Spectrum auctions: What SA can learn
South Africa and many other countries should pay attention to several new issues of spectrum management policy and action plans that are becoming evident in the growing wave of new spectrum allocations for mobile broadband services in Europe and elsewhere, notably India.
As of today (May 5th. 2010) India’s auction of 3G spectrum (3 or 4 blocks of 2x5MHz spectrum in the 2.1 GHz band) in 22 service areas is still underway, to be followed shortly by BWA (Broadband Wireless Access) spectrum, involving two 20 MHz blocks in the 2.3GHz band, also in 22 service areas.
The latter have been traditionally designated as “WiMAX” spectrum (for WiMAX deployments in unpaired spectrum), but it is now clear that TD-LTE will also be a contender. At the same time an auction of 2.6GHz frequencies has recently concluded in the Netherlands, while a multiband (including “digital dividend” 800 MHz, 1800 MHz, 3G (2.1GHz) and 2.6GHz frequencies) bellwether auction in Germany is also still underway.
The spectrum auctions in India have perhaps attracted the greatest amount of interest worldwide given the huge size and remaining growth potential of the Indian mobile market. Nevertheless because of this country’s particularly tortuous traditions, policies and practices with respect to spectrum management there are more relevant lessons for South Africa to be drawn from the experiences and outcomes of the two European auctions.
These lessons involve the potential consequences of auction conditions that may be being envisaged in other countries, as well as the valuations of different mobile broadband spectrum by operators themselves. The Indian example demonstrates how disputes between a regulator and a Ministry, and a Finance Ministry focused on maximizing auction proceeds for the short term needs of the public Treasury, plus preferential treatment of state-owned compared to private operators, can delay and distort the efficient and timely allocation of spectrum.
The Dutch unwisely decided not to follow ITU Option 1 in the structure of the 2.6GHz band. In addition band-specific spectrum caps were imposed on the incumbents. In the event there were no bids for unpaired spectrum which for now remains unallocated, while the prices paid for paired spectrum were very low.
The paired spectrum (a total of 130 MHz) went for a total of €2.627 million, i.e. €0.00132/MHz/population (about 0.18 US cents) to the three mobile incumbents (KPN, Vodafone Libertel (both 2×10 MHz), and T-Mobile Netherlands (2x5MHz)) plus two entrants (2x20MHz each), one of which is a joint venture Ziggo 4 of the two largest cable operators in the country, and the other is the Swedish-based multinational fixed and mobile operator Tele2.
The multiband German auction began on April 12 and is still ongoing as of May 5th. Only the four current mobile operators are participating. The high bids for paired 800MHz spectrum blocks are running some 40 times higher per MHz/population than those in the 2.6GHz band, which has been structured according to ITU Option 1. High bids for paired 2.6GHz frequencies were running at a level of around €0.014/MHz/population at this point, above the prices paid in Finland but below those in Sweden.
The issues of spectrum caps and set-asides, both band-specific as in the case of the 2.6GHz band in the Netherlands or in relation to operators’ total or multiband spectrum holdings, arise in many countries. Regulators and policy makers may not see eye to eye on these subjects (e.g. a Competition Authority, a Ministry, and a Regulator) and may therefore have conflicting views concerning the ways in which various current and potential operators should be given free rein and/or restricted in their freedom to acquire new spectrum.
For some incumbents it may be desirable to consider whether they should be entitled to keep all their existing spectrum holdings below 1GHz (especially if these rights are close to renewal), if other competitors not among the original players who may have been awarded this spectrum automatically, only hold spectrum at 1800/1900 MHz and higher frequencies.
As part and parcel of emerging or updated spectrum management policies and action plans South Africa and many other countries will have to address comparable issues, i.e. spectrum caps and set-asides, and distributions of operators’ spectrum assets across different bands from below 1GHz (current 2G and “digital dividend”) to frequencies from 1800/1900 MHz to 2.3, 2.5, 3.5 and perhaps other bands that vary somewhat by country.
The outcomes of these issues may emerge with a strong influence from deliberate public policy choices, or they may be left in practice largely to the individual decisions of operators themselves, or they may be worked out in a hybrid environment. But whatever the outcomes they will have a marked influence on the future configurations of markets for mobile broadband services and the capabilities available to mobile broadband users.
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