UPDATE 1-UK court rejects operator challenge over spectrum auction rules

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LONDON, Dec 20 (Reuters) - Two of Britain's leading mobile operators, BT's EE and Three, failed in a legal challenge on Wednesday to force a rethink of the rules for the upcoming 5G auction of mobile spectrum.

In a bid to maintain competition, regulator Ofcom has set limits on how much spectrum individual operators can buy in an auction that will increase the airwaves available to provide superfast services to mobile devices in the country.

The auction is key for the country's operators, which also include Vodafone and Telefonica's O2, because it will determine how they can compete with each other.

Under the plan, no mobile operator would be allowed to own more than 37 percent of all the mobile spectrum expected to be usable in 2020, capping how much the biggest spectrum owners such as BT and Vodafone can win.

Market leader EE said it objected to the restrictions while operator Three said the rules did not go far enough.

However, Judge Nicholas Green said on Wednesday at the High Court that both challenges had been rejected. Three said it would seek to appeal.

"We are disappointed by the initial ruling of the court as a fairer distribution of spectrum is vital for UK consumers and the digital economy," a spokesman for Three said.

"Ofcom does not expect 5G to rollout in the UK until 2019/20 at the earliest, so this will have no impact on the delivery of this new technology."

Ofcom said it would now proceed with the auction as quickly as possible. (Reporting by Paul Sandle; writing by Kate Holton; editing by Stephen Addison)