Tesco Mobile, a joint venture between Tesco and O2, has warned Ofcom it could go out of business under the regulator’s plans for the 900MHz radio spectrum.
Ofcom plans to auction some of the 900MHz spectrum, which is currently used by Vodafone and O2 for second generation calls and text services, allowing other operators to use it. The auction is expected to take place next year.
Tesco Mobile’s budget, pay-as-you-go business has approximately 1.4 million customers. It expects to experience difficulty in remaining a viable force in the UK market if the auction goes ahead, as its services can only be received on competitors networks.
Ofcom’s proposals could cause Tesco Mobile customers to move to rival operators, and lead to a significant increase in costs.
Ofcom hopes the auction will allow other operators to expand their third-generation mobile services, which provide internet and video access, in line with its strategy to improve the provision of mobile broadband services to consumers.
The 900MHz spectrum is particularly suitable for expanding 3G services into rural areas, as it requires fewer masts than the high frequency spectrum, and is therefore significantly more cost-effective.
The auction of the 900MHz spectrum is one of a wave of spectrum auctions in 2008.