de frequências detido pela Dense Air Portugal e
Utilização futura da faixa de frequências do 3,4-3,8
GHz
Contents
1
Introdução ... 4
2
Resposta da Ericsson... 4
2.1
Atribuição do espetro para 5G e condições... 5
2.2
Aspetos técnicos ... 7
1
Introdução
A Ericsson agradece a oportunidade proporcionada pela ANACOM para responder a esta consulta pública
sobre a utilização futura da faixa de frequências do 3,4-3,8 GHz.
Com um espírito absolutamente construtivo e de profundo respeito pelo Regulador e pelo trabalho por si
desenvolvido, apresentamos neste documento a nossa visão e recomendações, assim como expressamos
desde já a nossa disponibilidade para discutir e partilhar com a ANACOM qualquer informação adicional
que venha a ser considerada necessária.
A ANACOM aborda nesta consulta diversos pontos que são de importância crítica para os principais
intervenientes - operadores e prestadores de serviços móveis, que estarão diretamente envolvidos nos
processos de leilão e atribuição do espetro. No que diz respeito à Ericsson, acreditamos que a nossa
função nesta consulta pública é a de proporcionar um parecer especializado e objetivo, focando apenas
nos aspetos técnicos e processuais, não abordando questões relacionadas com regulação, competição ou
situação do mercado.
Tendo estabelecido as bases para a nossa contribuição, enviamos os comentários à proposta da ANACOM.
Estes encontram-se em linha com aquilo que já foi partilhado em Setembro de 2019, aquando da consulta
pública para o Plano Plurianual de Atividades 2020-2022.
2
Resposta da Ericsson
A Ericsson considera prioritárias todas as decisões e ações que permitam impulsionar a implementação
da tecnologia 5G em Portugal, de modo a acelerar as vantagens e benefícios que esta nova tecnologia
poderá trazer ao nosso país, à nossa indústria e aos cidadãos. Na nossa opinião, o 5G constituirá uma peça
chave para melhorar a situação do país em campos que requerem ação imediata, tais como a infoexclusão
e despovoamento gradual do interior, e a ausência de uma indústria suficientemente consolidada e
modernizada.
Conseguir isso dependerá, em grande parte, da adoção de uma política reguladora clara e firme que atinja
os objetivos propostos.
Acreditamos que o despovoamento pode ser travado e até invertido reduzindo o fosso digital que existe
em Portugal, acelerando a digitalização nas áreas rurais. No nosso entender, dotar as populações do
interior de boa conetividade móvel – implementando infraestruturas de acesso de banda larga
ultra-rápida baseada em tecnologia 5G, permitindo serviços de acesso à Internet com velocidades até 1Gbit/s
e latências até 1ms para pessoas e indústrias - é parte da solução que poderá permitir inverter o
paradigma da desertificação no interior.
Por outro lado, o 5G permitirá também o desenvolvimento dos serviços de Critical Machine-Type
Communication
(cMTC), com elevadíssima capacidade e qualidade e muito baixa latência, que serão
cruciais para a digitalização e modernização dos vários setores da indústria em Portugal.
As tecnologias e serviços móveis geraram globalmente 4,6% do PIB anual, correspondentes a 3,9 biliões
de dólares e suportaram cerca de 32 milhões de empregos, direta e indiretamente (The Mobile Economy
2019 da GSMA, www.gsma.com/mobileeconomy/).
Nos próximos 15 anos, estima-se que o 5G contribua para a economia global com 2,2 biliões de dólares,
em setores chave tais como a saúde, indústria fabril, serviços de utilidade pública, serviços profissionais e
financeiros, agricultura e minas, que irão beneficiar grandemente desta nova tecnologia e das melhorias
a nível de produtividade e eficiência proporcionadas.
Estamos conscientes de que a definição, atribuição e regulamentação do espetro para 5G tem
apresentado desafios particulares em Portugal, nomeadamente devido à ocupação parcial da banda dos
3,4–3,6 GHz, pelo que será necessário um esforço adicional por parte de todos os intervenientes do
ecossistema para que Portugal possa recuperar e não se atrase face aos outros países da União Europeia,
assim que haja uma clarificação definitiva sobre todos os pontos em discussão.
2.1
Atribuição do espetro para 5G e condições
Relembramos os princípios gerais pelos quais entendemos que deve reger-se o processo de gestão do
espetro, e que já foram reconhecidos no Plano 5G adotado pela Comissão Europeia:
- Certeza e previsibilidade, com um calendário claro e realista
- Duração suficiente das concessões, por um mínimo de 15 anos + 5 de renovação
- Assegurar que a licitação das diferentes faixas de frequência não se centra exclusivamente
em objetivos de lucro económico das administrações, mas que em contrapartida promove
compromissos ambiciosos de cobertura e de investimento
Neste contexto, a primeira prioridade é a alocação de espetro suficiente para o desenvolvimento do 5G –
que, comparado com as tecnologias anteriores, e de modo a atingir todo o seu potencial, requer maiores
blocos de espetro contíguo nas bandas médias (3,4 aos 3,8 GHz) e mmWave (26 GHz).
