UK regulator Ofcom recently has been especially active on the topic of spectrum trading. On 20 June, Ofcom finalised rules to enable mobile network operators (MNOs) to trade their 2G and 3G (900 MHz, 1.8 GHz and 2.1 GHz) wireless network spectrum for the first time. On 29 June, Ofcom released a comprehensive statement on simplifying spectrum trading and its plans to make available a new, streamlined form of spectrum trading called “spectrum leasing.”

The new rules for MNO trading are set forth in the Wireless Telegraphy (Mobile Spectrum Trading) Regulations 2011, which will come into effect on 4 July 2011. Ofcom intends for trading to lead to more efficient spectrum use by allowing these resources to be split by geographical area or specific frequency and to be exploited by the MNO best placed to do so. 

Each mobile spectrum trade under the Regulations will require Ofcom’s prior consent, which will take into account the ability of the transferee to comply with licence terms and the impact of the trade on competition. Despite MNO requests for more assurance, Ofcom decided not to set out detailed criteria against which such an assessment will be made on the basis that no standard criteria could apply in every scenario. 

This prior consent requirement is part of Ofcom's arsenal of competition tools. One reason for the consent is to prevent licensees from circumventing competition rules which are likely to be put in place for the upcoming auctions of 4G spectrum.

The Regulations will, however, allow MNOs to consolidate their spectrum holdings in preparation for the upcoming auctions. They also allow Everything Everywhere (the merged Orange and T-Mobile) to divest a quarter of its 1800 MHz spectrum holding, as required by the conditions to the competition clearance granted by the European Commission on 1 March 2010.

Hard on the heels of the new Regulations, on 29 June Ofcom published its decision to proceed with proposals to streamline the more general spectrum trading process. Ofcom initiated a consultation on these proposals on 22 September 2009. Subsequently, the UK modified its Wireless Telegraphy Act to implement new provisions of the EU regulatory framework and also to introduce a new type of transaction, called spectrum leasing, which Ofcom says is simpler and faster to execute than spectrum transfers.

Ofcom distinguishes between spectrum transfers and leasing in the following terms: a spectrum transfer involves issuing a new spectrum licence following a commercial transaction between an existing licensee and the new user. By contrast, leasing permits another user to access spectrum for a specified period under a contract with an existing licensee, without obtaining a further Ofcom licence.

To simplify spectrum trading, Ofcom will seek to remove the need for parties to obtain consent to the transfer, by amending the current Wireless Telegraphy (Spectrum Trading) Regulations 2004 (which has been amended several  times already). Ofcom says it “will take the earliest convenient opportunity to do this.” This change does not eliminate the need for Ofcom to issue a new licence – after notice from the parties it will need to put the transfer into effect by processing and issuing licences to the transferees. Ofcom says that if problems arise with specific trades, it can consider ex post remedies of licence revocation or variation for national security or international obligations, or to prevent distortion of competition. There will, nevertheless, remain licence classes in which it is necessary to make an exception and require consent, such as the MNOs using wireless network spectrum described above. Ofcom also is still considering whether to apply the consent requirement to other MNO spectrum in the 800 MHz and 2.6 GHz bands.

To introduce spectrum leasing, Ofcom will vary existing licences, instead of making general rules through the Trading Regulations. Ofcom is advancing cautiously in this respect, and not actually applying the new leasing approach widely until it has more experience. The regulator says it will “limit leasing to exclusive Business Radio Area Defined assignments and auctioned licences….” Not even all auctioned licences will be included, as it also notes it is still looking at whether this approach works for mobile wireless allocations, and certain L-band licences “are subject to coordination arrangements that could make leasing problematic.”

Ofcom says this licence variation approach will allow it to monitor how leasing develops and aid in avoiding interference. It will publish further details on the licence variation process as soon as it is ready to accept applications, which it says could be “later this year.”

The 53-page statement covers other details and issues, and explains how the latest proposals differ from the original concepts. We expect forthcoming Ofcom statements on licence variations and leasing rules in the near future.