Proposals to encourage national wholesale competition

The safeguard caps proposed by Ofcom was 1) An overall spectrum cap of 2 X 105 MHz, 2) a sub-1GHz spectrum cap of 2 X 27.5 MHz. These safeguard caps would cover all the spectrum in the auction like - 800 MHz and 2.6 GHz bands, and ‘mobile spectrum (holdings at 900 MHz, 1800 MHz and 2.1 GHz)

For the reservation of some amount of spectrum for the 4th national wholesaler, Ofcom has considered different options. Certain points like whether the reserved amount and frequencies of spectrum is sufficient enough to promote the credible 4th national wholesaler, whether the cost of the implied restriction on the spectrum should be made available to other national wholesalers are to be considered while fixing the reservation. The most likely combination of portfolios are decided upon and at the same time Ofcom doesn’t forget about the risk of a last minute change if it helps to encourage national wholesale competition.

Bidding in the auction would be the determining factor as to which precise portfolio would be attained by the fourth national wholesaler. Due to the merger commitments of the parent companies, Everything Everywhere has to divest 2 X 15 MHz of spectrum and groups assume this spectrum to be allocated in the auction. The portfolios containing 1800 MHz spectrum would vanish in thin air if Everything Everywhere makes a business contract prior to the auction. If it happens then there won’t be any need for any spectrum reservation depending on the acquisition of the spectrum.

The groups of portfolios that the regulator proposed are two in number Group 1 - Smaller portfolios and Group 2 - Medium portfolios. On the basis of the evidence before the regulator at this stage and also after considering the uncertainties prevailing, Ofcom is of the view that Group 2 is the apt option. When compared to Group 1, Ofcom believes that Group 2 would bring more benefits. It also anticipates that there would be four credible national wholesalers with enough spectrums after the auction. Ofcom consider that the amount of spectrum reserved for Group 1 may not be adequate to address the competition concerns. Against this Ofcom says that the increase in cost between Groups 1 and 2 would be relatively negligible.

Encouraging new entry by sub-national operators
Ofcom believes that it would be beneficial to consumers if a wide range of potential providers are brought into the communications sector. For this, part of the paired 2.6 GHz spectrum should be made available to potential providers on a shared basis for innovative mobile services. The benefit from this would be greater than the benefits derived from this spectrum being held by national wholesalers. The national wholesalers already hold sufficient amount of spectrum. These potential providers are called ‘sub-national operators’. They would build infrastructure to compete for a sub set of the market. These sub-national operators may adopt business models which are entirely different from the business models being followed by national wholesalers. The new operators would build infrastructure to provide service within businesses rather than providing services over a wide area.

The sub-national operators could enter the arena even with out the reservation of 2.6 GHz spectrum. They can also compete in the auction for the relevant part of the 2.6 GHz spectrum and outbid the national wholesalers. Even then the chances of their winning are remote since there is a chance of the potential providers placing only a lower commercial value on the spectrum when compared to the value that would be placed by the experienced wholesalers. The entry of sub-national operators would ensure better competition and modernization in the communications market, there by the consumers would be benefited. Again there is a possibility that the national wholesalers would prevent sub-national operators from participating in the auction by resorting to some strategy. Taking in to consideration of all these facts, Ofcom has decided to reserve some amount of 2 X 10 MHz of 2.6 GHz spectrum. Ofcom is ready to welcome maximum evidence regarding the expenditure and profit of this measure.