A spectrum auction by Ofcom will allow existing cellphones to roam onto low-cost GSM-based hotspots, in a manner similar fixed-mobile convergence (FMC) services, but without needing new hardware.

Ofcom will offer low-power licences for spectrum that can be used by existing mobile phones. Unmodified GSM phones will be able to roam to localised base stations in the new bands, which can connect them through to cheap telephone services or to company PBXs.

"[This] gives your organisation low cost calls and enhanced features, by making your mobile phone an extension on your PBX, saving money and removing the inconvenience of managing two phones," says the website of Coffee Telecom, a company set up to exploit the new spectrum. Other companies who have expressed in interest in bidding include BT.

Sometime in 2005/6, Ofcom will auction off two bands, 1781.7-1785MHz, and 1876.7-1880MHz, which have until now been kept as a "guard band", a buffer between GSM
and DECT phones.

"Technology has moved on," said Simon Bates of Ofcom. "We don't need the buffer zone because today's technologies can deal with interference." The licences (for up to ten regions) will limit the power, in order not to create interference, which will mean that only relatively short-range technologies can use the spectrum.

Providers set up services in coffee shops and other places, much as Wi-Fi services operate today. The big difference is that any mobile phone will be able to detect the base station, just as it detects alternative providers when turned on in a new country. Consumers will be able to buy a virtual SIM for it and top-up cards without changing handsets.

This is Ofcom's first technology-neutral auction, since the spectrum framework review set a policy of allowing licence holders to choose. It is also Ofcom's first spectrum auction, as all the others were carried out by its predecessor Oftel, before the mega-merger of regulators that created Ofcom at the end of 2003.

"Ofcom has no view on what technology should be used," said Bates, "but independent economic analysis has pointed to low-power private GSM as a significant opportunity for this spectrum."

The auction will set other precedents. For the first time, licences will be tradeable, as soon as the auction is finished, said Bates: "We want to make sure that spectrum flows to those who can make use of it, and doesn't get sat on and consolidated for anti-competitive reasons."

Also for the first time, the auction will be a single-round, sealed bid auction. "The previous method helped larger companies, who could afford to outbid smaller companies," said Bates. "This way, every bidder will look at their business plan and bid on what it's worth, not what they think other people will be bid, or other unhelpful criteria."

Coffee Telecom, founded by tousle-haired 39 year old entrepreneur, and inventor of the top-up card, Martin Wren-Hilton, was founded in 2003 to exploit this opportunity when it emerged. Coffee's website promises it will be running a service in 2006, delivered from "thousands of Coffee Zones" located in hotels, railway stations, shopping centres, and similar places.

Wren-Hilton told Dow-Jones Newswires that the service is likely to offer consumers mobile calls at a price in line with fixed lines. He also pointed out that the Coffee service, unlike BT's Fusion and future Wi-Fi based converged services, will not need dual-mode handsets.