A nosso ver, a proposta da ANACOM para as faixas de frequências a disponibilizar em leilão reflete o
reconhecimento dessa necessidade (ao disponibilizar a totalidade dos 400 MHz de espetro nos 3,4-3,8
GHz), apesar de uma parte significativa desse espetro estar reservada durante 5 anos, o que poderá
condicionar as necessidades atuais dos restantes operadores.
A existência de spectrum caps não colide com essas necessidades, desde que os mesmos sejam
suficientemente alargados para não limitarem a oferta de novos serviços e a qualidade dos mesmos - por
exemplo, impondo um limite nunca inferior a 80-100 MHz na faixa dos 3,4-3,8 GHz.
Existindo uma atribuição de 100 MHz para Lisboa e Porto, é importante que os atuais operadores estejam
capacitados para adquirir e utilizar, desde o primeiro dia, igual quantidade de espetro; caso contrário,
ficariam, logo à partida, impossibilitados de oferecer à sua extensa base de clientes uma qualidade de
serviço equivalente. Consequentemente, a experiência de 5G para estes clientes ficaria também
condicionada à partida.
Como é do conhecimento público, atualmente encontram-se já concluídos os seguintes leilões para a
totalidade ou parte do espetro 5G na União Europeia:
- 700 MHz: Alemanha, Dinamarca, Finlândia, França, Itália, Suécia
- 3,4 a 3,8 GHz: Alemanha, Áustria, Bélgica, Chipre, Espanha, Eslováquia, Finlândia, Grécia,
Hungria, Irlanda, Itália, Letónia, Reino Unido, República Checa, Roménia
- 26 GHz: Itália, Irlanda
(fonte: Ovum, “5G Service Provider Tracker”, Outubro 2019)
Na Ericsson defendemos um modelo de licitação com preços razoáveis para os operadores, que lhes
permita preservar folga financeira para investir no desenvolvimento das redes – por exemplo, em troca
de compromissos de cobertura.
Os precedentes anteriores justificam amplamente os benefícios da adoção deste modelo regulatório.
Assim o evidencia o Relatório NERA da GSMA, que conclui que em 32 mercados em que o preço do espetro
se situou acima da média, as redes implementadas tinham menor cobertura e menor qualidade,
reduzindo o consumo estimado em 250 mil milhões de dólares
(https://www.gsma.com/spectrum/wp-content/uploads/2017/02/Effective-Spectrum-Pricing-Full-Web.pdf).
De facto, esta premissa é uma política estabelecida da União Europeia, que encoraja a criação de
condições que favoreçam o investimento na implementação do 5G, evitando extrair capital excessivo do
mercado:
- promovendo objetivos ambiciosos de implementação e expansão da infraestrutura (incluindo
ferrovias e rodovias);
- possibilitando serviços inovadores, criando oportunidades para serviços verticais acederem
ao espetro, não limitando ou distribuindo artificialmente o fornecimento de espetro,
com um enfoque inicial na
faixa dos 3,4 a 3,8 GHz que, como já foi referido, é a primeira banda de
lançamento comercial do 5G na Europa, onde grandes blocos de espetro não-fragmentado devem ser
disponibilizados aos operadores para possibilitar extrair todo o potencial do 5G, tanto para os utilizadores
de banda larga móvel, como para a Indústria.
Dados os prazos fixados pela União Europeia, consideramos que a licitação dos 3,4-3,8 GHz e dos 700 MHz
deve ser feita em simultâneo – tal como é proposto pela ANACOM nesta consulta. O concurso deve ser
realizado o mais cedo possível, garantindo que o uso efetivo da banda seja feito assim que for totalmente
desimpedida e disponibilizada (o mais tardar em 30 de junho de 2020, conforme estabelecido no
calendário da UE).
A implementação simultânea destas duas bandas poderia ajudar na recuperação de algum tempo, face a
outros países Europeus que fecharam processos de leilão e começaram a implementação mais cedo.
Como já referido, defendemos também a extensão dos benefícios da tecnologia 5G à Indústria do nosso
país – para a qual
primeiramente a faixa dos 26 GHz, mas também a dos 3,4-3,8 GHz têm um papel
essencial, dadas as vantagens inerentes a esta gama de frequências em que é possível atribuir
maiores/largas fatias de espetro, possibilitando a criação de serviços ultra-exigentes a nível de capacidade
e latência, requisito primordial para a consolidação de um setor industrial tecnologicamente avançado.
