Mobile phone operators call for delay in auction of new spectrum

Mobile phone operators are facing the prospect of a new auction of third generation (3G) mobile phone licences, less than five years after paying out £22.5bn to the Government.

Mobile phone operators are facing the prospect of a new auction of third generation (3G) mobile phone licences, less than five years after paying out £22.5bn to the Government.

The auction will be bigger than the original sale in terms of the amount of radio spectrum that is to be offered. Analysts are uncertain how much will be raised. But the operators are to plead for longer to make their existing 3G operations profitable before the new auction potentially opens up the market to yet more competition.

Companies including T-Mobile, Vodafone and mmO ₂ believe that having been forced to pay an average of more than £4bn each less than five years ago, the outcome of a second auction should be delayed beyond 2008 - the date envisaged by Ofcom for awarding the new radio spectrum which will become available from 2006.

Ofcom, headed by Stephen Carter, published initial details yesterday of its new approach to radio spectrum allocation. It plans to auction 190 Mhz of spectrum between the 2,500 and 2,690 Mhz frequencies that will be bigger than the 140 Mhz auctioned in 2000 and even bigger than the 112 Mhz of spectrum to be freed up by the conversion from analogue to digital television broadcasting.

Philip Rutnam, who is handling the new auction process at Ofcom, said: "This is potentially another landmark event in the development of the communications industry in the UK."

The new auction will be under a different set of rules than the 2000 sell-off that made use of complex game theory designed by professor Ken Binmore of University College London.

Ofcom intends to auction the spectrum to companies who will be allowed to decide how it is used rather than the regulator dictating what the spectrum can be used for, as happened in 2000. How the new auction will be run in detail and what the reserve prices will be will now be subject to a process of consultation. Ofcom insisted yesterday that its remit was not to maximise revenue for the Government but to ensure the most efficient use of the nation's radio spectrum is achieved.

While mobile phone companies broadly welcomed the principle of freeing up more radio spectrum, they put Ofcom on notice that the upcoming negotiations will not prove a shoo in.

Brian McBride, the managing director of T-Mobile UK, said: "This is a major proposed change in the rules of spectrum management, and the basic principles of liberalisation and a market-based system are to be welcomed. As always, however, when the rules of the game are changed, there must be full and fair acknowledgement of the major investments that the existing players have made and proper time to enable transition to a new level playing field."

A statement from Vodafone said: "In principle Vodafone supports Ofcom's aim of liberalising spectrum, although how this is going to be implemented must be looked at carefully. Spectrum is vital in bringing mobile services to our 14.6 million UK customers and it is important that the final package should make sense for them."

Although the first round of 3G licences were awarded in 2000, the services did not make a commercial debut until 2003 when 3 launched the UK's first operation. Only Vodafone has followed suit, launching late last year, while Orange announced its 3G launch shortly before Christmas.

The radio spectrum that will be made available for new 3G services is currently being used by programme makers for outside broadcasters.