Written evidence submitted by Everything
Everywhere
1. I am writing on behalf of Everything Everywhere
in response to your Committee's Inquiry on Spectrum. Our response
is structured as follows:
— Brief Background on Everything
Everywhere.
— Our view on Ofcom's consultation
on competition in mobile and proposals for the award of 800 MHz
and 2.6 GHz spectrum.
— The
role of wireless in extending broadband coverage.
We provide brief answers to your specific questions
at Annex A.
BACKGROUND ON
EVERYTHING EVERYWHERE
2. With over 27 million customers and 16,000
people working on our behalf, Everything Everywhere is the UK's
leading communications company offering services under the Orange
and T-Mobile brands. Everything Everywhere is a key investor and
contributor to the UK economy, with our shareholders having invested
£52 billion in this business over the last 10 years—about
7% of total foreign investment into the UK.
OUR VIEW
ON OFCOM'S
CONSULTATION
3. Ofcom recently published its consultation
document on its assessment for future mobile competition and proposals
for an auction of spectrum in the 800 MHz and 2.6 GHz bands ("the
Consultation"). As you know, access to the right spectrum
is a critical input to our business and the upcoming auction is
an important event for our company. We welcome the timely nature
of the Committee's inquiry into spectrum and related issues. We
would like to take the opportunity to bring up some serious concerns
we have over Ofcom's proposals for the auction.
4. The increased media coverage of launches of
new mobile devices and services highlights that we are in the
midst of a fundamental extension of the role of mobile devices
in society. Tablets and smartphones are bringing (first of all)
the internet and (secondly) video in a variety of forms onto mobile
devices. For the average consumer smartphones could replace PCs
as the standard entry point on to the internet[44]
in the next five years. In addition, we anticipate a significant
extension in the functions of mobile devices with, for example,
mobile devices becoming payment systems and an upsurge in machine-to-machine
applications.
5. This rapid evolution is not in question and
Ofcom refers to it at length in the Consultation. The consequent
explosion in data traffic on mobile networks has been visible
for several years and there is little basis to question the forecasts
of Cisco[45]
that suggest compound annual growth rates in data traffic of 90%
or more over the next five years.
6. More data traffic on mobile networks means
mobile network operators will need more spectrum to provide capacity
to carry the increased traffic load. We expect that traffic growth
will increase by at least a factor of 30 by 2020 and we find it
difficult to identify how this demand can be met—given what
we know now, greater efficiency of spectrum use and identifiable
additional spectrum will be only partly able to satisfy this huge
increase in traffic. We do however believe that a competitive
market is of pivotal importance in ensuring that any gap between
the underlying growth in demand and capacity is minimised or eliminated—it
is competition that will produce the necessary investment and
innovation.
7. Ofcom recognises of course that competition
is important and that because spectrum is a critical input to
the provision of mobile communications services, access to spectrum
is of fundamental importance to competition.
8. As the Committee will be aware the current
allocation of spectrum is the result of public policy decisions
made between 10 and 30 years ago. The first UK licences for mobile
services using 900 MHz spectrum were awarded to Vodafone and O2
(Cellnet) in 1983, and subsequently they were permitted to use
this spectrum for so-called "2G" (or GSM) mobile telephone
services. Both operators gained additional, high frequency spectrum
at 1800 MHz in the early 1990s. T-Mobile (One2One) and Orange
entered the market in 1993 and 1994, having been awarded 1800
MHz spectrum. The most recent spectrum allocation for mobile services
took place in 2000, when the then Government auctioned the 2.1
GHz spectrum for "3G" mobile services. This auction
resulted in Hutchison 3G ("Three") entering the UK market,
and the existing four operators added to their spectrum holdings.
9. In January this year, the original 2G licences
were liberalised. This means that Vodafone and O2 can now offer
3G services using their 900 MHz licences. In contrast to the experience
in most other European markets, Everything Everywhere and Hutchison
3G have no low frequency spectrum and, despite years of debate
on the issue, the liberalisation process did not result in any
redistribution of this spectrum.
10. For mobile services, competition depends
critically on spectrum. As the Committee will be aware, an operator's
spectrum portfolio determines its ability to offer its customers
capacity, coverage and performance in a cost competitive way.
"Sub-1 GHz" spectrum, ie spectrum in the 800 MHz or
900 MHz bands, has particular characteristics compared to spectrum
at 1800 MHz or 2.1 GHz. Locations deep inside buildings can only
be reached with sub-1 GHz spectrum and sub-1 GHz spectrum also
has greater geographical reach, which means that rural areas can
be better covered with fewer masts. This means that customers
will get a better experience from a mobile network operator that
has access to sub-1 GHz, and operators with such low frequency
spectrum will have lower costs. Hence access to sub-1 GHz spectrum
is critical to a mobile network operator's ability to compete.
