Ofcom's plans to auction off radiowaves to power the next generation of mobile broadband services are facing delays following opposition from BT and O2.

The regulator is hoping to sell off the 800MHz and 2.6GHz spectrum bands during the first quarter of 2012 and wants the UK's network operators to deploy 4G broadband to 95 per cent of the population by 2017.

However, O2 has objected to certain elements of Ofcom's proposals regarding the implementation of 'spectrum floors', which are designed to ensure that each bidder emerges from the auction with a reasonable amount of new capacity.

According to the service provider, this measure is tantamount to "state aid" by distorting the auction process and is therefore illegal under EU law.

Under Ofcom's plans, all bidders except O2 and Vodafone will potentially be able to acquire spectrum at a knock-down rate, with the watchdog's own figures suggesting this could cost the taxpayer as much as £1 billion.

Explaining its complaint, O2 said: "The proposed floors and the argument that Vodafone and ourselves already have enough sub-1GHz spectrum are based on the mistaken belief that 800MHz and 900MHz are directly comparable spectrums. They are not."

BT objected on similar grounds, claiming Ofcom's requirement that 800MHz licence-holders have to provide 2Mbps mobile broadband in remote parts of the UK will give the winning bidders a public subsidy by driving prices down.

The telecoms giant is particularly concerned about the effect the auction could have on the wider broadband market.

A statement from BT, seen by the Guardian, read: "This is an anti-competitive subsidy against other rural broadband technologies, in particular fixed broadband."

In the face of this criticism, Ofcom insisted its plans are fully compliant with EU law.

"We are fully aware of state aid rules and would not have made proposals that we considered illegal," it said.

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