Auctions must be decoupled to release brakes on mobile broadband
By Caroline Gabriel
Auctioning licenses in several bands at the same time appears to be a good idea, and one increasingly favored by regulators round the world. Rather than selling each set of frequencies in sequence, and often with no over-arching strategy, governments can offer bidders the flexibility to acquire the right mix of spectrum for their business models.
So India decided to offer 3G and WiMAX spectrum at the same time, allowing operators to create plans that combined 3G for coverage with 4G for data intensive zones and fixed broadband. The authorities argued this would be a better model than one based on a single technology and frequency, both for commercial return and the expansion of services around the country. In the UK, a very different market, the idea was to auction the two bands earmarked for 3G expansion and 4G - 2.6 GHz and digital dividend around 800 MHz - simultaneously. Again, this would allow operators to make a clearsighted judgement on what balance of frequencies they needed to balance wide coverage with urban capacity, and to value the bands accordingly, rather than in isolation.
All this sounds very progressive, compared to a past situation where operators often had to snap up whatever band was available at any one time, even if it was not optimal. But we are talking about government agencies here. Putting two auctions together doubles the complexity, the bureaucracy and the opportunity for delay. So while countries like Sweden, sticking to sequential auctions, already have 2.6 GHz out of the door, and are hurtling towards 800 MHz sales, cellcos in the UK and India are living with protracted delays in being able to acquire any spectrum at all for the next generation of their services.
This is leading to calls for auctions to be decoupled again, especially in the interests of new entrants with new service models. In the UK, existing cellcos can make do with their existing holdings for some years, now that they are almost certain to be able to refarm their GSM bands for 3G (though the possible redistribution of 900 MHz, which only Vodafone and O2 hold, remains a sticking point even for that). But operators hoping to acquire a license to create a new model and introduce added competition and new types of services are increasingly frustrated. The UK was supposed to be the first European country to auction 2.6 GHz licenses, back in 2008, and that would have provided a favourable environment for a new mobile player (or a returning one like British Telecom) to leverage a new technology like WiMAX, to leap ahead of the existing 3G incumbents. The longer the delay, the less attractive that opportunity is, because the new players will be running head-to-head with the incumbents’ LTE plans, as that technology becomes available.
In India, even entrenched mobile operators cannot afford to wait much longer for new spectrum, since exploding demand is overloading their current networks to breaking point. However, there is still a case for separating the two auctions, since the problems that are delaying the 3G sale (mainly disputes over when the Department of Defense will vacate spectrum, and the reserve prices) do not affect the 2.5 GHz band, and at least the WiMAX providers could make a start on addressing the country’s glaring shortage of broadband services.
Yet the two sales remain bound together, and delayed yet again, probably until the new fiscal year starting in April, according to government sources. The auctions have been delayed many times, most recently until January 14 and then February 12. This will be bad news on all fronts. The wireless infrastructure suppliers may not be expecting quite a big a boost as from Chinese 3G, given the price competition in India, but the sheer size of the market is still vital to a still pressurized sector; India is probably the world’s largest potential market for WiMAX; and the Indian cellcos themselves badly need the new spectrum to add desperately needed capacity and launch higher margin services.
All this is creating a groundswell of lobbying for the WiMAX sale to go ahead regardless of the constantly changing rules on the number, price and conditions of the 3G licenses. An internal note authored by two units of the Department of Telecom, and quoted in the Economic Times newspaper, bemoans an “amazing array of inconsistencies in the government’s approach to 3G mobile licenses, which are unlikely to be granted anytime soon”. As the paper points out, further delays could “stymie the progress of the telecoms sector, the vaunted success story of liberalized Indian infrastructure. This hurts the economy, forgoing enormous, life changing growth potential in rural India.”
It voiced the views of many elements of the telecoms industry, saying: “The time has come for the government to delink the auction of licenses for wireless broadband services using WiMAX from auction of 3G licenses. The government should move ahead with WiMAX spectrum auctions, without waiting to complete 3G auctions. This would open up much needed new revenue streams for the industry. The issues that hold up licenses in 3G do not apply to WiMAX. The government should move ahead on this front.”
The most likely opposition to this view would come from LTE suppliers, reluctant to see WiMAX get such a powerful beach head in the world’s second largest market. Such parties would be pleased to see 2.5 GHz allocations delayed, especially as the Indian DoT and regulator TRAI said last week they were considering further auctions “very soon” after the 3G and WiMAX transactions, to support ‘4G’ services. The first would be digital dividend spectrum around 700 MHz, which India has long planned to bring into play ahead of most of the world. As 2.5 GHz will be used almost entirely for WiMAX, because of the immediate availability of the technology, this leaves 700 MHz as the only near term band with international support for LTE suppliers to target, although HSPA and WiMAX may be more likely options. LTE proponents like Ericsson and Qualcomm have already been accused by the WiMAX community of lobbying to delay mobile broadband auctions in countries like Brazil, until their favored technology was ready.
