The Necessity for a fourth national wholesaler

Ofcom wants to promote competition in the national wholesale level. This national wholesalers support retail competition directly and indirectly. As the national wholesalers are also providing retail mobile services to consumers, they support direct competition. Since they provide spectrum to retailers such as MVNOs, they support indirect competition.

Ofcom has made a provisional conclusion that in the UK, there must be at least four national wholesalers of mobile services. Then only consumers would get the maximum benefit – better service at a cheaper price.

The regulator has already considered the fact that the national wholesale market is already crowded and it doesn’t want to make it even more concentrated as a result of the auction. At the same time Ofcom doesn’t want to reduce the level of competition. The future consolidation in the communications market would be subjected to careful scrutiny.

Ofcom also considered the possibility of having less than four plausible national wholesalers of mobile services. In the event of a new entrant or Hutchison 3G UK (H3G) failed to acquire at least a minimum spectrum in the auction, the possibility of having less than four national wholesalers is great.

Ofcom is not concerned about Everything Everywhere, or Vodafone or Telefonica UK since they could compete more vigorously by offering a wider range of services if they get additional spectrum through auction.

Hence Ofcom wants to propose to reserve some of the spectrum for a fourth national wholesaler, other than Vodafone, Everything Everywhere and Telefonica.

For the reserved spectrum, the bidders have to compete with each other and the bidder has to pay the reserve price of the spectrum. One of the bidders is guaranteed to win the spectrum.

Ofcom do not consider reserving any spectrum for Vodafone, Everything Everywhere or Telefonica since it took in to consideration their current spectrum holdings and their capacity to bid and acquire further spectrum in the auction.

Ofcom considers it fit to impose some limitations to the acquisition of spectrum in the auction, in a way, to restrict the overall holdings of ‘mobile spectrum’ and sub-1GHz ‘mobile spectrum’. The imposition of these safeguard caps is only a precautionary measure. In the absence of limitation on spectrum holdings, there is a chance of spectrum holding becoming highly asymmetric after the auction. Such a situation would be detrimental to competition.

Though the regulator has very carefully considered the responses to Consultation, to promote competition, Ofcom decided to make a little change in its views. In March, Ofcom was of the opinion that Everything Everywhere was in need of a small amount of sub-1 GHz spectrum (2X5 MHz) in order to consider the firm as a credible national wholesaler in future. With this view in mind, the regulator proposed to reserve such spectrum for Everything Everywhere as it had reserved spectrum for the fourth national wholesaler.

On the basis of the responses to March 2011 Consultation and the further analysis thereof, currently Ofcom is of the belief that the chances of Everything Everywhere not becoming a credible national wholesaler after the auction is very meagre. Formerly Ofcom’s analysis was focused on the need for sub-1GHz spectrum in order to provide best coverage in remote areas. On the other hand now Ofcom considers the spectrum holdings and the capabilities of a national wholesaler. When we take in to consideration this view point, Everything Everywhere, has a large amount of 1800 MHz spectrum with a large bandwidth of spectrum suitable for LTE. It has the capability of providing the highest peak speed at present and in future.

Again when the regulator considered the holdings of sub-1 GHz spectrum, the technical advantages of sub-1GHz spectrum become obscure. It is also observed that what the holders of 800 MHz spectrum could deliver to customers could almost be delivered by Everything Everywhere with its holdings of 1800 MHz. (2X 45 MHz). This conclusion is based on the technical analysis conducted by Ofcom over a range of service quality across a range of locations. It is proved beyond doubt that in many locations, a net work with sufficient amount of 1800 MHz spectrum and a large network of base stations could provide even better service than a network with a smaller amount of 800 MHz spectrum. It is admitted that this may not be possible with regard to hardest to serve regions. The evidence before the regulator prove beyond doubt that the differences between 800MHz and 1800 MHz network would not be sufficient enough reason to disqualify Everything Everywhere to be a credible national wholesaler.

Another modification to Ofcom’s March 2011 proposals is with regard to spectrum portfolios. According to Ofcom, a part of the spectrum should be reserved for a fourth national wholesaler. There are two modifications to the proposals, namely that there is no guarantee that the reserved sub-1GHz spectrum would be won by the fourth national wholesaler and the second is that there is no spectrum portfolios that contains 2 X 5 MHz of 800 MHz as one of their elements. In March Ofcom proposed spectrum portfolios containing 2 X 5 MHz of 800 MHz together with 2 X 20 MHz of 2.6 GHz. Ofcom removed this portfolios on the belief that such a small amount of 800 MHz spectrum won’t be able to enhance the coverage or capacity of a network having a higher frequency spectrum. Hence reservation of a small amount of 800 MHz spectrum would ultimately lead to inefficient use of the valuable spectrum.