Second consultation on assessment of future mobile competition and proposals for the award of 800 MHz and 2.6 GHz spectrum and related issues

29 June 2010

Executive summary

1.1 In March 2011 we published a consultation setting out proposals for the auction of 800 MHz and 2.6 GHz spectrum which will be the largest ever single auction in the UK of internationally harmonised mobile spectrum. We did this pursuant to our statutory duties and the Governments Direction to Ofcom, made in December 2010 (the Direction) , the express purpose of which is to ensure the release of additional spectrum for use by providers of next generation mobile broadband, allowing early deployment and maximising the coverage of those services.

1.2 We received 71 responses to this consultation from stakeholders expressing a wide range of views on issues on which we consulted, and providing considerable analysis and evidence in that regard. We have considered all the responses received, and have as a result modified some of our proposals for how Ofcom should auction the spectrum to secure the best use for the benefit of citizens and consumers. We are now consulting on our new proposals before moving to a decision, in order to ensure that all stakeholders have a full opportunity to respond on our revised thinking.

1.3 The focus of this consultation is on:

  • our analysis of whether in light of our competition assessment we should put in place appropriate and proportionate measures in the auction to promote competition;
  • our consequent proposals for rules in the auction to promote competition;
  • our proposals for other aspects of the auction design; and
  • our proposals for measures to promote the widespread availability of next generation (4G) mobile broadband services, by which we mean high quality data services, throughout the UK.

1.4 Our final decisions on these matters will be given effect to by regulations.

1.5 We have developed our proposals in light of the purpose of the Direction in a manner that we consider will maximise benefits to citizens and consumers from optimal spectrum use, consistent with our statutory duties.

1.6 This document sets out for consultation revised proposals on which we are inviting stakeholder comments. In particular, whilst this consultation document contains a number of specific questions, we are not seeking to limit the issues on which respondents may wish to comment, and respondents are invited to include representations on any issues which they consider to be relevant. Stakeholders should note that although in a number of places we set out a preference for certain options, we are actively considering all options included in this document.

1.7 This document also contains further information about two further subjects:

1.7.1 our likely approach to the revision of annual licence fees payable after the auction in respect of existing 900 MHz and 1800 MHz licences (in respect of which we will not be making any decisions until after the auction), and

1.7.2 our current thinking on various matters relating to the technical licence conditions which will form part of the licences to be auctioned as part of the auction.

1.8 Whilst we are not formally consulting on these issues at this time, should any stakeholder wish to make comments on them, they are welcome to do so and we will take any such comments into account as and when we make final decisions in this regard.

The Direction and our March 2011 consultation

1.9 Our March 2011 consultation document set out our previous proposals for the award . This followed the Direction which requires us to:

1.9.1 assess likely future competition in markets for the provision of mobile electronic communication services after the conclusion of the award of 800 MHz and 2.6 GHz bands;

1.9.2 in the light of that competition assessment, where we think fit, put in place appropriate and proportionate measures (which may include rules governing the auction) which will promote competition in those markets after the conclusion of the auction;

1.9.3 hold an auction of the 800 MHz and 2.6 GHz bands as soon as reasonably practicable after concluding the competition assessment; and

1.9.4 revise the annual licence fees paid for 900 MHz and 1800 MHz to reflect full market value having particular regard to the sums bid for licences in the 800 MHz and 2.6 GHz auction.

Promotion of competition in mobile markets following the auction

1.10 As part of our March 2011 consultation, we carried out a competition assessment as required by the Direction and as a consequence considered carefully whether in light of that assessment we think we should put in place appropriate and proportionate measures in the auction of the 800 MHz and 2.6 GHz bands to promote competition. We considered that there were risks to the future competitiveness of the mobile market if bidders could bid for and acquire any amount of spectrum in an open auction, and these were sufficient for us to take the view that we should put in place the following measures designed to promote national wholesale competition:

1.10.1 spectrum floors to ensure that after the auction, subject to demand, there are at least four holders of a minimum spectrum portfolio that mean they are credibly capable of providing high quality data services in the future; and

1.10.2 safeguard spectrum caps which place restrictions on the amount of spectrum each participant could win in the auction.

1.11 We also included in the March 2011 consultation certain proposals for ensuring that bidders with an interest in shared low-power use at 2.6 GHz could compete in the auction with those bidders who have an interest in individual standard-power use for access to at least a part of the 2.6 GHz spectrum.

