The UK's newest network, which claims to carry 40% of mobile internet traffic, fears being outbid on 800MHz bandwidth
The mobile network 3 will warn on Tuesday that it is upgrading its network, in a move that will enable it to take legal action against the telecoms regulator and derail the already long-delayed 4G spectrum auction.
A court case against Ofcom could damage the credibility of its chief executive, Ed Richards, who has already presided over a number of hold-ups that mean the UK will be the last major European economy to auction the airspace needed for 4G superfast mobile broadband.
The sell-off, which could raise as much as £4bn for the cash-strapped Treasury, is scheduled for early 2013. With 4G already up and running in the US and Germany, further delays would also embarrass the culture secretary, Jeremy Hunt.
3, the newest and smallest mobile network in the UK with a 10% market share, wants to persuade Ofcom to redraft the 4G auction rules, because it feels they do not do enough to ensure its survival.
It had been thought that 3 needed the spectrum auction to happen quickly because its network was running out of capacity.
But its UK chief executive, David Dyson, will tell a conference in London on Tuesday that this is no longer the case.
He will announce he has bought enough time to go to court, through new plans to double the capacity of his network with a technology upgrade. Work has already begun along the M3 corridor from Twickenham, London, to Camberley, in Surrey, and will roll out nationally.
3 has been luring smartphone customers with unlimited data offers, and claims to carry 40% of the UK's mobile internet traffic. The company warned last year that in certain urban areas it would run out of capacity by the end of 2012. It has decided to beef up its network by moving to a technology called High Speed Packet Access 42.2, which can carry twice the traffic of its HSPA 21.1 network.
A spokesman confirmed 3 would be updating its public position on the spectrum this week, saying: "You can expect it to address competition and the principles set out by Ofcom in a four-player market for the benefit of consumers."
The 4G auction rules will be finalised this July, and the deadline for consultation responses was last week. The three largest players, Vodafone, Everything Everywhere and O2, will compete on a level playing field for spectrum, but the rules as drafted ensure one lot of spectrum – not necessarily from the 800MHz band – will be reserved for a fourth operator.
Ofcom will be handing out licences for two types of spectrum, 800MHz and 2600MHz, in what it is billing as the largest ever auction of British airspace. The 800MHz, which travels further and is better at penetrating inside buildings, is considered the most valuable.
3, which was loss-making until last year but has a rich backer in the Hong Kong tycoon Li Ka Shing, believes it will be outbid on 800MHz, and would like the watchdog to reserve some of it specifically for a fourth player. Without the lower frequency spectrum, 3 argues, its business will not be viable.
While more bandwidth is available in this auction than in any previous sale, mobile operators are no longer fast-growing businesses and the amount raised is likely to pale in comparison to the £22.5bn pocketed by the Treasury in the 3G auction in 2000.
Vodafone said last week it was against special treatment for 3. A spokesman said: "We still do not believe … the case has been made for reserving any spectrum … for 3. Ofcom should stop trying to over-engineer the release of new spectrum to run the next generation of mobile internet services, and simply run a fair and open auction as soon as possible. That will ensure the speedy rollout of 4G services, which will be to everyone's benefit. 3 is backed by a multibillion-pound business the size of Barclays bank so has plenty of resources to take part in a fair and open auction."