This was also a factor, as we saw above, in a very different mobile economy, the UK, where timely spectrum availability could have given WiMAX a foot in a firmly GSM-focused door. That door may be closing, as the country is now likely to wait until 2011 for its 2.6 GHz sale, leaving carrier plans for LTE or WiMAX on hold. Kip Meek, the government appointed independent spectrum broker, says a 2010 auction is now “a real stretch” and 2011 is the probable date.
The auction was originally delayed by a legal challenge from the UK arms of T-Mobile and O2, which argued that they could not put a realistic valuation on the new bands until regulator Ofcom had clarified its policy on refarming GSM spectrum. That in turn would require a settlement of the long running dispute over whether O2 and Vodafone, the only holders of that lower band GSM spectrum in 900 MHz, should be forced to redistribute their holdings, which are valuable for cost effective rural coverage.
Now, other factors are causing delays - the proposed merger of T-Mobile UK and Orange UK, which could break existing spectrum caps even without new allocations; and the decision to sell the 2.6 GHz licenses in tandem with the digital dividend spectrum around 800 MHz.
Meek’s latest update was reported by online newspaper ZDNet UK (www.zdnet.co.uk), at a Westminster eForum on the spectrum implications of the digital switchover. Meek said the outcome of his proposals for 2.6 GHz allocation was “uncertain” because of operator concern over the TMo-Orange merger, and there is threatened legal action from British Telecom. He told ZDNet: “The government will be considering its response to the consultation paper, [but] that process is taking longer than originally anticipated. They will have to take a view whether, in the dying months of this government, they will want to push through with this particular set of proposals.”
Meek wants Vodafone and O2 to receive 800 MHz allocations only if they surrender an equal amount of 900 MHz spectrum. And TMo and Orange should be able to bid only for limited amounts of 2.6 GHz, unless they give up some holdings at 1.8 GHz or 2.1 GHz. He has also proposed making 2.1 GHz 3G licenses indefinite in length, in return for commitments from cellcos to improve 3G coverage. Currently, they are due to expire in 2020.
This last idea is the one that could incur BT legal challenges. The incumbent has described it as “a gift of several billion pounds from the UK taxpayer to the mobile operators”. BT spun off its own cellular arm, which became O2 and is now owned by Telefonica. BT was widely expected to bid for a 2.6 GHz license and run WiMAX in it, primarily as a wholesale network or to support new business models such as machine-to-machine.
UK 2.6 GHz auction pushed back again, to 2010
By Caroline Gabriel
The UK, once set to be the first European country to auction 2.6 GHz spectrum for ‘4G’ services, is delaying its spectrum sale yet again. In November, regulator Ofcom indicated it hoped to award licenses by mid-2009, and in April it said it promised to hold the auction “as soon as possible”. Now it has “withdrawn” that statement and, in the wake of the new Digital Britain report recommendations, will bundle the 2.6 GHz and digital dividend spectrum sales into one super-auction next year.
The delay is a further blow for operators that had hoped to steal an early march in mobile broadband, especially those aiming to challenge the cellular incumbents, possibly with a WiMAX network. While a few countries, notably Sweden, have sold 2.6 GHz licenses, most auctions will take place in 2010, as operators create strategies that also take account of the sale of analog TV spectrum around 800 MHz; possible broadband stimulus initiatives in some markets; and the ruling, by many regulators, that 3G services can be expanded using current GSM frequencies around 900 MHz.
Existing cellcos argue that they can only reach a meaningful valuation of the 2.6 GHz licenses when the rules on all these other factors are made clear. This was one reason for the initial delays of the UK auction, which was once expected to have taken place over a year ago. It was held up by legal challenges by T-Mobile and O2, which sued Ofcom for trying to sell the licenses before it had completed its rulemaking on refarming 900 MHz GSM spectrum for 3G – something that could reduce 3G carriers’ need for 2.6 GHz licenses, and certainly affect the spectrum’s value.
The Digital Britain report has further complicated the UK auction picture, stating that it intends to implement the proposal of the independent spectrum broker to hold at least part of the 2.6 GHz sale together with the award of the 800 MHz band. ”In light of the Government’s intention to implement the ISB’s proposals, including possibly directing us in this regard, and the further period of time which will elapse before any such direction is made, Ofcom considers that it is no longer appropriate to rely on its decision of 4 April 2008 to hold the award of the 2.6 GHz band as soon as possible,” the regulator said.
The UK auction is potentially the most significant sale of 2.6 GHz licenses in the EU, because it is the most open to a new technology such as WiMAX and is regarded as a bellwether for various reasons. Ofcom has been more aggressive than many fellow regulators about opening up new bands with as few regulations as possible in order to encourage new services and new operators. And, unusually among European states, incumbent telco BT has no wireless networks, but is widely expected to re-enter the wireless market – which it quit when it spun off its mobile arm, now Telefonica-owned O2 – via a 2.6 GHz license. It has shown a strong interest in WiMAX, and so could be the technology’s route to a national network in the heartland of 3G and LTE. Also of interest to the WiMAX community is Ofcom’s stance that it will leave 2.6 GHz winners to decide whether to implement TDD or FDD networks, according to their business models, rather than defining the split between the two profiles, as most regulators are doing. This could make a license more attractive to a data-driven carrier, since TDD spectrum is advantageous for this model.