Rollout or coverage obligations in the new licences

1.12 We explained in the March 2011 consultation that although we expected that over time new mobile services using LTE and possibly other advanced technologies would become available to a large proportion of the UK population as a result of the competitive market we are seeking to promote, the speed at which such services are provided across the UK was uncertain. We therefore set out certain proposals for including coverage obligations in auctioned licences in order to guarantee a minimum coverage level for consumers and citizens.

Non-technical licence conditions likely to promote optimal use of this spectrum

1.13 Our March 2011 consultation also set out our proposals for non-technical conditions, consistent with our previous approach to licences granted through auction. Specifically, we proposed that:

1.13.1 licences should be UK-wide and technology and service neutral;

1.13.2 all types of spectrum trading should be permitted for individual standard-power licences, subject to a review of the impact of the proposed trade on competition and, in the case of concurrent low-power licences at 2.6 GHz (if any), only those types of trades that do not increase the number of licensees in the band would be permitted;

1.13.3 the licences be of indefinite duration (with an initial term of 20 years), continuing in force until relinquished or revoked.

Spectrum packaging and auction design likely to support the most efficient assignment of spectrum

1.14 We explained in our March 2011 consultation that we proposed to assign the rights to use the 800 MHz and 2.6 GHz bands using a combinatorial clock auction which followed the broad structure that had been used previously in other auctions. We also proposed to make the spectrum available in the auction by having several categories of 2x5 MHz lots at 800 MHz, a single category of 2x10 MHz lots for individual standard-power use at 2.6 GHz, and a potential category for low-power use by up to 10 concurrent licensees at 2.6 GHz.

Annual licence fees for 900 MHz and 1800 MHz spectrum in accordance with the Direction

1.15 In recognition that the Direction requires us to revise the level of annual licence fees for 900 MHz and 1800 MHz spectrum to reflect full market value, having particular regard to the sums bid for licences in the auction for the 800 MHz and 2.6 GHz bands, our March 2011 consultation explained that we envisaged that the bids in the auction would provide the relevant basis for setting these fees. Although we included a discussion of these issues in that consultation, we explained that we felt that we could not reasonably decide on the final approach until after the auction and made clear our intention to consult again.

Revised proposals to promote future competition in mobile markets

1.16 In the light of the responses we received to the March 2011 consultation, we have revised our competition assessment of the future prospects for competition in the mobile market.

1.17 This competition assessment has been informed by, and is consistent with, our duties, including those to further the interests of citizens, and the interests of consumers where appropriate by promoting competition, secure optimal use of spectrum, secure the availability and use of high speed data transfer services through the United Kingdom, the desirability of encouraging investment and innovation, and the interests of consumers in respect of choice, price, quality of services and value for money. This has led us to focus in particular on assessing whether measures are required in the auction to promote competition in markets for the provision of mobile services.

1.18 This competition analysis is forward looking to the prospects for competition shortly after the auction and also 5-10 years hence. It covers a period in which we expect new technologies to be rolled out. It is consequently subject to uncertainties about the underlying technical and market conditions which might exist in future, some of which are dependent on choices which operators themselves decide to make.

1.19 Accordingly, in carrying out the competition assessment as required by the Direction, in order to determine whether we think we should put in place measures to promote competition, we have looked at the evidence which is available to us now, so as to make reasoned and informed decisions while allowing for the uncertainty relating to future developments in the mobile sector. In light of the uncertainties identified, where we have a choice between options which we consider address our most significant competition concerns, it is our intention to favour the least interventionist option so as to minimise as far as possible the risks of regulatory failure. We consider that this option is likely to be the most proportionate option, consistent with our statutory duties.

Summary of our provisional conclusions on promotion of competition

1.20 The main level in the value chain at which we believe we should promote competition is the national wholesale level, because this supports retail competition both directly, as national wholesalers are also major competitors supplying retail mobile services to consumers, and indirectly via wholesale access provided to other retailers (such as MVNOs). Our provisional conclusions are:

