UK WiMax Faces Spectrum Fight

WiMax hopefuls in the U.K. may find themselves shut out of the action in Office of Communications (Ofcom) 's upcoming 2.6 GHz auction as a result of the five mobile operators potentially bidding to hoard WiMax spectrum.

Ofcom has designed the "technolgoy neutral" auction for the IMT-2000 expansion band in a way that effectively pits WiMax against cellular technologies HSDPA and LTE. Ofcom has allocated a certain amount of the spectrum for time division duplex (TDD), or unpaired spectrum, and a certain amount for frequency division duplex (FDD), or paired spectrum. WiMax currently uses TDD, which allows data to be sent and received over the same channel, while LTE uses FDD, which needs two channels. (See Europe Makes Way for WiMax and Outlook Mixed for WiMax at 700 MHz.)

Analysts and WiMax players expect the U.K.'s mobile operators to buy up the TDD spectrum in order to keep out competition from a WiMax new entrant.

"There is considerable risk [of spectrum hoarding] because they have the competing technology with LTE," says Richard Robb, finance director at service provider Urban Wimax Ltd. (UWX) . "It could be economical for [the mobile operators] to buy it and sanitize it -- that is, buy it and not use it."

Because Ofcom does not attach rollout obligations to spectrum licenses, it is easier to make a case for spectrum hoarding.

"The way we've designed the spectrum award is to promote competition," says an Ofcom spokeswoman. "There are no use-it-or-lose it conditions [on the licenses]... and no rollout obligations because we're not stipulating what the spectrum should be used for."

Another worry regarding the 2.6 GHz auction is that spectrum speculators may snap up valuable spectrum in order to sell it on to mobile operators for a higher price. But some view this scenario as too risky for speculators and that any spectrum hoarding is likely to be done by the mobile operators.

"Buying to hoard to sell on is risky," says Stephen Lowe, chairman of the Broadband Wireless Association. "Buying to hoard to block entry is cost effective and a perfectly reasonable thing to do."

Yet another scenario is that the U.K.'s mobile operators may indeed want some TDD spectrum to use for deploying WiMax as a DSL replacement.

So, where does that leave any WiMax new entrants in the U.K.? "Quite vulnerable," says Lowe.

But Heavy Reading senior analyst Gabriel Brown says that anyone wanting to be a national WiMax operator in the U.K.'s crowded mobile market would be crazy in the first place for trying.

"You'd be insane to try to be a national WiMax operator in the U.K.," says Brown. "[Spectrum hoarding] would be doing them a favor."

He adds, however, that WiMax could have some use in regional deployments in the country.

Given the competition from the U.K.'s five mobile operators for this mobile broadband spectrum, anyone wanting to bid for the TDD spectrum will need very deep pockets. The likely candidates for the WiMax spectrum are BT Group plc (NYSE: BT; London: BTA) or a well funded consortium. (See BT's WiMax Wish and BT's Italian WiMax.)

Companies are already getting together to bid against the British mobile operators. Urban WiMax, for one, says it has a "loose grouping" of companies -- one of which is Nortel Networks Ltd. -- that could well be the building block for a consortium to bid in the upcoming auction. (See Nortel, Urban WiMax Team Up.)

"I don't think it's going to be cheap to acquire this spectrum," says Urban WiMax's Robb. "We don't have the funds to do that. But a partnership or consortium getting together could. We've done our own efforts to bring partners together... in a loose grouping at present."

Robb continues: "[This loose grouping] could be the foundation for a consortium. There is no final shareholders' agreement or structure set up. Just a group with a lot of shared interests."

The U.K. spectrum sale is just one of a number of IMT-2000 frequency band auctions due to take place in Europe this year and next. So far, only Norway has awarded 2.6 GHz licenses: There, the regulator collected $43 million from the auction. Swedish regulator National Post and Telecom Agency (PTS) just completed the seventh day of its 2.6 GHz auction and the bids so far total $195 million. (See Craig Goes to Norway.)

— Michelle Donegan, European Editor, Unstrung