Consideramos recomendável continuar a reservar a alocação de espetro nessas faixas para os operadores
de telecomunicações, obtendo como contrapartida o seu compromisso de criar ofertas para todos os
setores verticais, conforme a necessidade dos mesmos.
Existem diferentes modelos para promover o crescimento com base na política regulatória estabelecida;
por exemplo, promovendo a comercialização de serviços especializados para empresas pelos operadores,
regulamentando modelos de leasing contratual de espetro - já existentes noutros países - ou até
regulamentando a entrada de operadores móveis virtuais com foco industrial. A Ericsson não se pronuncia
sobre o modelo em si, pois não é esse o nosso papel e confiamos no bom trabalho do nosso Governo e
Regulador a esse respeito.
Tendo a ANACOM declarado a intenção de fazer a atribuição dos DUFs por meio de um leilão, anexamos
como complemento a esta resposta o White Paper da Ericsson
“Optimizing spectrum assignments to
deliver expansive 5G connectivity”, o qual analisa as vantagens e desvantagens do leilão como forma de
atribuição de espetro, bem como realça alguns aspetos que deverão ser considerados quando se
definem as regras do mesmo.
Salientamos o facto de a ANACOM planear a disponibilização total do espetro na faixa dos 400MHz em
sub-blocos de 20 MHz – apesar de com algumas condicionantes - o que, tal como é referido neste white
paper, se encontra em linha com as boas práticas observadas noutros mercados, evitando desta forma o
escalamento irracional (do ponto de vista financeiro) que se observou noutros países tais como Itália ou
Alemanha, que terá um impacto negativo nos investimentos futuros na implementação das redes –
potencialmente com impacto negativo na qualidade e cobertura das redes, prejudicando o interesse
público.
2.2
Aspetos técnicos
Aquando da sua atribuição, é fundamental que os blocos de espetro – nos 700 MHz, 3,4-3,6 GHz ou mais
tarde nos 26 GHz - sejam atribuídos de forma não fragmentada, sendo esse o sentido da proposta da
ANACOM (nomeadamente para a faixa dos 3,4-3,8 GHz), e que os mesmos estejam definitivamente
disponíveis para utilização pelos operadores a partir do primeiro dia de entrada ao serviço.
Só desta forma se poderá garantir que o valor gerado pelos operadores na exploração do 5G é
maximizado:
- O equipamento de rede de telecomunicações opera em bandas de frequência pré-definidas
e delimitadas, pelo que uma fragmentação estendida no espetro, ou a eventual redistribuição
dos blocos inicialmente atribuídos, poderia ter como resultado a necessidade de substituição
de equipamento previamente adquirido e implementado, com consequências ao nível dos
custos a suportar pelos operadores.
- A tecnologia 5G foi desenvolvida tendo como pressuposto que os recursos de espetro
necessários para um determinado serviço são disponibilizados de forma contígua – de outra
forma não será possível obter os níveis de capacidade e latência necessários.
Abaixo apresentamos uma descrição técnica que pretende clarificar/recomendar alguns aspetos relativos
ao espetro necessário para o 5G, tendo por base as faixas de frequências e os diferentes casos de uso.
A tecnologia 5G introduz a possibilidade de definir diversas fatias de rede dentro da mesma rede, com
diferentes características e qualidade serviço (Network Slicing), por forma a poder cumprir os requisitos
dos novos casos de uso que irão aparecer. Esses requisitos podem ser tão diversos tais como:
- Velocidades de pico de >>1Gbps para serviços enriquecidos de vídeo UHD/VR/AR
- Tempos de resposta muito reduzidos (latência) de 1ms para casos de uso tais como condução
remota de veículos, cirurgia remota, automação
- Moderadas velocidades de pico e latência, para serviços de banda larga móvel
- Baixas velocidades de pico e baixos requisitos de latência para aplicações de IoT tais como
sensores
Para que uma única rede possa suportar toda esta diversidade de casos de uso de forma eficiente, um
dos fatores mais determinantes é a utilização que é feita do espetro disponível.
A implementação de qualquer serviço de 5G requer uma escolha apropriada da gama de frequências
(baixas, médias ou altas) e da largura de banda do canal que é utilizado (que se traduz em
capacidade/velocidade).