  • UK consumers would be likely to benefit from better services at lower prices in future if there were at least four national wholesalers of mobile services, as at present, rather than fewer;
  • We consider that the national wholesale market is already highly concentrated, and we would be concerned if, as a result of the outcome of this auction, it were to become more concentrated. We consider that it would be preferable for any potential future consolidation in this sector to be subject to careful scrutiny at the time, rather than allowing the level of competition in the market to reduce as an unintended consequence of this auction;
  • We consider that there is a material risk that there will be fewer than four credible national wholesalers of mobile services in future if neither Hutchison 3G UK (H3G) nor a new entrant were to acquire at least a minimum amount of spectrum in the auction ;
  • Given the nature and extent of their current spectrum holdings, we do not have the same level of concern in regard to Everything Everywhere, Telefonica UK Limited (Telefonica) or Vodafone, notwithstanding that they may well be able to offer better or a wider range of services and compete more aggressively if they acquire additional spectrum through the auction;
  • We therefore think it is appropriate, and so propose to, in effect, reserve some of the available spectrum for a fourth national wholesaler, by which we mean a bidder other than Everything Everywhere, Telefonica or Vodafone;
  • Bidders for the reserved spectrum will have to compete with each other, but provided that there is at least one bidder (other than Everything Everywhere, Telefonica or Vodafone) that is willing to pay the reserve price for this spectrum, one such bidder is guaranteed to win it. The exact quantities of spectrum that we consider likely to be necessary and therefore proportionate to reserve are set out below;
  • Because of their current spectrum holdings, and/or the much lower risk that these national wholesalers would fail to acquire further spectrum in the auction, we do not consider it necessary to reserve any spectrum for Everything Everywhere, Telefonica or Vodafone;
  • We also consider that it would be appropriate and proportionate to impose limits on the amounts of spectrum that each bidder can acquire in the auction, such that their overall holdings of mobile spectrum in general, and sub-1GHz mobile spectrum in particular, do not exceed certain safeguard caps. This is in order to mitigate the risk of highly asymmetric spectrum holdings after the auction leading to lower competitive intensity. The exact level of the proposed safeguard caps is set out below.

Key changes in our views since the March 2011 Consultation Proposals

1.21 There are many similarities in our proposals to promote competition compared to those we suggested in March 2011. However, careful consideration of the responses and further analysis have led us to change our view in certain material respects.

1.22 In March we took the view that Everything Everywhere was likely to need access to a small amount of sub-1 GHz spectrum (2 x 5 MHz in our favoured option) in order for it to be a credible national wholesaler in the future. Given this view we, in effect, proposed to reserve such spectrum for Everything Everywhere as well as a fourth national wholesaler.

1.23 In light of the responses to our March 2011 consultation and our further analysis we now believe that there is significantly less risk that Everything Everywhere might not continue to be a credible national wholesaler after the auction. Our previous analysis focussed predominantly on one area of potential risk (namely the need to hold sub-1GHz spectrum in order to be able to offer the best quality coverage in hard to serve locations), whereas we now consider it appropriate to place more emphasis on evaluating the capabilities of a national wholesalers spectrum holdings in the round. In doing so we take greater account of the large amount of 1800 MHz spectrum that Everything Everywhere holds, which is in our view likely to enable it to have a sufficient quality of coverage and capacity, as well as providing it with a large bandwidth of spectrum suitable for LTE and the possibility to offer highest peak speed in both the near and longer term.

1.24 With regard to holdings of sub-1GHz spectrum, we now believe that the technical advantages of sub-1GHz spectrum are less clear and that the large quantity (2 x 45 MHz) of 1800 MHz spectrum which Everything Everywhere holds is likely to mean that there is only a fairly small gap between what Everything Everywhere and the holders of 800 MHz spectrum could deliver. This is principally because our technical analysis now reflects more fully the range of service quality that consumers are likely to experience across a range of locations, rather than just focussing on service quality in something approaching the worst case. This shows that in many locations a network with a sufficiently large amount of 1800 MHz spectrum coupled with a large network of base stations could match or even better the quality of a network with a smaller amount of 800 MHz spectrum, even if it is unlikely to be able to do this in the hardest to serve locations. Consequently, we do not consider that the evidence available to us demonstrates that the differences between an 800 MHz and an 1800 MHz network would be sufficiently important for Everything Everywhere not to be capable of being a credible national wholesaler without sub-1GHz spectrum.

1.25 The other important modification to our March 2011 proposals concerns the spectrum portfolios that we suggest should be reserved for a fourth national wholesaler. Here there are two modifications to note.

1.26 First, our revised portfolios do not guarantee that the fourth national wholesaler will win sub-1GHz spectrum through the auction. The reasons for this change are similar to those explained above in relation to Everything Everywheres position.

