UK mobile operator O2 has clashed with regulator Ofcom which it believes is giving preferential treatment to rival Three in 5G.

Three UK was left at something of a disadvantage in the rollout of 4G due to holding less desirable spectrum than rivals, especially EE which Ofcom controversially gave a headstart by allowing to reuse its existing 1800MHz spectrum.

Ofcom has spent years trying to be a good regulator and rebalance UK spectrum ownership to help level the playing field. Three and O2 proposed a merger to help compete against larger rivals EE and Vodafone, but the deal was blocked over concerns that reducing the number of major operators to just three would reduce market competition.

Three has been given something of a helping hand from Ofcom because they already hold 140MHz of 5G-friendly spectrum, including a single 100MHz contiguous block.

Ofcom itself says that 5G is “likely to perform best using large, contiguous blocks of spectrum,” but the other advantage is that it reduces equipment cost as operators can use a single antenna, rather than several for bands that are far apart.

The regulator has proposed to defragment the 3.4GHz – 3.8GHz radio spectrum bands, but just 120MHz total is up for grabs; not enough to give any other network a contiguous holding of more than 80MHz.

Ofcom has proposed spectrum trading among the operators to help address the issue in what it hopes to be a fair manner:

"In order to facilitate defragmentation of the 3.4-3.8 GHz band, we are minded to impose a restriction on winners of less than 20MHz of 3.6-3.8 GHz spectrum to bidding only for the top or bottom of the 3.6-3.8 GHz band in the assignment stage of the auction.

In addition, we are also minded to include a negotiation phase, within the assignment stage of the auction, during which winners of 3.6-3.8 GHz spectrum would have the opportunity to agree the assignment of frequencies in the 3.6-3.8 GHz band between themselves."

Under the proposal, the new allocations must be unanimously agreed. A second proposal, if the first fails, is there can be partial agreement among a subset of winners.

In a fiercely competitive market, Ofcom's proposal is highly-ambitious and has received criticism from some of the operators.

O2 claims Ofcom is placing “far too much faith in the secondary market to address fragmentation” and warns there's a “high risk that trading amongst the MNOs will not resolve the situation.”

Furthermore, O2 calls out Three UK as being an unfair beneficiary of Ofcom's policies:

“Unfortunately, Ofcom’s policies to date have favoured one operator, allowing it to establish a ‘kingmaker’ position, from which it can attempt to extract windfall gains from rivals in return for moving its spectrum, or otherwise expect anti-competitive rents from blocking rivals from acquiring larger contiguous blocks.”

Three UK is well-aware of its advantageous position in 5G and has been marketing as such to consumers, despite it being set to be among the last to launch its network.

Global 5G standards body the ITU states ‘true’ 5G requires 100MHz of 5G spectrum; enabling Three to claim it’s the only UK carrier offering the full experience. “5G is a game-changer for Three, and of course I am excited that we will be the only operator in the UK who can offer true 5G,” said Three CEO Dave Dyson in June.

Three UK plans to launch 5G in 25 cities before the end of 2019: London, Birmingham, Bolton, Bradford, Brighton, Bristol, Cardiff, Coventry, Derby, Edinburgh, Glasgow, Hull, Leeds, Leicester, Liverpool, Manchester, Middlesbrough, Milton Keynes, Nottingham, Reading, Rotherham, Sheffield, Slough, Sunderland, and Wolverhampton.

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