(Updates with Ofcom comment in fourth paragraph.)
June 9 (Bloomberg) -- Telefonica SA said the design of the upcoming U.K. mobile-phone frequency auction favors rivals Everything Everywhere and Hutchison Whampoa Ltd, which may delay the sale of the spectrum next year on regulatory concerns.
The current plans will guarantee Everything Everywhere and Hutchison gain frequencies and therefore may be considered to be state aid, Telefonica, Spain’s biggest phone company, said in a response to regulator Ofcom’s consultation today. There is a “substantial risk” the auction may be delayed pending European Commission approval, the operator said.
The spectrum proposals “are a state aid and are therefore illegal under European Union law,” Telefonica spokesman David Nicholas said in an e-mailed statement today. He said the proposals would distort the auction process, allowing some bidders to potentially acquire spectrum at discounted prices.
Ofcom said in March it wanted to maintain at least four national operators in the market and will impose maximum and minimum amounts of spectrum that Vodafone Group Plc and other operators can bid for. The regulator said today it is “fully aware of state aid rules and would not have made proposals that we considered illegal.”
The auction, scheduled for the first quarter of 2012, will sell frequencies equivalent to three-quarters of the spectrum currently used by operators. Carriers need the bandwidth to cope with surging data demand as users watch films and surf the Web on smartphones including Apple Inc.’s iPhone and handsets using Google Inc.’s Android system.
By creating maximum and minimum amounts, Ofcom is creating “ guaranteed winners,” Telefonica said. The Spanish operator estimates that the spectrum proposal represents state aid of as much as 900 million pounds ($1.5 billion).
The auction, which analysts said may raise as much as 2.6 billion pounds, has been delayed for more than two years amid legal challenges. Vodafone, the world’s largest wireless carrier, and Telefonica’s O2 previously opposed restrictions on the amount of low-frequency spectrum they could bid for.
Everything Everywhere, a venture of France Telecom SA and Deutsche Telekom AG, said Ofcom’s proposals haven’t gone far enough and are “undermining the long-term prospects” of operators who don’t hold low-frequency airwaves.
Google, whose YouTube service is the most popular video- streaming site, said today in a separate submission that operators must compete “rather than constrain supply of content.” Telecom operators are seeking a new deal with Internet companies including Google and Apple Inc., who they say are overloading networks without contributing enough to their upkeep.
YouTube yesterday said it is in talks with all major mobile operators on an agreement to pool efforts to reduce the impact of video content on telecommunications networks. The carriers need to be transparent if they prioritize or charge for different content, Google said today.
--Editors: Simon Thiel, Robert Valpuesta.
Jonathan Browning in London firstname.lastname@example.org.
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