1.27 The second is that none of our proposed spectrum portfolios contains 2 x 5 MHz of 800 MHz as one of their elements, whereas in March we suggested, for example, that 2 x 5 MHz of 800 MHz together with 2 x 20 MHz of 2.6 GHz might be sufficient to address our competition concerns. We have removed such portfolios because our further analysis suggests that such a small amount of 800 MHz spectrum may do little to enhance the coverage or capacity of a network with a larger amount of higher frequency spectrum, if in particular higher speed services were to prove important (as they may). Reservation of such a small amount of 800 MHz spectrum therefore risks inefficient use of this valuable spectrum resource.

Details of proposals to promote national wholesale competition

1.28 We propose safeguard caps as follows:

  • An overall spectrum cap of 2 x 105 MHz; and
  • A sub-1GHz spectrum cap of 2 x 27.5 MHz.

1.29 These caps cover all the spectrum in the auction (i.e. the 800 MHz and 2.6 GHz bands) and existing mobile spectrum holdings (i.e. holdings at 900 MHz, 1800 MHz and 2.1 GHz, excluding the 2.1 GHz unpaired spectrum as there is currently no commercial use of that spectrum in the UK or, so far as we are aware, elsewhere in Europe).

1.30 We have considered a number of alternatives for the amount and frequencies of spectrum that should be reserved for the fourth national wholesaler. In assessing these it is important to consider (i) whether the proposed spectrum reservation is sufficient to promote a fourth credible national wholesaler and (ii) the cost in terms of the implied restriction(s) on the spectrum available for other national wholesalers. The specific groups of portfolios that we consider most likely to be proportionate are set out below. However, it should be noted that we do not rule out the possibility that we may ultimately decide on some other combination of specific spectrum portfolios to implement in the auction as the most proportionate way to meet our aim to promote national wholesale competition.

1.31 The spectrum portfolios within each group are alternatives, i.e. bidding in the award would determine which specific portfolio would be acquired by the fourth national wholesaler. The groups assume in some cases that the 2x15 MHz of spectrum to be divested by Everything Everywhere, as a result of its parent companies merger commitments, is to be allocated in the auction. If Everything Everywhere enters into a trade in advance of the auction, those portfolios containing 1800 MHz spectrum would fall away. This may however also remove the need for any spectrum reservation, depending on who acquires the spectrum and the view we finally take on the spectrum needed to be a credible national wholesaler.

Group 1 (Smaller portfolios)

Portfolio 800 MHz 1800 MHz 2.6 GHz
12 x 10 MHz  
2 2 x 15 MHz 

Group 2 (Medium portfolios)

Portfolio 800 MHz 1800 MHz 2.6 GHz

Portfolio 800 MHz 1800 MHz 2.6 GHz
32 x 15 MHz  
42x 10 MHz 2 x 10 MHz
52 x 10 MHz 2x 15 MHz 
6 2x 15 MHz2 x 10 MHz

1.32 Our view, based on (i) the evidence available to us at this stage and our analysis thereof, and (ii) the inherent uncertainties surrounding some of that analysis, is that group 2 is our preferred option. We consider that the increase in the benefits that might be realised from this compared to group 1 is considerable, as it would materially increase the probability that four entities would hold sufficient spectrum to be credible national wholesalers after the auction. We consider there is a risk that the amount of reserved spectrum under group 1 may not be sufficient adequately to address our most significant competition concerns. By contrast we consider the comparative increase in cost as between groups 1 and 2 to be relatively small since group 2 still involves reservation of only a relatively small proportion of the available spectrum. Overall we consider that a spectrum reservation for a fourth national wholesaler as specified in group 2 is the least onerous way of achieving our policy aim of promoting national wholesale competition, given the uncertainties we have about the efficacy of group 1 in addressing our main concerns.

Promoting new entry by sub-national operators

1.33 We consider that there may be material benefits for consumers if part of the paired 2.6 GHz spectrum were to be available on a shared basis to facilitate the provision of innovative mobile services by a wide range of potential providers. These benefits might be greater than those that would flow from this spectrum being held by one or more of the national wholesalers given they will already hold significant amounts of other spectrum. We term these potential providers sub-national operators as we understand they are likely to build infrastructure to compete for only a sub set of the market. These new providers may adopt different business model(s) from existing national wholesalers, for example building what are termed inside out networks which focus on building infrastructure to provide service within businesses offices and consumers homes rather than to provide service over a wide area.

