Précis – On 13 March 2012, Ofcom issued a consultation on its intention to vary Everything Everywhere's (“EE”) 1800 MHz spectrum licences to allow use of LTE and WiMAX technologies. If Ofcom agree to vary EE's licence following the consultation period, it would be likely to be the only entity capable of providing LTE/WiMAX services on a national basis for an estimated time period of at least 15 months (the “Interim Period”). Ofcom have, therefore, had to consider whether there is a risk of this causing long and short term distortion to competition. It is Ofcom’s preliminary stance that there is no material risk of a distortion of competition if EE are permitted to begin using the 1800MHz band to deploy LTE and/or WiMAX technologies.

What? Following an application from Everything Everywhere (“EE”) on 23 November 2011, Ofcom has issued a consultation on its intention to vary EE’s 1800 MHz spectrum licences to allow use of LTE and WiMAX technologies.  EE is currently permitted to use its 1800MHz spectrum for GSM, GPRS and EDGE (ie 2G) mobile services.

So what? LTE and WiMAX technologies are designed to provide high speed mobile data services. LTE technology, in particular, has a number of advantages over 3G/UMTS/HSPA technology (currently used in many mobile networks to provide data services) because underlying differences enable LTE to operate more efficiently with respect to the use of spectrum. It is understood that LTE delivers greater cell spectral efficiency, improved latency, scope to prioritise traffic and the potential for higher peak data rates.  Ofcom is currently planning an auction for the 800MHz and 2.6GHz frequency bands, which are expected to be used for use with LTE and potentially WiMAX technology, but the auction has not yet taken place.

Ofcom was required to designate and make available the 900MHz and 1800MHz spectrum bands for LTE and WiMAX by 31 December 2011 according to the European Commission’s Radio Spectrum Committee Decision 2009/766/EC, as amended by Decision 2011/251/EU.  This decision required Ofcom to remove any legal impediment to the bands being authorised for use with LTE and WiMAX technology, subject to implementation of the necessary authorisations and/or licence amendments.  EE has existing spectrum licences in the 1800MHz frequency band and therefore applied for those licences to be varied to allow for LTE and WiMAX use, and such a variation will give it a lead over competitors who are waiting for access to the 800MHz and 2.6GHz frequency bands to provide next generation mobile services via Ofcom’s planned auction of spectrum licences in those bands.

Having received the application from EE on 23 November 2011, Ofcom has examined whether there is a material risk of a distortion of competition arising if it were to agree to amend EE's licences to allow EE to use its 1800MHz spectrum for LTE and WiMAX technologies.  Ofcom was assisted in its analysis by the Competition Commission’s earlier analysis of the effect of the Orange and T-Mobile merger in the UK, pursuant to which Everything Everywhere will be required to dispose of certain tranches of spectrum in the 1800MHz frequency bands.

Ofcom considered whether the potential for EE to target certain services or customers associated with holding spectrum suitable for delivering LTE services ahead of competitors, as well as the technical advantages, could result in a significant competitive advantage for EE. These issues would be likely to arise during the Interim Period and prior to September 2013, when the first tranche of divestment spectrum is available for nationwide use by the acquirer. Ofcom believes, however, that these concerns are redressed not only by the commitments given to the European Commission by EE’s parent undertakings as part of the merger process, but also because the winners of 800 MHz and 2.6 GHz spectrum in the forthcoming auction would be able to compete with EE in the provision of LTE services from late 2013.

Ofcom also considered whether there are any objectively justifiable, proportionate, non-discriminatory and transparent measures that it should take to address any potential competitive distortion both in the Interim Period and beyond. Potential courses of action would be for Ofcom to delay variation of the relevant licences until new spectrum is available for others to compete with the LTE-based services that EE (and the acquirer of the divestment) could offer; to require EE (and/or the acquirer of the divestment spectrum) to offer regulated wholesale access to their LTE or WiMAX services provided using 1800 MHz; or to redistribute the rights to use the 1800 MHz spectrum.

Having assessed these factors, Ofcom considered that even if there was a material risk of a temporary distortion of competition following liberalisation of EE’s licences, the most appropriate and proportionate approach would still be for Ofcom to liberalise EE’s licences as soon as possible as it is in the interests of UK consumers and citizens alike.

Ofcom’s initial stance was quickly criticised by other network operators, who stated that Ofcom “has always stressed that competition is in the best interests of consumers and the British economy yet here it is all but agreeing to grant the largest player in the market a headstart on the next generation of mobile Internet services”, and that they were  “concerned that Ofcom’s...proposal to allow one operator to launch 4G early on its existing spectrum is contradictory to its objective of delivering a competitive market environment with four competing players”.

Following pressure from stakeholders for more time to respond, Ofcom has now extend the response period until 8 May 2012.

It will be interesting to see whether or not other operators with spectrum in the 1800MHz frequency bands seek to vary their licences to allow for LTE and WiMAX use in those bands; whether or not other operators look for alternatives such as access to the wholesale LTE services in the 3.5GHz and 3.6GHz frequency bands in London through UK Broadband; or whether or not they simply continue to upgrade and expand their capacity and coverage on 3G networks to allow them to compete with EE until such time as they can participate in the 800MHz and 2.6GHz spectrum auction.