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Who wants T-Mobile UK?

Forget the customers, grab the spectrum and run

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How much is that spectrum in the window?

Vodafone and Telefonica have holdings in 1800MHz, but only 10.6MHz each, so both would be happy to take on an additional chunk of spectrum - though any buyer must tread carefully to avoid landing themselves with more spectrum than they can handle.

The latest Digital Britain report recommends an absolute cap on spectrum ownership below 3GHz of 130MHz. Vodafone currently owns 75MHz of bandwidth across the spectrum, while Telefonica owns 70.4MHz, and T-Mobile has 85MHz of frequencies in its portfolio. That puts any buyer well over the spectrum cap, and forced to sell off a chunk of spectrum into a buyer's market - something they'll be unwilling to do, unless that spectrum was under threat.

As it happens Ofcom is threatening Telefonica and Vodafone with removal of some, or all, of their 900MHz holding. The regulator has made it clear that they will have to pay at Administered Incentive Pricing (AIP) rates for the privilege if they hang onto the spectrum. This means that Ofcom works out what the spectrum would be worth on the open market and charges that amount. The upshot is that the value of the spectrum is greatly reduced to Telefonica and Vodafone. Both companies have 34.8MHz of spectrum at 900MHz, so by handing that back to Ofcom they could drop below the 130MHz cap and remove one of the regulator's biggest headaches.

Consider this scenario; Vodafone buys T-Mobile, announces a plan to migrate its own 2G customers to 1800MHz after which it will surrender its 900MHz allocation. This would putpressure on Telefonica to give up its own holding there. That takes a couple of years, during which Vodafone starts deploying LTE in half of its new 1800MHz holding, expanding that as it weans customers off 2G entirely leading to a 2G switch-off with a schedule for eventual migration of 2.1GHz to LTE too.

So from a radio point of view a Vodafone purchase of T-Mobile makes sense, and is very viable from a customer acquisition point of view too. The fly in the ointment is the network-sharing deal with 3 - a company that has shown no reluctance to resort to litigation when necessary, T-Mobile's new owner may find itself hosting the competition for years to come even if it ends up as the largest operator in the UK, and well placed for the decades ahead. ®

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