operators as 'state aid' that is 'illegal under EU law'. The full statement is printed below.

Because Vodafone and O2 already own some 900mhz spectrum, Ofcom intends to ensure that a certain amount of new 800mhz spectrum goes to their rivals. O2 says that the two different frequencies aren't directly comparable, and that all operators should start with a clean slate.

O2's response comes after rival operator Everything, Everywhere recently hinted that it expected the terms of the auction to result in legal action and delays.

The Ofcom auction will make available the 800MHz and 2.6GHz radio spectrums. The 800MHz band is currently used for terrestrial TV broadcasts, but the digital switchover process means it can be assigned for mobile broadband use. It's thought speeds of 'up to' 100Mbps will be achieved over 4G services.

Perhaps as important, it's hoped the spectrums will ensure mobile broadband is expanded to cover 95 percent of the country. The auction will take place in early 2012.

"The auction is not only critical to the future of the UK mobile telecommunications market but it is also of significant importance to the wider economy," said Ofcom chief executive Ed Richards in March.

"It will support a wide range of data services that are fast becoming essential features of the modern world."

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O2's full statement reads: "The forthcoming spectrum auction is a watershed moment for the UK mobile industry, releasing the airwaves which will power a whole range of exciting next generation mobile services. The new spectrum will allow the introduction of 4G or LTE mobile technology, increasing capacity, quality and speed (we estimate that mobile broadband capacity will increase by 20 to 40 times from today’s levels).

"We welcome Ofcom’s proposal for the spectrum auction and agree with many of their key points. We support the Combinatorial Clock Auction structure which prevents strategic bidding, i.e. where bidders acquire spectrum to prevent someone else from getting it. We also support the proposed spectrum caps which will safeguard consumer interest and prevent any one bidder acquiring a dominant position in these scarce resources.

"However, we believe that the proposed spectrum floors are a state aid and are therefore illegal under EU law. The spectrum floors would distort the auction process, allowing all bidders, except Vodafone and O2, to potentially acquire spectrum at discounted prices. Ofcom’s own figures suggest this effect could cost taxpayers £1bn.

"The proposed floors, and the argument that Vodafone and ourselves already have enough sub-1GHz spectrum, are based on the mistaken belief that 800 MHz and 900 MHz are directly comparable spectrums. They are not. Our response to Ofcom clearly explains why.

"Ultimately this auction is about new, next generation services. It is not about 2G and 3G, but about the future. It should therefore be used as an opportunity to provide fair, open and equal access to newly available spectrum.

"So while we support the proposed auction structure and spectrum caps, Ofcom is faced with a difficult choice of either revisiting its spectrum floors proposal or discarding the floors and getting on with the process."


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