A figura abaixo procura ilustrar como se relacionam as várias características de uma rede 5G; para o efeito
são utilizados dois exemplos de casos de uso distintos a nível de requisitos de rede, para exemplificar
como os mesmos podem ser servidos no espetro existente:
1) Um serviço de muito baixa latência, por exemplo condução remota de veículos: requer um canal de
frequência de elevada largura de banda - 60MHz-100MHz na Banda Média II nos 3.5GHz.
2) Um serviço típico de banda larga móvel, equivalente ou melhorado face ao que é oferecido
atualmente pela rede 4G: requer um canal de frequência com menor largura de banda -
10MHz-20MHz, que oferece uma velocidade razoável, na Banda Baixa/Média I, que garante uma boa
cobertura.
Existem interdependências físicas entre gama de frequências, cobertura, largura de banda/velocidade e
latência numa rede móvel. Não é possível otimizar uma métrica sem que haja um impacto direto nas
outras. Por exemplo, uma latência muito baixa requer sempre a utilização de um bloco de espetro muito
largo só disponível nas bandas mais altas, que por sua vez oferecem menor cobertura.
O que se pretende demonstrar é que, idealmente, o fornecedor de serviços móveis deverá utilizar
diferentes blocos de espetro, nas diferentes bandas, com a máxima largura de banda atribuível, estando
assim nas condições ótimas para definir as características de rede necessárias para cada caso de uso e
para otimizar a utilização do espetro que lhe tenha sido atribuído.
Por exemplo para a banda dos 3,4-3,8 GHz, que permite oferecer menor latência e maior capacidade do
que as bandas atualmente utilizadas para o serviço móvel (pois há blocos de espetro contíguo maiores),
quanto maior for a largura de banda atribuída a cada operador (por exemplo 100MHz), mais sofisticados
e exigentes poderão ser os serviços que encaixam nestes requisitos.
A partição do espetro em blocos mais pequenos irá sempre limitar as características dos casos de uso que
é possível servir com esses blocos.
Tal como já foi mencionado, é também muito importante ter em consideração que quando se menciona
largura de banda necessária para um determinado serviço, se pressupõe que o bloco de espetro em
questão é contíguo.
Resta ainda mencionar que ao dia de hoje estes são os casos de uso conhecidos, no entanto num período
de 3-5 anos certamente surgirão outros casos de uso muito mais exigentes, que tornarão este aspeto da
maximização da eficiência na utilização dos espetro ainda mais importante.
3
Conclusão
Sumarizando os comentários e recomendações que apresentamos neste documento:
- As tecnologias móveis e em particular o 5G terão um contributo muito significativo para a
economia global, a indústria e a sociedade; a Ericsson vê sempre como positiva a
disponibilização de espetro adicional (nomeadamente nas bandas dos 900 MHz, 1800 MHz,
2,1 GHz e 2,6 GHz) e consequentemente maior capacidade para a oferta de serviços móveis.
- É urgente que se faça a atribuição do espetro nas faixas que serão utilizadas de início para a
implementação do 5G, de modo a que Portugal possa cumprir o calendário da UE: os 3,4 a 3,8
GHz, já com lançamentos comerciais em diversos países, em simultâneo com os 700 MHz, que
permitirá estender a cobertura até às zonas rurais e será a banda mais comum no ecossistema
do 5G nos vários países. Uma implementação simultânea poderia ajudar na recuperação de
algum tempo, face a outros países Europeus que fecharam processos de leilão e começaram
a implementação mais cedo.
- Na Ericsson defendemos um modelo de licitação com preços razoáveis para os operadores,
que lhes permita preservar folga financeira para investir no desenvolvimento das redes – por
exemplo, em troca de compromissos de cobertura. O leilão é um mecanismo visto
consensualmente como uma boa prática para a atribuição de DUFs, desde que as regras do
mesmo sejam desenhadas por forma a não promover o escalamento de preços sem racional
financeiro, o que teria um impacto negativo no investimento futuro nas redes, prejudicando
o interesse público.
- Para o desenvolvimento do 5G é necessário garantir alocação de espetro suficiente –
comparado com as tecnologias anteriores, e de modo a atingir todo o seu potencial, requer
maiores blocos de espetro contíguo nas bandas médias (3,4 aos 3,8 GHz) e mmWave (26 GHz).
A existência de spectrum caps não colide com esta necessidade, desde que os mesmos sejam
suficientemente alargados para não prejudicarem a qualidade de serviço (por exemplo,
impondo um limite nunca inferior a 80-100 MHz na faixa dos 3,4-3,8 GHz).
- Havendo já uma atribuição de 100 MHz para Lisboa e Porto, é importante que os atuais
operadores estejam capacitados para adquirir e utilizar, desde o primeiro dia, igual
quantidade de espetro; caso contrário ficariam, logo à partida, impossibilitados de oferecer à
sua extensa base de clientes uma qualidade de serviço equivalente. Consequentemente, a
experiência de 5G para estes clientes ficaria também condicionada à partida.
