Mobile phone firms on edge as Ofcom prepares to set out plans for 3G auction

Ofcom is poised to set out its plans for the sale of the third generation (3G) spectrum. The telecoms watchdog will release a policy statement this month detailing how the airwaves will be sold, what new services could be introduced and the conditions that will be attached to the new licences.

The auction, which is expected to pitch newcomers to the market, such as Google, against traditional mobile phone operators, including Vodafone, is scheduled to take place this summer, although no date has been set.

Ofcom's earlier plans for the sell-off proved contentious, with disputes over everything from the timing of the award to the auction's rules. The auction has already been postponed after mobile phone companies complained that it was premature and badly conceived.

The regulator acknowledged last summer that the "wide range of issues" raised by telecoms and media companies over the 2.6Ghz spectrum band merited further talks.

Related plans by the watchdog, to allow the big four mobile operators - Vodafone, O2 , Orange and T-Mobile - to use their existing 2G spectrum for 3G services have also provoked controversy. They have not been permitted to offer 3G services on spectrum that was allocated for second-generation use. 3, the next-generation mobile operator, claims that such a move could discriminate against it, given that it paid billions for its 3G licence. It says that the existing second-generation spectrum should be split five ways, allowing it to compete fairly with the established operators. 3 might also push for the traditional operators to be charged for any 2G spectrum that they are allowed to use for 3G services.

The initial sale of 3G licences, at the height of the dot-com boom, attracted bids at unimagined levels.

The operators, convinced that it was make-or-break technology, paid a total of ?22.5 billion during frenzied bidding.

However, after the technology and telecoms market crashed they were left with significant debts and technology that had failed to live up to its promise. One industry executive remarked that the early handsets were hot enough "to fry an egg on".

While 3G was supposed to transform handsets into mini-computers, consumers remained uninterested in using them for anything other than calls and texts.

Only now are more lucrative data services starting to take off, with Vodafone's November results showing that increased internet use on its mobile phones had led to a surge of nearly 50 per cent in the more lucrative data revenues for the mobile phones giant, to ?1 billion in the first half.

The new 2.6Ghz band has become known as the "3G expansion band". However, Ofcom will emphasise that the spectrum is not restricted to mobile 3G, but could be used for other high-tech wireless broadband services such as Wi-Max. Ofcom said that it might also be suited to the next generation of 4G services.

BT has said that it is "very interested" in the spectrum, which could prove useful for the group's push into converged products, such as its combined fixed and mobile phone.

Google is also thought to be seriously considering joining the auction after its much-publicised entry into the mobile phone sector last year. The search giant launched a new operating system for mobile phones called Android. It is also preparing to bid for wireless spectrum at the American Federal Communications Commission auction in January.

The British 3G auction is expected to fetch for the Treasury only a tenth of the amount raised at the last auction in 2000. ( Times )

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