The mobile phone companies Vodafone and O2 will be forced to hand over large chunks of prime spectrum to their rivals as part of a plan unveiled by the telecoms regulator Ofcom to stimulate usage of wireless frequencies for mobile broadband services.
In line with European Union directives, Ofcom yesterday moved to remove the limitations on the usage of spectrum – the radio frequencies used to carry mobile phone signals – so that operators can use the resource as they see fit. Mobile phone companies have been lobbying for years to "re-farm" 2G spectrum bands for more advanced 3G services such as mobile internet access.
Under the original licence conditions, operators are only allowed to use 2G bands for voice and text services. However rolling out services like mobile broadband is much cheaper using the 2G spectrum as the signals have a longer range. Ofcom estimates that mobile operators can each save £1.25bn when rolling out 3G services over 2G frequencies and that nationwide coverage would require 10,000 fewer masts per operator than on existing 3G spectrum.
Despite welcoming the move to allow the refarming of 2G spectrum, Vodafone and O2 will be forced to give up around a third of the prime spectrum they currently own within the 900Mhz range. Back in 1985, the two companies were gifted the right to launch mobile services over the 900Mhz band by the Thatcher government.
A slice of that spectrum will now be freed up and auctioned off in 2009 with the two companies barred from bidding. Orange and T-Mobile won the right to launch 2G services over the 1,800Mhz band in 1991, as did Vodafone and O2.
Ofcom estimates that the process will provide a £6bn benefit to the UK economy via the auction and more competition in the mobile broadband market. T-Mobile, Orange and 3, which use different spectrum bands, will likely participate in the auction and Ofcom expects new entrants to bid. Neither Vodafone or O2 will be compensated for the loss of the spectrum. Both companies said they would consider Ofcom's proposals over the consultation period over the next 10 weeks before formally responding.
Ofcom has been selling off chunks of under-utilised spectrum traditionally used by the military. Despite the value of the 900Mhz asset, the auction is unlikely to yield anything near the £22.5bn that was raised in 2000 when 3G licenses were auctioned off by the government.
Ed Richards, Ofcom's chief executive, said: "We can't see it, touch it or hear it, but radio spectrum is central to our lives and we are using mobile devices more than ever before."