- Aquando da sua atribuição, é fundamental que os blocos de espetro sejam atribuídos de
forma não fragmentada, e que os mesmos estejam definitivamente disponíveis para
utilização pelos operadores a partir do primeiro dia de entrada ao serviço.
- A faixa dos 26 GHz, e até certa medida a dos 3,4-3,8 GHz, terão um papel essencial na criação
de serviços mais evoluídos e direcionados para a indústria, promovendo a sua consolidação e
modernização. Consideramos recomendável continuar a reservar a alocação de espetro
nessas faixas para os operadores de telecomunicações, obtendo como contrapartida o seu
compromisso de criar ofertas para todos os setores verticais, conforme a necessidade dos
mesmos.
Ao definir o contexto regulatório mais adequado para a implementação e desenvolvimento do 5G, a
ANACOM estará a criar as condições necessárias para a inovação tecnológica e investimento que irão
beneficiar toda a sociedade e a indústria em Portugal.
Optimizing spectrum
assignments to deliver
expansive
What have
spectrum auctions
ever done for us?
The first batch of radio frequencies released for mobile services in the United States were awarded by lottery during the 1980s. At the time it was chosen as a preferred option to replace the ‘command and control’ or ‘beauty contest’ process which was deemed to be too slow, costly, fictitious, subjective and not transparent. The lottery offered 643 licenses³ and attracted over 400,000 applicants4, the majority of who were small time rent seekers with the intention of ‘flipping’ the license rather than ever building a network. It was a calamitous process that lasted six years, delaying the launch of mobile services and doing nothing to serve the public interest.
In 1993 that the United States Congress allowed auctions to be held for non-broadcast spectrum. The 1994, simultaneous, multiple round auction for 30 MHz lasted four months and netted USD 7.7 billion which covered the historical cost of the Federal Communication Commission. Its success led US lawmakers to make auctions mandatory in 1997.
Beauty contests ruled the roost across much of the world until the turn of the century at which point applying economic theory to the assignment of spectrum, accompanied by a move towards liberalisation and competition, took hold. Auctions soon became the norm with only a few countries bucking the trend and maintaining ‘command and control’.
While auctions can be much more efficient than other assignment processes, when poorly designed, they can have a net negative impact, particularly when artificially inflated prices impair the balance sheets of firms that have won the right to exploit the scarce resource. The father of spectrum economic theory, Ronald Coase, argued that for spectrum, “the delimitation of [property] rights is an essential prelude to market transactions.” Once there is legal certainty around a spectrum property, to assign it, “employ the price mechanism, as this allocates resources to users without the need for government regulation.” It took policy makers in the US 34 years to act on the message and implement spectrum auctions. Coase believed that with the market mechanism, “the aim should be to maximize output” of spectrum.5 This is achieved when the right conditions are in place for the resource to be fully exploited by spectrum owners who require the necessary incentives to deploy high quality and extensively available services.
High spectrum prices realised at auction have always been a sore point amongst bidders, especially in the mobile sector. Such complaints tend to reach a crescendo when a new generation of technology – at present 5G – imposes high investment demands, and they are further compounded by the more expansive political targets for the sector.
This note argues that, while complaints about excessive prices can be fully justified in some circumstances, competitive auctions, amplified in various ways, should still play a major role in initial spectrum assignments and their design should not distort investment incentives. Further, initial assignments should be complemented by secondary trading of licences along with the ability to sub-lease amounts of spectrum to third parties. The note concludes with some practical auction assignment guidelines to ensure that spectrum
Auctions are desirable because they introduce competition into the assignment process. Spectrum gravitates to those who can bid more for it, which tend to be those who can use it most efficiently. Alternative ‘command and control’ assignment mechanisms, such as ‘beauty contests’, rely on judgements made by spectrum regulators which may be subjective and can be subject to gaming by the operators concerned. Indeed, one of the main drivers of spectrum auction’s wide uptake and success has been down to ‘beauty contests’ not delivering on the planned outcome.
Despite the failings of the vast majority of ‘beauty contexts’ there are circumstances when they can generate good outcomes, when they are conducted in a constructive manner, which drives the market to deliver the output policy makers desire, e.g. in terms of coverage, capacity and competition. Both China and Japan do not charge upfront fees for spectrum but instead judge whether the deployment commitments of firms match the country’s policy objectives and assign spectrum accordingly. Both countries currently enjoy more expansive connectivity than their global peers. Measured by the number of installed 4G base stations per person, mobile networks in China and Japan are around four times as dense as those in larger European countries and the United States. In Latin America, Chile has historically adopted a ‘command and control’ spectrum assignment process and its networks are around three times as dense as those in Argentina, Brazil, Columbia and Mexico.
