A monthslong delay to the U.K.'s planned spectrum auction due to legal disputes over the auction's rules will further slow 5G rollouts in the country, telecommunications experts said.
As expected, CK Hutchison Holdings Ltd.'s Three issued a formal legal challenge this month against regulator Ofcom's proposed 37% spectrum cap in the next auction, arguing that restrictions needed to go further to safeguard competition and curb British Telecom's dominance.
“We anticipate a short process and a court decision by early 2018. Ofcom does not expect commercial 5G services in the U.K. before 2020, so this short process will not impact the availability of 5G to U.K. consumers," a Three spokesperson told S&P Global Market Intelligence.
The auction, which was due to take place later this year, is aimed at fueling industrywide efforts to build super-fast 5G networks. Western Europe is already lagging behind its global peers in the race to 5G, according to Ericsson AB's most recent Mobility Report, published in June.
While Three's current challenge is expected to play out over the course of a few months, Philip Carse, principal analyst at research firm Megabuyte, said that past legal disputes have pushed back earlier spectrum auctions by a couple of years in some cases. BT's EE network also plans to contest the auction rules, which it views as too restrictive.
"The spectrum auctions are quite important in the sense that they boost spectrum overall in the U.K. by about a third … and then some of it is particularly suitable for 5G," Carse said in an interview. This will be crucial for the country's already-stretched mobile operators, which are under immense pressure to keep up with the growing demand for data, he added.
The U.K.'s communications regulator is auctioning 40 MHz of spectrum in the 2.3 GHz band and 150 MHz of spectrum in the 3.4 GHz band. Under its proposed rules, BT will be banned from bidding for any more new spectrum in the 2.3 GHz band, which could be used to bolster its 4G capacity. However, the group will not face any restrictions for the 3.4 GHz band, which is considered fundamental for the rollout of 5G.
Currently, EE holds a 45% share of the airwaves, compared with O2's 15%, Vodafone Group Plc's 28% and Three's 12%.
Further auction delays and spectrum uncertainty could have a negative impact on infrastructure investment, which in turn effects the migration to 5G, said John Strand, CEO of telecoms consultancy Strand Consult.
"In the mobile world, where data traffic is growing exponentially as we approach 5G, it isn't in anyone's interest to slow down that process," he said in an interview.
Amid the uncertainty, some have renewed calls for industry consolidation to propel 5G forward and to even the playing field between operators. They argue that BT's £12.5 billion takeover of operator EE, completed in 2016, gives the group an unfair advantage over its peers in terms of network presence and spectrum. Meanwhile, European regulators blocked a proposed £10.25 billion merger of Three with Telefónica-owned O2 last year.
"When you allow a merger between BT and EE, you are creating a company that collectively has £24 billion in revenue," said Bengt Nordström, CEO of telecoms consultancy Northstream. "O2 and Three would have been an £8 billion revenue company which would have been three times smaller than BT's EE."
Telecommunications executives in Britain and across Europe continue to argue in favor of mergers to allow businesses to free up capital for investment in costly infrastructure and 5G technology. However, Europe's regulators maintain that moving from four to three network operators in the U.K. will lead to higher prices for consumers.
Northstream's hope is that the regulatory climate for mergers will improve, because the current market dynamics are not working, Nordström said.
"There is a challenge for many number four players," he said. "It's very hard to fund the business when you are the smallest player in the market."