1.34 It is possible that this type of entry could come about without reservation of 2.6 GHz spectrum, through the sub-national operators outbidding national wholesalers for the relevant part of the 2.6 GHz band. However, we consider that there is a risk that it would not. The potential providers may, as new entrants, place a lower commercial value on the spectrum than existing operators would, even though the benefits to consumers could be higher than their valuation because of the greater competition and innovation that their entry might foster. It is also possible that the national wholesalers would have the incentive to act strategically to block potential new providers from acquiring the spectrum. Given these risks and the potential benefits to consumers of this entry we are minded to favour reservation of 2 x 10 MHz of 2.6 GHz spectrum but we would welcome more evidence on the costs and benefits of such an action which we recognise is a difficult judgement.

Revised proposals for promoting the availability of future mobile services for citizens and consumers

1.35 In the March 2011 consultation we recognised that the award of 800 MHz and 2.6 GHz spectrum had an important role to play in promoting the wide availability of future mobile services in the UK. We suggested that our proposals to promote competition were likely to drive wide availability to an important degree but felt that they should be underpinned by a coverage obligation to guarantee that a future mobile broadband service was provided to a significant number of citizens and consumers on a reasonable timescale.

1.36 We proposed to include a coverage obligation in one licence for 800 MHz spectrum. This would have required the successful bidder to deploy an electronic communications network capable of providing mobile telecommunications services with a sustained downlink speed of not less than 2Mbps with a 90% probability of indoor reception to an area within which at least 95% of the UK population lives by the end of 2017. We believed that this should result in coverage of future mobile broadband services that approached today's 2G coverage.

1.37 Many, but not all, of the responses to the consultation suggested that we should go further and, in particular impose a higher population target. The House of Commons Culture, Media and Sport Select Committee also recommended that we should impose a coverage obligation of 98% on one or more of the 800 MHz licences. In light of these responses, our further analysis of the costs of extending mobile broadband coverage in rural areas, and in particular the Governments decision to invest 150m in a mobile infrastructure programme (MIP) to improve mobile coverage in rural areas, we believe that it would now be proportionate to include a more extensive coverage obligation than we previously proposed, in at least one of the 800 MHz licences to be awarded through the auction.

1.38 One approach would be for this obligation to be a straightforward 98% (indoor) UK population coverage obligation as many responses advocated. We regard this as a credible way forward. However, given the Governments decision to invest 150m in infrastructure to improve mobile coverage more generally, we believe that possibly an even better approach would be to link the coverage obligation more directly to the MIP. The 800 MHz licensee(s) subject to the coverage obligation would be obliged to provide a 4G mobile broadband service with coverage comparable to the 2G mobile voice coverage delivered by today's 2G mobile networks (in combination) plus the extended mobile voice coverage achieved as a result of the MIP, to the extent that the MIP infrastructure is capable of supporting 4G network equipment.

1.39 This second approach would have two key advantages: it would increase the benefits flowing from the Governments investment in mobile infrastructure, leveraging this investment not only to provide better mobile voice coverage but also better mobile broadband coverage; it would also make it more likely that mobile broadband services would be provided in those locations where they were most valuable, rather than in those areas where it was easiest for a licensee to meet the obligation, which is a risk if the obligation refers simply to a population percentage.

1.40 We propose that just one 800 MHz licence contains the obligation. We believe that this is a proportionate measure that balances appropriately the risk of inefficient use of the spectrum against the benefits for consumers and citizens of wider coverage. It will ensure that consumers who buy their mobile broadband service from the designated provider will be able to receive a good quality mobile broadband service throughout the UK.

1.41 Our preferred approach effectively has two elements: (i) providing coverage that is comparable to the 2G mobile voice coverage delivered by today's 2G mobile networks (in combination); and (ii) providing coverage comparable to the extended mobile voice coverage achieved as a result of MIP, to the extent that the MIP infrastructure is capable of supporting the operators 4G network equipment.

1.42 In relation to the first element, we do not consider it necessary to impose this requirement on all of the 800 MHz licensees. The key benefit of the requirement is to guarantee that this level of coverage is reached on a relatively quick timescale; we anticipate that other licensees are likely ultimately to provide mobile broadband services to a similar level of coverage, but may take longer to do so (and there could be consumer harm if we imposed what turned out to be an inappropriate timetable on all licensees).

