UK's Ofcom is to 'grab back' capacity 02 and Vodafone have been licensed for restricted 2G services. The original mobile phone companies Vodafone and O2, formerly Cellnet, were given 2G spectrum when the UK mobile industry was founded in 1985. But Ofcom wants to release part of it to new entrants so they can run wireless broadband services, especially in rural areas.

Vodafone and O2 will receive no compensation for losing a massive chunk of the airwaves and will not be allowed to bid in the auction, proposed for 2009, to try to retain it. Ofcom estimates that ‘liberalising’ the spectrum used by Vodafone and O2 could bring benefits to the UK economy of up to £6bn (E8.6bn).

The 2G spectrum used by Vodafone and O2 runs over the 900MHz band. When One2One, now T-Mobile, and Orange were offered licences in 1991 they were given spectrum in the higher 1800 brand, with the existing two networks also given some capacity on this band. The four networks pay just £16m a year each for their 2G spectrum. All four operators have been lobbying hard for the regulator to remove restrictions on what services they can run over their 2G networks, which can only carry voice calls, texts, picture messaging and slow internet access.

Putting 3G technology onto these lower brands would enable wireless broadband in more rural areas because on the lower ranges such as 900 MHz, signals can travel over much greater distances than on the 3G spectrum sold during the dot.com era. The lower bands are also better for indoor coverage.

Ofcom has decided to reclaim some of the 900MHz band granted to O2 and Vodafone to auction off. While Orange, T-Mobile and 3 will be able to bid for a slice of this spectrum, Ofcom also expects up to three new entities to bid.

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