5G and Beyond

UK's 3 Huffs & Puffs That It's Short of Air

It is almost incumbent on any CEO of a comparatively small national operator to be a moaner or a maverick, and preferably both. John Legere at T-Mobile US probably encapsulates this best -- spouting off about his bigger rivals at any opportunity but also doing lots of "uncarrier" things, as he likes to put it (such as cutting prices).

On the other side of the pond, 3's David Dyson has a much lower profile than Legere, whose expletive-ridden speeches and Twitter outbursts are the stuff of legend. But the CEO of the UK's fourth-biggest mobile operator shares Legere's fondness for complaining about bully-boy competitors.

He's been at it again this week, urging the UK regulator to limit what BT/EE, the market leader, and Vodafone UK , the number-three player, can put in their baskets during an upcoming sale of spectrum. Unless Ofcom takes preventative measures, warns Dyson, the UK market will end up even more skew-whiff than it already is. (See this story from our sister publication Telecoms.com for some of Dyson's comments.)

Dyson has a point. BT/EE's current spectrum property is an airy villa next to the spartan tenements occupied by Three UK and Telefónica UK Ltd. (O2), the UK's second-biggest operator by customer numbers. Regulatory and competition authorities are at fault for that imbalance, merrily waving through two big mergers -- the Orange UK and T-Mobile (UK) tie-up that produced EE and BT Group plc (NYSE: BT; London: BTA)'s subsequent acquisition of the mobile giant -- without relieving them of many airwaves.

UK Spectrum Holdings (MHz)
Source: Ofcom, operators, Light Reading.
Source: Ofcom, operators, Light Reading.

3's boss probably won't get his own way, though. Ofcom would essentially be acknowledging its mistake in unreservedly backing the BT/EE deal if it started imposing restrictions on the operator during a spectrum auction. Vodafone might look muscular next to 3, but it also shapes up badly alongside BT/EE.

The bigger players may also argue that not all spectrum is equal. Lots of value was attached to the low-band 800MHz licenses that were sold in 2013 because these allowed operators (in principle) to launch 4G services over wide areas. The rules of the game may slowly be changing. With 5G, operators will need much higher-band frequencies to support a new, ultrafast air interface. Anything below 3.4GHz probably won't be up to the job. (See Spectrum Hurdle Could Trip Europe in 5G Race.)

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Ofcom has certainly not presented its next auction as a 5G one, but it does include spectrum in the 3.4GHz band that operators may be eyeing for 5G purposes. Because none of the mainstream players currently holds a 3.4GHz concession, none can really plead poverty in this particular area.

For 3, however, spectrum shortcomings might not be the whole issue. Desperate to keep the UK a four-player market, the European Commission recently blocked 3's planned takeover of O2. Besides helping to address the spectrum imbalance, the merger would have created a counterweight to BT/EE, producing a mobile powerhouse to challenge the former state-owned fixed-line monopoly. (See Eurobites: EU vetoes O2/3 combo.)

By dashing those ambitions, authorities have effectively consigned 3 to a challenger role it no longer wants to play. Its CEO appears to symbolize its changing aspirations. While Legere delights in being a potty-mouthed, anti-establishment rabble rouser, Dyson has projected an image of greater respectability, having perhaps anticipated becoming CEO of the UK's biggest mobile operator. Moaning he does well (albeit more politely than Legere); outright maverick behavior, much less so. (See UK Needs O2/3 to Challenge BT/EE – Analyst and T-Mobile Looks to Shake Up Mobile Market for Businesses.)

As a small and disruptive force, 3 has thrived, reporting a 6% rise in sales and a 25% increase in EBITDA last year, to £2.2 billion ($2.95 billion) and £686 million ($921 million), respectively. But as the UK evolves into a market where communications giants sell the full package of fixed and mobile services to consumers, 3's spectrum-constrained future holds uncertainty. Going rogue, in Legere fashion, no longer seems to fit with the game plan. Yet embracing orthodoxy is unlikely to get 3 far while it lacks the assets and heft of its chief rivals. Dyson's spectrum bugbear is just the start of its problems.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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