1.43 In relation to the second requirement, we recognise that the issue is more difficult. We can see that if the obligation is only imposed on one licensee then there is a risk that consumers living in areas that receive service using the MIP infrastructure would not have a choice of provider. It is also the case that other consumers, who live elsewhere but visit such areas, may not be able to receive service in those areas. Clearly there would be some consumer benefit in addressing these issues but we also need to recognise that there would be costs and practical challenges to be overcome.

1.44 The presence of new infrastructure built under the MIP raises the possibility that licensees, other than the one holding the coverage obligation, may provide mobile broadband service in some or all of the MIP areas (depending on the nature of the MIP infrastructure and the arrangements for access to it) as it may prove commercially beneficial to do that. However, we recognise that this is may not be the case in all areas or for all operators.

1.45 We have therefore considered two possible options to address the issue: either to impose the second obligation on all 800 MHz licensees; or to impose an additional requirement to offer wholesale access on the one licensee that has the coverage obligation. We consider that there are likely to be concerns with both approaches which mean that, on balance, we do not propose to adopt either option. Instead we favour the approach of imposing the coverage obligation on just one licensee and not imposing a wholesale access obligation on that licensee.

1.46 The key difficulty with imposing the obligation on all licensees is that it is only likely to be efficient (i.e. avoid wasteful duplication of sites) if the MIP infrastructure has the capacity to accommodate all holders of the obligation. We cannot be certain that this will be the case because it may not be efficient to build infrastructure that can house the mobile broadband network equipment of more than one provider .

1.47 In relation to the possibility of imposing an access obligation, we recognise that some form of obligation could support public policy goals relating to the use of MIP infrastructure. However, there are some important difficulties, including the network costs involved in providing access and the need for a new regulated access regime to be put in place to set the terms and conditions of access, including price. The availability of wholesale access could also undermine the incentive for other operators to invest in rural areas. We are therefore not convinced, at present, that it would be proportionate to take such steps given our current assessment of the limited nature of the associated benefits. We would however welcome further comments and evidence from stakeholders on the potential benefits and costs of these or other measures to promote the availability of service from a wider range of operators in less commercially attractive areas.

Revised proposals on other issues

Spectrum packaging and auction design

1.48 This consultation document also sets out our further thinking on how the spectrum should be packaged and the rules of the auction. We have prepared our revised proposals in the light of responses to the March 2011 consultation, developments concerning the nature and extent of technical restrictions that may apply to the available spectrum, and to address the implications of proposed changes to our proposals for promoting competition and mobile coverage.

1.49 There remains some uncertainty over the impact of DTT co-existence on the 800 MHz band and therefore we are not yet able to be definitive in our packaging proposals. We discuss two options in this consultation comprising differing lot structures. Our preference is for the option with a simpler structure of lots, as this will simplify the auction for bidders if that proves to be compatible with the conclusions of the work on DTT co-existence.

1.50 In the case of the 2.6 GHz band, there was a consensus amongst responses from stakeholders to our March 2011 consultation that we should package the paired spectrum in 2 x 5 MHz lot sizes and not the 2 x 10 MHz we had proposed; and that the unpaired spectrum should not be sold as a single lot. In March we made these proposals for purely pragmatic reasons to simplify the auction. Reflecting the feedback in responses from stakeholders our revised proposals are to auction the paired spectrum in 2 x 5 MHz lots and the unpaired spectrum in 5 MHz lots. This approach will allow bidders to aggregate the spectrum in their bids as they think appropriate, subject to any rules to promote competition.

1.51 In the March 2011 consultation we proposed using a combinatorial clock auction to award the spectrum with particular features reflecting the specific circumstances of the auction, in particular the proposal to promote competition. Responses from stakeholders broadly supported our approach to the auction design but raised some important issues of detail with the rules. In this consultation we set out detailed modifications to the rules that we believe both address the concerns of stakeholders and more generally improve the design such that the transparency and efficiency of the outcome are likely to be improved.

Availability of 800 MHz and 2.6 GHz

1.52 There is considerable ongoing work on spectrum clearance and co-existence with adjacent users, jointly overseen by Government and Ofcom, to make the 800 MHz and 2.6 GHz bands available. This consultation provides an update on that work. We will publish further information relating to these matters in the Information Memorandum. At present we expect that the 800 MHz band will be available for use across the UK from the end of 2013, and in the case of the 2.6 GHz band the majority of the UK by the end of 2013 and remaining areas as soon as possible after that.

