Vodafone and O2 get spectrum re-farming go ahead

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No conditions to be attached to 900MHz re-use

Ofcom has given the go-ahead for Vodafone and O2 to re-use their 900MHz spectrum for 3G without the requirement for them to release a block of spectrum to other operators.

Ofcom said that it had changed its mind principally because the T-Mobile/Orange merger that created EverythingEverywhere's (EE) shared network had considerably reduced the competitive impact of allowing the 900MHz operators to open up the spectrum for 3G.

EE now has enough sites and spectrum to offset the advantage Vodafone and O2 would have from 900MHz coverage, Ofcom has found.

"Overall we now consider the risk and extent of any competitive advantage for O2 or Vodafone arising from liberalisation of the 900MHz spectrum for UMTS to be low and significantly less than our analysis suggested in February 2009," a statement from the regulator said.

Additionally, Ofcom now thinks that it will be more expensive than previously thought for Vodafone and O2 to release spectrum. Along with the implementation challenges of allowing other operators access to the 900MHz spectrum, the negatives would outweigh the benefits.

Vodafone and O2 will pay annual licence fees for the spectrum that "reflect the full market value of that spectrum " Ofcom said. This would "mitigate if not entirely eliminate" any distortion. Furthermore, even if annual licence fees were not accurately to reflect full market value (and in particular the differential in value between 900MHz and higher frequency spectrum) Ofcom considered the likely impact on consumers to be limited.

Somewhat more surprisingly, Ofcom has taken the view that the 900Mhz operators will not gain a significant in-building advantage by re-farming the spectrum for 3G. Fedback in response to Ofcom's February 2009 consultation, suggested that a UMTS 900MHz network deployed by O2 or Vodafone would provide improved quality of coverage to some indoor locations when compared to 2100MHz.

However, Ofcom said "the extent of the improved quality of coverage is relatively small". The regulator found that the extent of this advantage will be dependent on the construction of buildings and the location of the user within the building.

"Little or no advantage would exist in many easier to serve indoor locations. In addition, other ways of dealing with poor indoor coverage, such as in-building repeaters and femtocells have become a more plausible strategy for EE/H3G to address residual areas of coverage disadvantage since our February 2009 consultation," the regulator's statement said.

The regulator also gave the nod to EE to free up the 1800MHz spectrum the merged operator holds, if it wants to. EE agreed to divest 2x15MHz blocks of spectrum at the time of the merger, to satisfy EC demands.