The biggest auction of spectrum in the UK's history will be held at the end of 2012, when mobile firms will be able to bid for capacity to offer next-generation 4G technology for British consumers.
The 4G auction, which was initially scheduled to go ahead in the first half of this year but was delayed following the threat of legal action from some mobile operators, will extend mobile broadband coverage to at least 98% of the UK population, rather than the previously stated 95%.
Ofcom has revised its proposed measures to promote fair competition between the UK mobile firms - Vodafone, Everything Everywhere (the partnership between Orange and T-Mobile), Three and O2 - and introduced new rules for boosting mobile broadband in rural areas.
Demand for mobile data across Western Europe is expected to increase by more than 500% over the next five years, fuelled by the growing adoption of smartphones and tablet computers using bandwidth-hungry services.
Media regulator Ofcom announced plans last year to put up for sale what is equivalent to three-quarters of the mobile spectrum in use today, around 80% more than was sold off in the 3G auction that took place in 2000.
The spectrum is needed to provide capacity for the launch of fourth-generation (4G) mobile technology, also known as "Long-Term Evolution" (LTE), capable of delivering mobile broadband speeds of up to 100Mbps and other next-gen services.
Many countries have already initiated plans to introduce 4G, such as the US, where a new LTE phone was introduced by Nokia and US carrier AT&T at CES 2012 this month.
Ofcom's updated rules for the 4G auction remove previous guarantees that Three and Everything Everywhere would be reserved spectrum in the 800MHz band, which is currently being used to broadcast analogue TV channels.
As the UK digital TV switchover moves towards completion in October, this 'digital dividend' of 800MHz airwaves will be offered to mobile carriers, along with higher frequency spectrum in the 2.6GHz band at the end of 2012.
Three, as the smallest UK mobile network by customer numbers, had argued that it should be reserved 800MHz spectrum to compete with Vodafone, O2 and Everything Everywhere, the largest mobile provider by customer base.
Lower spectrum bands are coveted as they can send radio waves over longer distances, meaning less investment in masts and network infrastructure.
Ofcom said that it could introduce protection for Three, or a new market entrant, at a later date as consumers would be best served with "at least four national wholesalers of mobile services".
The watchdog's consultation document says: "UK consumers would be likely to benefit from better services at lower prices in future if there were at least four national wholesalers of mobile services, as at present.
"We therefore think it is appropriate, and so propose to, in effect, reserve some of the available spectrum for a fourth national wholesaler."
Ofcom's decision on whether to reserve spectrum for Three or a new market entrant could depend on who purchases the portion of 1800MHz spectrum Everything Everywhere must sell off as a condition of its merger. The sale will go ahead shortly before Ofcom's auction.
The government confirmed plans last October to invest £150m to boost mobile coverage in areas with poor or no mobile service, particularly rural parts of the UK where there is "little commercial incentive" for operators to roll out network.
Ofcom therefore feels that conditions in the new 4G licences could help guarantee mobile broadband coverage to 98% of the UK population, up from its previous target of 95%.
It said that one 800MHz operator who takes on the coverage obligation could get access to the £150m funding pot, but under the proviso that 4G coverage "not only matches existing 2G coverage, but also extends into mobile 'not spot' areas of the UK".
Ofcom said that the solution would "make it more likely that mobile broadband services would be provided in locations where they could be most valued by consumers, rather than in those areas where it is easiest for a licensee to meet the obligation".
Finally, Ofcom is proposing to reserve some spectrum in the 2.6GHz band for innovative new mobile services for consumers, potentially including local mobile networks for student campuses, hospitals or commercial offices, operating on short-range frequencies serving a small area.
Ofcom chief executive Ed Richards said that the proposals for the 4G auction will "influence the provision of services to consumers for the next decade and beyond".
"The UK benefits from being one of the most competitive mobile phone markets in Europe - this means that consumers pay less for mobile communications services and have the choice to shop around for packages that suit them best," said Richards.
"As the UK enters a new generation of mobile communications, Ofcom's objective is to promote effective competition and to stimulate both investment and innovation.
"In addition we are proposing a significant enhancement of mobile broadband, extending 4G coverage beyond levels of existing 2G coverage - helping to serve many areas of the UK that have traditionally been underserved by network coverage."
Ofcom has today launched a second consultation offering stakeholders the chance to comment on its new proposals, before a final decision on the auction design is reached in the summer of 2012.
The auction itself will be held in the fourth quarter of this year, and Ofcom expects the first 4G services to start rolling out to consumers by the end of 2013.
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