Annual licence fees for 900 MHz and 1800 MHz spectrum

1.53 The Direction requires us to revise the level of annual licence fees for 900 MHz and 1800 MHz spectrum after the auction to reflect full market value, having particular regard to the sums bid for licences in the auction for the 800 MHz and 2.6 GHz bands.

1.54 In the March 2011 consultation, we set out our view that the bids in the auction would provide a sound basis for setting these fees as they are likely to provide the most reliable source of information on the value of similar spectrum. Based on this principle we set out some detailed proposals for how this should be done. We also noted that, while we felt it would be helpful to stakeholders to discuss how revised licence fees might be set ahead of the auction, no decisions on this matter would be taken until after the auction and we planned to consult again at that time.

1.55 We received a number of responses on this issue. Our position remains that we will consult on our approach to implementing this aspect of the Direction after the auction and make decisions following that consultation. However, we continue to believe that stakeholders are likely to find some discussion of possible approaches ahead of the auction helpful and therefore in this consultation we set out some further thinking on the issue.

1.56 In line with the Direction we continue to believe that bids in the auction are likely to be an important source of information about the full market value of spectrum and hence for revising annual licence fees. We recognise that a simple mechanistic approach relating annual fees to bids in the auction could create some undesirable incentives in the auction, but our proposal was and is to look at a range of benchmarks to assess full market value when setting revised annual licence fees.

1.57 In addition, in the March 2011 consultation we identified a particular approach for extracting information from the bids for the purpose of setting annual licence fees. In light of responses regarding this approach we have now identified an additional approach on which we are seeking comments in this consultation. Our approach to setting annual licence fees will not be to rely on a single methodology and source of information. Instead we expect to extract information from the bids in the auction using more than one methodology and use this alongside other evidence, such as the information on spectrum value that we use to set reserve prices, and information from auctions in other countries for similar spectrum.

Liberalisation of 900 MHz and 1800 MHz for LTE

1.58 In the March 2011 consultation, we announced proposals to liberalise the use of mobile frequencies at 900 MHz, 1800 MHz for LTE and WiMAX as soon as technical conditions had been agreed within Europe (see paragraphs 2.21 and 5.88 in that document). In our consultation of 2 June 2011 Consultation and information on technical licence conditions for 800 MHz and 2.6 GHz spectrum and related matters, we noted that on 18 April 2011 the European Commission had adopted Decision 2011/251/EU, amending Decision 2009/766/EC which added technical conditions for LTE and WiMAX into the annex to that Decision. We also noted that the amending Decision set a deadline of 31 December 2011 for Member States to implement the technical conditions to allow LTE and WiMAX in these bands (see paragraphs 2.11 to 2.17 in that document).

1.59 It is clear from Telefonica O2 UK Limited v Office of Communications (900 MHz Band) [2010] CAT 25 that the obligation in the amended Commission Decision only extends to putting in place any measures necessary to ensure that, by 31 December 2011, the 900 MHz and 1800 MHz bands are available throughout EU Member States to be authorised for use with LTE and WiMAX technology, and are thereby capable of being made use of. However, authorisation of particular undertakings to use this spectrum for LTE and WiMAX only takes place after implementation of the necessary authorisations and licence amendments under the Authorisation Directive.

1.60 Following on from these developments we have received a request from Everything Everywhere for the relevant licences to be amended as soon as possible after the implementation deadline to give effect to the Commission Decision. We propose to consider this application outside of our proposals on the auction, in accordance with our obligations under the Directives and the Wireless Telegraphy Act 2006, in the first quarter of 2012.

Next steps

1.61 We are inviting responses to this consultation by 22 March 2012.

1.62 Following this consultation, and subject to responses to both this consultation and the March 2011 consultation, we plan to set out our decision for the award in a statement in Summer 2012. Alongside that statement, we plan to publish for statutory consultation draft auction regulations which will give effect to our decision, and an Information Memorandum containing details of the spectrum to be auctioned.

1.63 We plan then to make the regulations as soon as practicable thereafter. We will aim to start the award process at the earliest opportunity, having given sufficient time for potential participants to prepare. We believe the process could start in Q4 2012 with the submission of applications from prospective bidders.