The GSM Association (GSMA) upped its lobbying efforts today for spectrum refarming of 900 MHz GSM spectrum bands to increase 3G coverage and reduce network costs of its operator members worldwide. But 3 Group , which does not own GSM spectrum, wants compensation. (See GSMA Touts 900MHz for 3G.)

With spectrum refarming, European operators could reduce their cumulative capex by 40 percent over five years, according to a recent report by Ovum for the GSMA. The report finds that a 3G network deployed at 900 MHz would have 40 percent more coverage than a 3G network in the 2100 MHz band, not to mention better in-building coverage. The difference is due to better signal propagation at lower frequencies. (See Spectrum up for Grabs in Europe.)

But the glaring problem with this policy is that operators that don't own GSM networks could be at a significant competitive disadvantage depending on how regulators implement it.

3 Group, which has spent more than €9 billion (US$12 billion) in Europe in deploying its 3G networks at 2.1 GHz, says in a position paper that European regulators should be ready to compensate 3G operators.

Operators like Yoigo in Spain, and the 3 Group which has 3G networks in Austria, Denmark, Ireland, Italy, Sweden, and the U.K., won't benefit from spectrum refarming nearly as much as 3G operators which also own GSM networks. (See TeliaSonera Launches Yoigo.)

In a position paper, 3 claims that refarming would allow a 3G-only operator to save 16 percent of its capex for a national network, but that the equivalent savings for operators that own 900 MHz 2G networks as well as 3G networks is more than 60 percent.

In the paper, 3 states: "3G-only operators should receive a similar grant of value which may involve not only ensuring fair and non-discriminatory access to spectrum but also compensating 3G-only operators in other ways."

Given the marked disadvantages, 3 in certain cases thinks spectrum reallocation is the solution. For example, in the U.K. where there are four 2G 900MHz operators and five 3G operators, Ofcom could decide to divide access to the 900MHz spectrum five ways.

"It would depend on which member state you are talking about and the history of the past allocations of spectrum at 900 and 1800," says Tim Lord, regulatory director at 3. "For example, some spectrum could be re-allocated to the later entrants so that value is given equally to all operators not just the incumbents."

Heavy Reading senior analyst Patrick Donegan says 3 is "bound to see regulatory redress because it doesn’t have any 900MHz spectrum. So, as and when, its competitors get the right to deploy 3G at 900 MHz, 3 risks being at a material disadvantage." [Disclosure: The author of this article is married to Patrick Donegan.]

Donegan suggests that the simplest way out of this problem would be for another operator to acquire 3.

"There are various ways of leveling the playing field from a regulatory perspective. But the easiest would be a market-driven solution in which one of the big pan-European players acquires 3," says Donegan. "But that isn't straightforward as most of the big players are interested in cherry-picking from 3's portfolio – notably the Italian affiliate – rather than buying the entire portfolio of 3G properties."

Europe's regulators have just begun to tackle these issues. The European Commission will adopt a new policy allowing 900MHz refarming this autumn. It will then be up to individual member states to implement. French regulator Arcep says it is already working on its policy. And 900MHz refarming is also allowed in Finland.

And the first sign of devices that support 3G at 900MHz happened just last week. Nokia Corp. (NYSE: NOK) unveiled the quadband 6121 Classic, which is the first handset to support GSM and WDCMA at 900 MHz and 2100 MHz. The analyst team at Dresdner Kleinwort says that Nokia's new device is "one of the clearest signs yet that operators are serious about re-utilising GSM spectrum for WCDMA services."

The GSMA also wants this policy implemented outside Europe, particularly in emerging markets where rural coverage is too costly.

"We're very keen to reduce the cost of connecting rural communities to high-speed data," says Tom Phillips, chief government and regulatory affairs officer of the GSMA. "The biggest and quickest benefit we can get is to get the frequency band down to 900 MHz."

The GSMA says that Mauritius has officially endorsed spectrum refarming. In addition, Sourth Africa, Nigeria, and Tanzania have adopted a "technology neutral" approach to spectrum awards, which means, in theory, 3G can be used in 900MHz.

— Michelle Donegan, European Editor, Unstrung