Although network densification may be attributed to multiple factors, not least favourable planning rules and low passive infrastructure access costs, an operator’s balance sheet that is not stretched through excessive spectrum payments will play a role. As noted elsewhere, network densification is a key element for the successful realisation of an expansive version of 5G and should be an increasingly important consideration for all spectrum assignment policy objectives and be reflected in how spectrum auctions are designed.6
Auction design evolution
Some possible problems
with auctions
The vast majority of high value spectrum auctions are contested by firms proposing to offer similar services with the spectrum on offer. However, similar approaches apply when competition is between firms providing different services, for example broadcasting and mobile communications, or fixed and mobile broadband services. The basic mode of operation of a spectrum auction can be described as follows. An individual firm bidding independently for a spectrum licence can be conceived as forming a conjecture as to how the downstream market will develop over the licence period in terms of growth of demand, industry structure, level of competition and other factors. On that footing it estimates the revenues it might earn and its costs of supply (including a cost of capital but excluding spectrum costs). The difference between the two is the maximum it would bid for the spectrum – although it would hope to pay much less. On this basis, firms which expect to be more efficient bid higher and have a greater prospect of success in the auction.
Over the past twenty-five years, giant strides have been made in the range of auctions formats available. This is the result of huge and successful advances in the field of mechanism design. There is evidence that firms are willing to bid higher in auctions with more sophisticated designs which insulate them from some auction risks.7 As with the case of other natural resource rights owned by the state, such as oil and gas extraction rights, auctioning the rights to spectrum allows the state to extract the scarcity value or rents of the asset without having to operate the business itself. Absent government abuse of its monopoly power on the supply side of this process (see below), this is a non-distortive way of gaining revenue which can then be used to pursue government objectives. In deciding how to spend it the government must make a trade-off between its broader social objectives such as education, health and defence, and more focussed sectoral objectives such as extending connectivity. Experience shows that auction processes can be adapted to further such wider social and economic objectives in the mobile sector as equitable geographical coverage and the maintenance of competition in mobile service markets. Thus, some licences can be associated with an obligation to extend network coverage into so-called ‘non-commercial’ areas. In addition, to maintain a competitive downstream market in mobile communications, a cap can be placed on the amount to spectrum acquired by individual large firms. Both types of condition have been widely applied, without apparent detriment to the ability of the auctions to close satisfactorily.8 In each case, the government is sacrificing some revenue from the auction for wider coverage or more competition.
Auctions can go wrong for a variety of reasons. One arises when the seller of the spectrum – i.e. the government or other relevant authority – exploits its own market power to increase auction revenues. Most simply, this can be done by hoarding spectrum which is available for release. An equally crude method is to sell all the available spectrum in one lot: the highest bidder is thus gifted market power in the downstream market, which – when valued by the method described above – generates a larger prize for that bidder. More subtly, a tranche of spectrum for release can be packaged such that only two firms can acquire significant quantities.9 Such ‘duopolists’ should be capable of maintaining prices above the competitive level, but to a somewhat lesser degree than a single firm. Each of these outcomes have adverse effects on coverage, quality and price. This lowers take up of the service, restricts connectivity, and stunts economic growth and the higher government tax receipts which go with it.
If this happens, there is an association between higher spectrum prices and higher service prices, but the former are not causing the latter. The causation is the other way round: it is the expectation of the high profits caused by manipulation of the spectrum market which generates the higher bids. Some empirical evidence on this question is discussed below.
Another possible problem with auctions is that they may generate overbidding, consequent on a systematic tendency for at least some operators to harbour optimistic projections of the future and thus bid more than the spectrum is worth. When this occurs, the over-bidder might seek to retrieve the situation by raising service prices. But this would require similar action by all suppliers in the market, which is not likely to be forthcoming. Also, bidders for mobile spectrum are typically large international operators with access to appropriate advice and familiarity with the risk of the so-called winner’s curse, although the curse may have prevailed in the recent German auction where the reaction of winners was sour.10
Supply and demand
Overview of recent 5G spectrum auctions for the 3.4 - 3.8 GHz band
Price is a function of supply and demand. In spectrum auctions, the logic suggests that all thing being equal, greater spectrum supply will lower the price paid. As the first wave of 5G auctions plays out in Europe and the United States, the amount of spectrum supplied to the respective markets is at an extreme contrast.
