Hutchison 3G UK Ltd v Office Of Communications (Ofcom)

Judicial review of a specialist regulator’s predictive and technical decision is not a de novo merits hearing. The court must assess whether the decision is materially wrong, while calibrating the intensity of review to the nature of the decision, the evidence and the statutory context.

Where a regulator identifies anticompetitive conduct that could in principle arise and establishes that future market conditions would make it feasible and commercially rational, it may adopt prophylactic measures without proving a specific present intention to engage in that conduct. Consultation duties are guided by the Sedley criteria, but their application is fact-sensitive and subject to materiality. A consultation remains lawful where consultees had a real and fair opportunity to respond.

Two linked judicial review claims challenged Ofcom’s July 2017 decision governing an auction of 2.3 GHz and 3.4 GHz radio spectrum. Hutchison 3G UK Ltd argued that the spectrum caps were too permissive and that Ofcom had used an inappropriate denominator. British Telecommunications plc and EE Ltd argued that the caps were excessive and inadequately justified, and challenged Ofcom’s treatment of existing split spectrum assignments.

The claims concerned whether Ofcom had lawfully balanced competition, consumer welfare, spectrum efficiency and the benefits of an open auction, and whether its consultation was fair when it changed from requiring a pre-existing licence holder to consolidate split assignments to making consolidation optional.

1. Outcome. Both claims were dismissed. Ofcom’s decision and auction architecture were lawful.
2. Standard of review. The proceedings had features of a merits appeal, but were not a de novo rehearing. The court’s task was to review the decision under challenge and determine whether it was materially wrong. The intensity of review depended on the nature of the decision, the ground of challenge and the evidence. A broad margin of appreciation was appropriate for Ofcom’s forward-looking, predictive and technically complex assessment.
3. Spectrum caps. Ofcom was entitled to identify a significant risk that very asymmetric spectrum holdings could weaken competition, including through strategic bidding, superior services, discriminatory pricing, spectrum hoarding and the higher marginal costs faced by smaller operators. It was entitled to infer that such conduct could be commercially rational from evidence establishing both the conduct’s feasibility and the relevant market conditions. It was not required to prove a specific present intention by BT/EE to engage in the conduct.
4. The 37% threshold was a lawful judgment informed by the evidence, the existing market position, regulatory certainty and the anticipated timing of future spectrum. The tolerance allowing BT/EE temporarily to exceed that percentage was deliberate, rational and proportionate. Including the 700 MHz spectrum in the denominator and adopting a 340 MHz cap were also lawful.
5. Consultation. The Sedley criteria were guiding principles rather than rigid rules. Ofcom should have expressly identified its change of position on split assignments, but the auction regulations and consultations made the change sufficiently clear to sophisticated consultees. Any deficiency was immaterial because consultees had a fair opportunity to respond.
6. Ofcom was also entitled on the merits to make consolidation optional. It properly balanced non-discrimination, the low likelihood of split assignments, the costs and service risks to H3G, and possible technological or trading solutions.

First-instance judicial review claims. The claims were linked, expedited and heard together after permission was granted.