11. On the basis of its competition assessment,
Ofcom has now recognised that sub-1GHz spectrum provides an "unmatchable
advantage" and accordingly proposed measures for the upcoming
spectrum auction, which it believes should help to ensure future
competition. The core concept underpinning these measures is that
there should be at least four operators after the auction, which
have access to a sufficient amount of sub-1 GHz spectrum. However,
whilst we fully support the critical link between spectrum and
competition that Ofcom has made, we believe Ofcom has got the
pro-competitive measures to achieve this wrong.
12. Ofcom has focused on understanding the minimum
amount of sub-1 GHz spectrum that an operator needs, and come
to the conclusion that this is 2x5 MHz (of the total 2 x 65 MHz
available[46]).
Ofcom's technical work aims to demonstrate the equivalence of
spectrum portfolios including such small amounts of sub-1 GHz
spectrum with portfolios including much larger amounts of sub-1
GHz spectrum in terms of the coverage and capacity that a mobile
network operator can deliver for its customers. However, competitiveness
is not about minimum holdings. What will matter for healthy and
robust competition is the relative holdings of sub-1 GHz
that mobile network operators will have after the auction.
13. The view, as set out in Ofcoms' Consultation,
that to be viable a mobile network operator requires only a certain
minimum amount of low frequency spectrum misrepresents the nature
of the market today, and ignores the differing holdings of sub-1
GHz spectrum. Everything Everywhere is extremely concerned that
the auction rules as proposed could facilitate an outcome where
Vodafone and O2 each hold more than five times the amount of critical
sub-1 GHz spectrum than Everything Everywhere and Hutchison 3G.
This would amount to the continuation of an effective duopoly
of sub-1 GHz spectrum and it must be avoided through a change
in the auction rules. We think that Ofcom's intervention must
ensure that mobile operators other than Vodafone and O2 hold at
least 2 x 10 MHz of business critical sub-1 GHz spectrum.
14. Extending the current duopoly of operators
with sub-1 GHz spectrum will perpetuate Vodafone and O2's current
unmatchable competitive advantage. This would harm investment
incentives in next generation, "4G" mobile services,
dull incentives to ensure data network coverage, reduce the competition
to provide access to rural areas and ultimately mean less effective
competition (with higher prices, lower quality and less innovation)
for mobile broadband customers generally.
15. We expect that Vodafone and O2 may suggest
to the Committee that Everything Everywhere has more spectrum
overall than any of its competitors. Whilst we desperately lack
access to sub-1GHz spectrum, it is true that Everything Everywhere
currently has more spectrum above 1 GHz than Vodafone, O2 or Hutchison
3G. We note that we serve more customers with our spectrum holding
than Vodafone and O2 do, and hence we need more spectrum for capacity.
However, it is important to stress that the forthcoming auction
will make available at least 2 x 90 MHz to 2 x 105 MHz of additional
spectrum above 1 GHz.[47]
Vodafone and O2 will almost certainly win significant quantities
of this spectrum in the auction. Hence after the auction Everything
Everywhere will not have more spectrum above 1 GHz than our competitors,
when taking into account the number of customers we serve. The
critical issue for competition is access to sub-1 GHz, which is
extremely scarce. Ofcom themselves recognise that mobile network
operators offering services over 900 MHz spectrum enjoy efficiencies
of two thirds over those operators who do not possess sub 1 GHz
spectrum as they require fewer masts to provide services.
16. Whilst Ofcom's intention to ensure healthy
competition through adequate spectrum portfolios is one we support,
we do not think the current proposals, as they stand, will deliver
the desired outcome. We are extremely concerned that Ofcom's proposals
could result in two healthy mobile operators, and undermine the
long term viability of the two other holders of spectrum.
RURAL BROADBAND
17. The 800 MHz spectrum to be awarded in the
upcoming auction offers a great opportunity to improve rural broadband
coverage. Ofcom has set a coverage obligation on one of the licences
to be awarded that it must provide mobile broadband with a downlink
speed of 2Mbps to 95% of the population. We are not opposed to
this—provided that Ofcom gets the details right—but
we do not believe that it is the most effective way of delivering
rural broadband.
18. We would like to draw the Committee's attention
to a rural broadband trial in Cornwall that Everything Everywhere
has recently launched jointly with BT. This trial sets out to
develop a hybrid fixed and mobile solution to deliver broadband
to those homes which do not currently have access to basic broadband
of at least 2Mbps. BT will extend its fixed fibre network as widely
as possible. Everything Everywhere has obtained non-operational
licences for 2 x 10 MHz of 800 MHz spectrum and based on that,
we will deliver wireless broadband to the last few households
and businesses that are very costly to reach with BT's fixed network.
19. Everything Everywhere can demonstrate that
2 x 5 MHz of sub-1 GHz spectrum will not be capable of providing
sufficient performance or capacity to handle broadband traffic
levels in such rural broadband not-spot areas. A key finding from
the Cornwall trial is that 2x10 MHz is the minimum quantity of
sub-1 GHz spectrum necessary for the commercial viability
of wireless access as a solution for rural broadband. Otherwise,
the percentage of not-spots covered to the right performance level
is so limited that it no longer justifies the significant investment
involved.
