February 25, 2008
U.K. operators are up in arms over Ofcom 's proposal to liberalize 2G spectrum for 3G services, and some will even consider taking legal action against the U.K. regulator if its initial plans are not revised. Mobile operators strongly oppose Ofcom's approach to spectrum refarming, which is the term for opening 2G spectrum at 900 MHz and 1800 MHz to 3G services. (See Ofcom Denies Spectrum Bundling .)
What Ofcom does with spectrum refarming is significant because it will determine the landscape of future 3G networks and services in the U.K. It will also likely set a precedent for other European countries as, following the agreement that resulted in the functional separation of BT Group plc (NYSE: BT; London: BTA)'s access business, Ofcom is regarded as a groundbreaker in new European telecom regulation. (See BT Opens Up Access, Telecom Italia Hives Off Access Network, and Telcos Consider the Splits.)
The Ofcom proposal that has caused the most uproar is the plan to take back some of the 900 MHz spectrum currently licensed to Telefónica UK Ltd. and Vodafone UK so that it can be re-auctioned for other operators to use. (See Down on the (Re)Farm, What Ofcom Giveth..., and Ofcom Tackles Spectrum Usage.)
Vodafone and O2 argue that this approach goes too far. Instead, they favor a less intrusive approach, such as spectrum trading.
"Ofcom’s analysis is wide of the mark," said an O2 spokeswoman in an emailed statement sent to Unstrung. "Ofcom overestimates the benefits of operating 3G using 900 MHz spectrum and significantly underestimates the cost to us of clearing heavily utilized 2G spectrum. There is no legal or economic basis for any proposed intervention and, in any event, trading is the least intrusive solution."
When asked whether O2 would legally challenge Ofcom's proposals, the spokeswoman said, "We are confident that this won’t be necessary."
Vodafone also argues that the cost to them would outweigh benefits to the market.
"We would have to switch over a lot of customers and services that are currently using 2G in a way we believe would be expensive and disruptive," a Vodafone spokeswoman says. "It would be a forced migration."
Even 3G operator Three UK , which does not own a 2G license and stands to gain the most from refarming, opposes Ofcom's plans because they do not go far enough. The operator wants Ofcom to take back and re-auction all of Vodafone's and O2's 900 MHz spectrum.
"Although [Ofcom is] taking away some of the capacity, they are leaving some of the most valuable spectrum unaffected," says a 3 spokesman. "To only do it partially is getting caught between the devil and the deep blue sea."
3 would be the biggest beneficiary of spectrum refarming because it does not own a 2G license, but the operator is also part of the cause of the complication. In the U.K., there are five licensed 3G operators and four licensed 2G operators. Only two operators, Vodafone and O2, have 900 MHz licenses. Somehow, Ofcom has to allocate fair use of the 900 MHz spectrum for 3G services among all five licensees.
The 900 MHz spectrum is particularly valuable for providing better 3G coverage in rural areas and in buildings because the radio signals propagate further at the lower frequency compared to 2100 MHz, which is the frequency currently allowed for 3G services in Europe.
But the regulatory quagmire leads Heavy Reading senior analyst Patrick Donegan to believe that spectrum refarming will not have much of an impact in the European market in the next three years.
"Most obviously there is the issue of changing the regulations in a way that is not detrimental to 3, which doesn't have any 900 MHz spectrum in the markets in which it operates," says Donegan. "Beyond that there are issues of having enough 3G terminals supporting a 900 MHz radio, and then making the business case for sacrificing an entire 5 MHz worth of GSM capacity to 3G when only a handful of 3G users with 900 MHz terminals will be able to use it."
The U.K. isn't the only country struggling with spectrum refarming. French regulator Arcep can't introduce refarming until it allocates the last remaining 3G license, which it failed to do last autumn. (See France's 3G Giveaway, No 3G License for Free, and ARCEP Invites 3G Bids.)
To further compound this issue, the European Commission's plans to introduce spectrum refarming at a European level, which would at least provide clarity for member states, are stuck in the European Parliament. Last summer, the European Commission presented its proposal to repeal the GSM Directive, which would provide the legal framework to allow 900 MHz and 1800 MHz spectrums to be used for other services besides GSM.
"At this stage the dossier is unfortunately delayed because of internal procedures within the European Parliament in dealing with the repealing [GSM] Directive," said a European Commission spokeswoman in an emailed statement sent to Unstrung." The European Commission nevertheless hopes that the package will be in place as soon as possible, given the large support it received and the demand addressed by market players."
GSM Europe, which is the European organization of the GSM Association (GSMA) , believes the holdup is due to Parliament wanting to include spectrum refarming in the upcoming debates on a broader review of the European telecom market, which would further delay its introduction.
"Our understanding is that Parliament wants to discuss [spectrum refarming] along with the EU Review, which is not ideal and... unfortunate," says Herman Schepers, director of GSM Europe. "We're keen for this frequency to be used for UMTS. We would like this to go through as soon as possible because operators need legal certainty. So do the vendors. None of this makes much economic sense without handsets."
So far, Finland is the only country that has allowed spectrum refarming. (See Elisa Launches 900MHz 3G and Finns Bump Customers Off Fixed Net.)
— Michelle Donegan, European Editor, Unstrung
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