The US President has declared that “the race to 5G is a race that America must win” and to give its industry the best shot, the Federal Communications Commission (FCC) has been flooding the market with spectrum and consequently spectrum licences are being sold at historically low prices.11
FCC Chairman Ajit Pai says “we’re taking an aggressive, all-of-the-above approach: we’re freeing up high, mid, and low-band spectrum for 5G. Looking high we’ve…made available to the private sector a combined 1,550 megahertz of spectrum.” And they are not stopping there. A third spectrum auction in 2019 “will be the largest in American history, releasing 3,400 megahertz of spectrum into the commercial marketplace.”12
Compared to the American flood, the pace of European spectrum supply is more of a trickle. The primary 5G pioneer band in Europe is
3.4–3.8 GHz and a deadline of end-2020 has been set for member states to "reorganise and allow the use of sufficiently large blocks of the 3.4–3.8 GHz band".13
Europe’s track record on meeting such deadlines is a cause for concern and the continent can ill afford a re-run of the 4G race that saw other regions accelerate out of the blocks and assume an unassailable lead. Whereas the US had auctioned off 84 MHz of digital dividend spectrum in 2008, by 2013 only nine of 27 EU member states had come good on their spectrum release commitments and consequently the US had 10 times as many 4G subscribers.14 Little wonder that the externalities associated with
the app economy accrued to the US, where they contribute some USD 100 billion per annum to the economy,15 but struggled to take
hold in Europe.
As the table below shows, the current approach to 5G spectrum assignment in Europe is mixed. There is a high variance in prices paid that correlate closely to the amount of spectrum made available. Efficient competitive 5G auctions are currently leading problematic auctions 4-3. The margin of victory is narrow, and the game is still young.
Country
Supply
(% of 400 MHz)
Price per MHz pop
(€ cents)
Comments
Italy 50% 36 Asymmetric lots providing just two bidders with sufficiently large blocks
Germany 75% 16.8 100 MHz set aside for non telco use, new entrant enticed to bid
UK 37.5%* 13 120 MHz still on the shelf. 140 MHz was already assigned
Austria 97.5% 6 Policy goal to promote a rapid rollout of 5G infrastructure
Ireland 87.5% 5 Designed to enable national and regional footprints
Spain 50% 5 The remaining 50% of the band was acquired during the auction from an incumbent holder
One country that should increase the score for the efficient side is France. Following a windfall gain from the 700 MHz auction in 2015, the Macron government found that the coverage was not sufficient and subsequently reversed its spectrum policy objective from revenue maximisation to extending and deepening connectivity. The approach includes granular obligations (more of this below), an assumption that financing is exclusively from the private sector and carries a commitment to remove costly and lengthy deployment barriers.
Indeed, French Secretary of State Agnès Pannier-Runnacher said in June 2019 “We will not make the choice to maximize the immediate profit, it would delay the ability of operators to deploy.” And the amount of the reserve price would be weighted "by the commitments made by telecom operators on the" deployment speed, coverage goal, nature of commitments.16
In Latin America, Brazil is looking to substantially increase the spectrum supply early next year and to do so using a licensing and taxation framework that will accelerate the adoption of 5G services rather than maximise revenues. A recent law has created a secondary market for spectrum and enables the regulator Anatel to extend spectrum licences an indefinite number of times with the option for operators to partially or totally convert renewal fees into binding investment and deployment targets.
Columbia is also adopting a new approach having recently enacted a law that permits spectrum to be granted with the purpose of not only raising revenues but ensuring deployment though more obligations, and purposefully calling out local governments to remove deployment barriers in return for prioritised coverage. It also allows for secondary trading and doubles the period of the license term.
The effects of spectrum prices on service prices
The effects of spectrum prices on levels of investment
We now compare two states of the world. In one competition amongbidders yields a competitive outcome. In the other, spectrum prices are lower by a given amount. What happens to the extra profits put into the sector? The context is assumed to be the commonly-encountered one in which spectrum fees for the whole licence period are paid at the start. In other words, they are a sunk cost.
Normal economic reasoning suggests that firms price on the basis of what they expect their forward-looking costs to be, on their interpretation of competitive interactions with their rivals, and the strength of demand. Thus their pricing decisions are not affected by any reduction in spectrum fees. Consumer prices stay the same, so any reduction goes to investors as profit.