20. In addition to providing coverage at a given
speed, the mobile site must have sufficient capacity to deliver
broadband service to all the not-spots covered by that site. If
not, customers in not-spots will face congestion and severely
reduced performance. The step up from 2x5 MHz to 2x10 MHz also
brings benefits here, reducing the number of not-spots with insufficient
capacity by 24 percentage points.
21. Prior to this auction, only O2 and Vodafone
have the necessary sub-1 GHz spectrum, creating a duopoly for
such rural broadband projects. If this continues, it will reduce
the value for money achieved from the public funds set aside for
rural broadband projects (administered by BDUK) as well as initiatives
taken by the devolved administrations. We believe that it is crucial
that after the forthcoming spectrum auction, other operators are
able to compete for rural broadband projects with public funding.
Annex A
Q1. Whether the proposed method of spectrum allocation
promotes, or hinders, competition in the provision of mobile broadband
services:
A1. This has been covered. We like the proposed
auction design but not the detail.
Q2. Whether the upcoming auction can provide
value for money for tax payers and how that should be balanced
with benefits for consumers:
A2. We believe that by undermining the ability
of two players to compete the current proposals for the upcoming
auction run the risk of depriving consumers of operator investment
and innovation, and in the long term risking consumer surplus.
In addition the overall spectrum cap unnecessarily constrains
our ability to bid without compensating benefits. This will reduce
benefits to the tax payer.
Q3. The potential for next generation mobile
internet services offered by the forthcoming availability of spectrum:
A3. We believe that the auction of 800 MHz and
2.6 GHz spectrum offer great potential for next generation mobile
internet services. The spectrum auctioned will reduce, but not
eliminate, the spectrum shortage which will materialise over the
next few years. Government and Ofcom are therefore right to focus
on finding additional spectrum to compensate for the inevitable
gap between demand and supply.
Q4. Whether the upcoming auction can deliver
improved mobile broadband coverage in rural areas, as well as
cities:
A4. We believe that new mobile technologies can
play a pivotal role in reducing the unavailability of high speed
broadband in the UK. We are particularly enthusiastic about developing
hybrid fixed and mobile solutions for areas where broadband is
not currently available as demonstrated by our Cornwall trial
with BT. The auction is a vital step in permitting such solutions
being developed.
Q5. Whether licence fees for mobile operators
have previously been set at appropriate levels, and how this should
be assessed:
A5. Vodafone and O2 have essentially paid insignificant
amounts for their 900 MHz spectrum since 1983. The proposal to
charge them realistically is welcome, although we believe that
the detail of these proposals undervalues 900 MHz and overvalues
1800 MHz and we would like to see this addressed. 900 MHz spectrum
can and is being used for high speed mobile broadband now. There
is no equipment for UMTS1800 MHz.
Q6. How the position of the UK compares with
other countries, with regards to the allocation and utilisation
of mobile broadband spectrum:
A6. The position that Everything Everywhere and
Hutchison 3G find ourselves in is unique in Europe. Nowhere else
has 900 MHz spectrum been liberalised in the hands of the existing
licensees where such spectrum is concentrated between just two
of the operators.
Because of long standing disputes about the allocation
of spectrum, the UK has been relatively slow to award spectrum
in the new bands, with damaging consequences for the development
of mobile broadband. New 4G services have already been launched
in Scandinavia who were first to award the new bands from 2007.
The German spectrum was auctioned in 2010, and many other European
countries are ahead of us. We firmly believe that any subsequent
delays to the auction should be avoided in the national interest.
Q.7 The possible impact on alternative uses for
spectrum:
A7. Our view is a straight forward one. We believe
spectrum that is suitable for mobile broadband is most valuably
deployed for mobile broadband. Consequently whilst other considerations
might need to be taken into account, government policy should
be designed to secure relevant frequencies quickly so that they
can be exploited for wireless use.
June 2011
44 The Guardian 5 June 2011 - 'How the smartphone is
killing the PC':
www.guardian.co.uk/technology/2011/jun/05/smartphones-killing-pc Back
45
www.cisco.com/en/US/solutions/collateral/ns341/ns525/ns537/ns705/ns827/white_paper_c11-520862.html Back
46
2 x 30 MHz in 800 MHz to be awarded in the forthcoming auction
and 2 x 35 MHz in the 900 MHz band which is shared between Vodafone
and O2 including guard bands. Back
47
This is 2x70 MHz of paired spectrum at 2.6GHz plus 50 MHz of unpaired
spectrum at 2.6GHz, which is equivalent to at least 2x20 MHz of
paired spectrum plus 2x15 MHz of 1800 MHz that Everything Everywhere
undertook to divest as part of the merger of Orange UK and T-Mobile
UK, which we may sell privately or add to the auction. Back
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