Google plans move into U.K. mobile and broadband market?

Google is considering a move into the UK wireless market after the regulator Ofcom yesterday proposed grabbing back more than a third of the mobile phone spectrum that Vodafone and O2 have been using for 22 years to auction it for new entrants.

Acquiring a slice of the airwaves in Britain would allow the Californian search engine to launch its own fully fledged mobile phone service or push for the sort of open standards-based wireless broadband network it is proposing in the US.

Any move by Google into wireless would present a threat to the UK's existing five mobile phone networks, which are trying to persuade customers to access the internet on their mobile phones to offset steep price declines in their core voice and text businesses. Rather than fund any wireless operation by charging customers for access - as the mobile networks do - Google would be able to leverage its dominant position in online advertising to make its money.

Google is understood to be considering its move into wireless after Ofcom's surprise proposal yesterday that it will take back part of the 2G spectrum handed over in 1985 so it can auction it off. It reckons up to three operators could use it for wireless broadband services. The original mobile phone companies Vodafone and O2, formerly Cellnet, were given 2G spectrum when the UK mobile industry began 22 years ago. The two companies will receive no compensation and will not be allowed to bid in the auction, proposed for 2009, to try to retain the portion they will lose.

The 2G spectrum used by Vodafone and O2, which they were granted in a "beauty parade" by the government of Margaret Thatcher, is particularly good for long-range wireless broadband, making it ideal for rural areas. It also works well inside buildings. When One2One, now T-Mobile, and Orange were granted their 2G licences in 1991 they were given spectrum in a slightly higher band, which is not so efficient. The four networks pay Â£16m a year each for their 2G spectrum.

All four "legacy" operators have been lobbying for the regulator to remove restrictions on what services they can run over their old networks. They were not expecting Ofcom to propose a full-scale re-auction of part of the existing spectrum.