The forthcoming spectrum auction is a watershed moment for the UK mobile industry, releasing the airwaves which will power a whole range of exciting next generation mobile services. The new spectrum will allow the introduction of 4G or LTE mobile technology, increasing capacity, quality and speed (we estimate that mobile broadband capacity will increase by 20 to 40 times from today’s levels).

We welcome Ofcom’s proposal for the spectrum auction and agree with many of their key points. We support the Combinatorial Clock Auction structure which prevents strategic bidding, i.e. where bidders acquire spectrum to prevent someone else from getting it. We also support the proposed spectrum caps which will safeguard consumer interest and prevent any one bidder acquiring a dominant position in these scarce resources.

However, we believe that the proposed spectrum floors are a state aid and are therefore illegal under EU law. The spectrum floors would distort the auction process, allowing all bidders, except Vodafone and O2, to potentially acquire spectrum at discounted prices. Ofcom’s own figures suggest this effect could cost taxpayers £1bn.

The proposed floors, and the argument that Vodafone and ourselves already have enough sub-1GHz spectrum, are based on the mistaken belief that 800 MHz and 900 MHz are directly comparable spectrums. They are not. Our response to Ofcom clearly explains why.

Ultimately this auction is about new, next generation services. It is not about 2G and 3G, but about the future. It should therefore be used as an opportunity to provide fair, open and equal access to newly available spectrum.

So while we support the proposed auction structure and spectrum caps, Ofcom is faced with a difficult choice of either revisiting its spectrum floors proposal or discarding the floors and getting on with the process.

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