O2 and BT claim UK LTE auctions amount to state subsidy. Really?!?

It looks like the UK LTE spectrum auctions will face another delay courtesy of a challenge from Telefonica O2 and BT that the bidding rules will bake in a GBP1 billion subsidy to Everything Everywhere and 3UK. Their argument is based on the fact that the Ofcom rules require that there will be maximum and minimum amounts of spectrum available to each bidder with the intention of having at least 4 national operators [If you want details of exactly who can bid for what in which frequency bands, see my previous blogpost]. As a result of these restrictions O2 and BT claim there will be a distortion to the bidding process which could result in some companies picking up spectrum cheaper than they otherwise would. This, claim the pair, amounts to state aid. Take a look here for more details.

I'm sorry, what? Really?!? State aid? In other countries auctions have been conducted as beauty contests with spectrum allocated to the best bidder rather than the highest. These haven't maximised the payments for the spectrum. Would they also be categorised as state aid to the winning bidders? According to BT/O2 presumably they would. But, I'm sure there are numerous counter-arguments that could be rustled up to differentiate beauty contests from the Ofcom proposed process. After all, the latter is an auction, but with restrictions, rather than a beauty contest. However, for me it all boils down to the fact that Ofcom is putting the restriction in place for an admirable reason: to promote competition. This is a slightly different admirable reason from the justification for beauty contests, e.g. guaranteed coverage or investment, but it is a reasonable thing for Ofcom to do. They could have simply divided the spectrum into 4 chunks and told the bidders that they couldn't win more than one but that would have been a mess. They wanted to include more flexibility and rightly so.

I'm not so innocent as to believe that this is anything other than a tactic from O2 and BT to gain some advantage. Do they really think it's state aid? I'm sure not, but if they can gain some competitive advantage by appealing then why not? I've been involved in numerous legal challenges and you use every possible line of attack (and a good smattering of mock incredulity) to secure the outcome that you want. So I can understand BT/O2's stance. However, this will continue to delay the LTE spectrum awards. If they appeal on this and get their way, the other operators will appeal on some other points. The whole process could drag on for years and years. But, as I commented in a previous blogpost, perhaps a bit of delay is no bad thing for the MNOs