The release of additional spectrum is often used as a vehicle for introducing additional competition by the Regulators. From the perspective of spectrum regulators, careful spectrum management is required to ensure that sufficient spectrum is available to support not just the development of the commercial mobile market, but to support the continued operation of critical services such as Government, utility and Emergency Services that use radio spectrum on a daily basis. For the mobile operators spectrum is a critical resource , notably the ownership of lower band spectrum without which 4G will remain a myth in some emerging countries.
As we all know frequencies in the low band range 700MHz to 2.6GHz provide the optimal combination of propagation or coverage (the lower the frequency the better the coverage) and the ability to carry information or traffic (the higher the frequency the greater the data carrying capacity). Indeed some dense urban cities networks are now approaching the limit of network densification and additional spectrum and or new technologies may be the only route for alleviating network capacity constraints. Not to mention to stay in existence over the long haul !!
Based on the GSMA’s international experience, the total amount of spectrum assigned to each operator for 4G needs to be in the range of 2x30MHz to 2x60MHz, across a range of coverage and capacity bands, with a minimum contiguous bandwidth of 2x10MHz in each band (to enable efficient network economics). It is also essential that cost of spectrum access enables the delivery of the long-term social and economic benefits of mobile broadband and takes into account the investment necessary to provide robust networks.
Unfortunately many mobile markets are no longer experiencing revenue growth as mobile broadband revenues simply offset declining voice revenues. To exacerbate the situation only smart Telcos have figured out how to monetise LTE.Telcos will need to consider the requirements of these air interface choices – such as the levels of handset/terminal take-up, as well as base station, antenna and transmission upgrades – when formulating their spectrum acquisition plans. In emerging countries the demand for high speed data services and delays in availability of Digital Dividend Spectrum has caused severe congestion on their current 3 G networks.
Understanding the value of spectrum to a business is essential for developing a spectrum strategy and participating in a spectrum auction as rightly pointed out by the Coleago experts. The massive cash outlay for additional spectrum and the requirements to make a return on spectrum investments adds a layer of complexity to the evolving cost of data on HSPA and LTE networks. The substitutional nature of some spectrum bands requires a holistic approach to re-farmed 900 and 1800MHz spectrum strategy and valuation. The valuation process must consider stand-alone regional and / or block valuations and also packages of regions and / or blocks. When considering packages over stand-alone valuations the impact of scale must be included.
In respect of a spectrum auction an operator has to find an answer to three fundamental questions:How much spectrum do we need in different bands? The question relates to an assessment of spectrum need in the context of the growth in demand, notably mobile broadband. This needs to take account of the overall strategy, for example traffic offload through WiFi or Femto cells.Buying Spectrum is like buying a piece of land…you must know in advance what you intend to build on the land before buying it !! Thankfully some Regulators have started putting minimum bid prices to keep out speculators.
How much is each block worth, i.e. what is the most we should bid for it? This relates to valuing each spectrum block in order to set the bid limit for the auction. This is quite separate from auction strategy. Clearly, if there is no bid limit, the auction will be simple because a bidder would simply pay whatever it takes to win the spectrum. However, such an approach may not result in the creation of shareholder value and may draw criticism from shareholders and the financial press and capital markets. One of the business case elements is predicated on the cost of Spectrum spread out over the licence period.
How do we obtain the spectrum as cheaply as possible? In any auction, the bid limits should be set before the start of auction. The role of bid strategy is to ensure the spectrum is obtained for less than the bid limit and at the lowest possible price. Depending on the auction format there may be an opportunity to influence the outcome and avoid negative effects such as aggregation risk (e.g. be stranded with unwanted blocks). This is addressed by examining the auction rules and developing a bid strategy which will be tested through simulations and mock auctions.
Operators may also have to consider mitigating strategies for a “no spectrum case” but if they face network congestion a range of mitigating strategies such as traffic shaping and fixed line off-load must be examined and incorporated into the valuation process. Operators must consider how regulation on net neutrality might impact their ability to shape traffic profiles and whether there are any long run cost implications of offloading to other players fixed networks.
Spectrum is often awarded through an auction process and recent auction designs favour a second price rule which means that bidders cannot influence the price they pay for the spectrum only the price that others pay. A bidder’s valuation for a spectrum block is the price at which he walks away from a take-it-or-leave offer. Where aggregation risk is present valuations should be defined over packages, not just individual blocks. A valuation is conditional on information known at the time.
Depending on the auction format there may be dominant bid strategies or ways to avoid negative outcomes in cases where there is aggregation risk. This can be explored at theoretical level, through simulations and mock auctions. In theory a bidder enters the auction well prepared and the auction itself is a mechanical exercise. However, as the auction unfolds there will invariably be some learning which needs to be processed at the end of each day in order to be prepared for the next day’s bidding.
The next big Spectrum “ land grab “ will take place in Africa ( the perennial laggard in the broadband era ) even as the Regulators dither and delay in the implementation of the Digital Switchover / Dividend. We predict that LTE will really come of age in Africa in 2017 by which time the 700 : 800 mhz and 2-6 Ghz spectrum becomes available thru auctions or beauty contests. At a joint ITU ( International Telecoms Union ) and ATU ( African Telcom Uniion ) meeting the outcome saw Africa become the first region in the world to be in a position in 2015 to cohesively and harmoniously allocate bandwidth freed up by the transition to digital television—the so-called ‘digital dividend’— to mobile services in both the 700MHz and 800MHz bands. Unfortunately ITU mandates rarely take effect in Africa because things take a little longer on the ground with struggling / sluggish Regulators.
It is highly likely that African Regulators will split the LTE spectrum into slivers over many bands. However IF African Regulators do this to benefit many ” wannabe ” Telcos in the false notion that this will decrease prices ( as they did with Wimax ) then expect the same mess : a host of under resourced “ Pygmy “ operators in each country setting up localised LTE networks with limited coverage and trying desperately to make a decent ROI. This scenario will do precious little to bridge the catastrophic Digital Divide in Africa. In a few years while the rest of the world will be on 5G African Telcos will still be boasting about their “ 3 BTS me first 4G network “ using their inadequate LTE spectrum allocations.
But here is the good news : Carrier Aggregation ( in LTE A benefits operators with multiple spectrum positions, those with small pieces, and particularly operators that are combining acquired networks. The initial focus is on higher-speed services, but expect more deployments of 5+5MHz carrier aggregation as emerging markets deploy LTE in 2014.By combining blocks of spectrum known as component carriers (CC) , carrier aggregation enables the use of fragmented spectrum and allows LTE-A to meet its IMT-Advanced headline data rate of 1 Gbps. In simple terms bonding Spectrum channels together to create larger channels enables faster wireless services, and reduce opex and capex costs from running multiple networks. Believe it or not ..LTE A + CA is the 4 G technology for emerging markets.
A Spectrum bid requires a well honed strategy that factors in technical , commercial and financial parameters to balance a subtle equation that underlines 4G data networks. This is followed by bid strategy that will be implemented systematically along a project time line by a ” Tiger Team ” drawn from various disciplines. The acquisition of new spectrum and subsequent technology deployment results in massive Capex and Opex.So simply bidding without an all encompassing strategic plan and its flawless execution is a recipe for losing money….even if your Uncle is running the Regulatory Authority 🙂
Sadiq Malik ( Telco Strategist )