4G auctions - illegal and immoral?

Both O2 and BT contend that Ofcom's 4G auction proposals amount to illegal subsidy of their competitors, but all the other network operators are curiously silent on the whole thing.

The 55 responses which are being shared on the Ofcom site range from The Ramblers, whose letter is generally supportive, to Telefonica's 101 pages which proposes an entirely different auction mechanism and argues that Ofcom's assertion that we need at least four competing networks isn't just wrong, it is illegal under EC law.

O2 isn't the only company to question the need for four national operators: intriguingly Intel is most adamant in pointing out that one only needs two operators for a competitive market. But it's O2 who states that denying it the ability to buy up lots of low-frequency spectrum is actually against the law.

BT, meanwhile, submits that placing coverage requirements on specific spectrum packages also amounts to a state subsidy for the buyer and therefore can't be allowed. The former-monopoly also argues for wholesale access to mobile networks, especially if there are only going to be three of them.

That's a common plea, with Google and Skype both calling for unrestricted access in thinly-disguised calls for net neutrality to be applied to mobility. But Ofcom has previously argued that as long as there's sufficient competition then such things are unnecessary, which is why it proposes ensuring there are at least four national networks.

O2, however, is adamant that Ofcom's proposed mechanism for achieving that - the imposed spectrum floor - would count as state aid and would have to be reported to the European Commission as such.

That spectrum floor requires at least four separate operators end up with at least 10MHz of spectrum below 1GHz each (5MHz in each direction). Ofcom admits this will reduce the value of the spectrum, but argues that it is necessary to ensure a competitive marketplace. Some respondents, including Three, argue that this isn't enough and for proper competition at least twice that is needed, but O2's argument is based on principle not details - the requirement amounts to state aid and is therefore illegal.

Coverage is equally contentious, with Ofcom's proposal that some of the low-frequency bands come with minimum coverage requirements - 2Mb/sec for 95 per cent of the population. Many people responding argued that this isn't enough, particularly representatives from Wales and Scotland who pointed out that such a requirement should be regionally calculated if it was going to have any value at all.

But BT points out that any such coverage requirement means the spectrum wouldn't raise as much at auction, so the buyer would effectively be receiving a state subsidy to pay for rural broadband. BT isn't opposed to the state subsidising rural connectivity, but reckons where subsidy is on the cards then everyone should be entitled to pitch for it regardless of the technology used for delivery.

We don’t know what the other operators think - their responses to Ofcom's proposals are confidential for the moment (expect to see heavily-redacted versions next week) - but we do know that none of them are particularly eager for a swift auction as they have nothing to gain from the transition to 4G.

Not only do they expect to have to pay a great deal of money for the spectrum, but they'll also going to have to build huge national infrastructures which will (in many cases) require additional base stations and back haul. But users are already proving reluctant to pay for the additional speed of 3G, so faster connectivity isn't going to automatically see more money rolling in.

The motivation behind 4G deployments has to be competitive, but if the operators can filibuster the auction then no-one can deploy 4G and there's no competitive pressure. O2's complaints about legal infractions will be the first of many that enable the operators to publicly blame Ofcom for delaying their transition to 4G, while privately doing everything they can to prolong the process. ®