UPDATED: O2 claims Ofcom 4G spectrum auction is illegal

O2 has claimed Ofcom's 4G spectrum auction proposals are illegal under EU law as they provide "state aid."

The operator's main issue was with the use of "spectrum floors," which Ofcom put in place to ensure a minimum of four providers receive at least the minimum amount of spectrum.

O2 said the floors amount to state aid and "would distort the auction process."

"The proposed floors, and the argument that Vodafone and ourselves already have enough sub-1GHz spectrum, are based on the mistaken belief that 800 MHz and 900 MHz are directly comparable spectrums," O2 said.

"They are not. Our response to Ofcom clearly explains why."

When 800MHz goes up for auction next year, rivals will be at an advantage for buying up that particular spectrum as Ofcom has chosen to lump 800MHz and 900MHz together in its sub-1GHz auction, O2 believes.

As O2 and Vodafone already own 900MHz spectrum, other providers could get preferential treatment when it comes to buying 800MHz, possibly at knock-down prices, according to O2.

All bidders bar Vodafone and O2 could acquire spectrum at discounted prices, which in turn could cost taxpayers 1 billion, O2 said.

O2 stressed the auction, which is currently in consultation ahead of the 2012 sale, should "be used as an opportunity to provide fair, open and equal access to newly available spectrum."

"While we support the proposed auction structure and spectrum caps, Ofcom is faced with a difficult choice of either revisiting its spectrum floors proposal or discarding the floors and getting on with the process," O2 added.

UPDATED Vodafone has also raised issues with Ofcom's proposals, claiming the regulator was inadvertently guaranteeing 800MHz spectrum for Everything Everywhere in its desire to protect 3.

"While we understand Ofcom's desire to ensure that the UK remains one of the most competitive mobile phone markets in the world, to do that by giving the largest player in that market control over even more of the nation's airwaves seems completely nonsensical," a Vodafone spokesperson said.

"The European Commission has already requested that Everything Everywhere sell some of its spectrum holdings to prevent a distortion of competition, so it would be odd if the effect of the rules that Ofcom lays down for the forthcoming auction was to guarantee it even more."