What does the evidence say on this matter? A recent academic article bears explicitly on this question, examining the link between auction prices and outcomes in downstream service markets.17
"after controlling for the potential endogeneity, spectrum fees do not seem to be correlated with spectrum revenues.... The lack of significance of spectrum licences on revenue can thus be interpreted as a sort of “correct” forecast of future revenues by mobile operators in the licence paid: the cost of the licence already incorporates the future increase in revenues but it does not have any further incremental effect on them.‘’ (page 363) 5% 10% 15% 20% 25%
Mobile CAPEX/Mobile Revenue
How would investment be affected? Many critics of standard auctionsargue that the high spectrum prices leave no room for investment in the mobile networks. But on the face of it, we might expect each firm in the market place to take investment to the point where additional investment ceased to pay for itself in terms of the gap between incremental revenue and incremental costs (which, assuming the auction was efficient and not problematic, would exclude sunk spectrum costs). This would be the same limit irrespective of the sunk cost of spectrum.
But there are some circumstances in which this would not apply. If an operator faced a constraint on what it could borrow in the capital markets, that constraint would be tighter with a higher spectrum price, and higher
spectrum prices would reduce investment. Different operators would be differently placed with respect to capital constraints. This matter would have to be examined on a case-by-case basis. One might conjecture that capital constraints might be more severe for smaller, later-entering operators, which are the likely beneficiaries of spectrum caps.
There is evidence that such constraints are very much in play. On a regional comparison basis, European operators have greater capital constraints than their peers in, for example, Japan or the United States. As the graph below shows, CapEx to sales ratios of European operators are currently at historically high levels, well above the levels in the US and Japan.18
The estimation procedure it employs must cope with the issue of causation (or ‘endogeneity’) noted above: that is, it must establish whether high spectrum prices cause high service prices or whether high service prices cause high spectrum prices. Based on data for 24 countries over the period 2005-2014, the authors’ conclusion is that
And as we move into the 5G era, policy makers in Europe should be concerned of the ability of other regions to continuously invest more per capita. The graph below shows Japan and the US consistently investing more per inhabitant for more than a decade.19 Not only does this put
at risk consumer welfare, but also Europe’s relative competitiveness with other regions that will adopt digital transformation at a quicker rate. Looking forward, over the five-year period between 2020 and 2025, when capex will predominantly support 5G network deployment, the accumulated investment gap could be more than $100 billion.20
That said, offering general encouragement to firms to invest beyond the point where incremental revenues equal incremental costs would not necessarily promote greater social welfare: investment is an input, not an output, and not desirable for its own sake. Where additional outputs are wanted – for example, deployments which extend the coverage of a service - they can be incorporated in the auction process through coverage obligations.
It is worth noting that a recent GSMA report concluded that while there is inconclusive evidence of spectrum prices being correlated with higher service prices, there is stronger causal evidence that higher spectrum prices have a negative impact on coverage as well as download and upload speeds.21
0 20 40 60 80 100 120 140 160 180 200 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018F 2019F 2020F 2021F 2022F
Mobile CAPEX/2017 Inhabitant (USD)
Ever more granular
coverage obligations
Licence renewals
Auction design today will have a material impact on the version of 5G that is realised. For a limited version, in which 5G is a quicker and more efficient version of 4G, spectrum policy and license terms continue largely unchanged. But for an expansive version, where fast and low latency communications capacity is available everywhere and “digitizes” industry verticals not yet much penetrated by intelligent connectivity, spectrum policy needs to change course.
Historically, obligations on network deployment contained in auctioned licences have typically been measured as a percentage of the population covered. They have often applied to spectrum assigned for a new generation of technology where the initial condition is one of zero coverage. Subsequently, it has become apparent that, for a variety of circumstances – based on a
combination of topography, demographics and other factors - some locations are either not covered at all (‘not-spots’) or left uncovered by one or more operators. Regulators have taken a number of ex post measures to fill in these gaps. An example relating to France is discussed below.
The combination of 5G and the imminent more widespread digital transformation within general social and economic arrangements creates an opportunity for a step change in the uses to which connectivity can be put, in a fashion which has the capacity to transform many sectors – i.e. have major positive external effects – if the connectivity is widely available. In order to profit from a more expansive version of 5G connectivity, which delivers the potential efficiencies and externalities associated with the wider application of the industrial internet, e-government and Smart Cities (to name but a few applications), obligations are becoming more granular. Coverage goals may still include a population percentage but are being extended to geographic targets including roads, railways and inside buildings. Regulators are also considering obligations that include consistent levels of quality and experience, currently measured by minimum speeds but that may extend to throughput and latency.
There is thus a case for governments to stipulate more granular obligations in licenses subject to auction. In doing so, they would accept less revenue upfront, but they would attain a better and more equitable market outcome within a given timeframe.
Renewal decisions are of ever-increasing weight in spectrum management, as more bands have been put to higher value use in past decades. In such cases a decision must be made whether to renew or to re-auction the relevant licences. Re-auctioning opens the door to possible new entry or to the rebalancing of existing operators’ holdings if they are no longer proportionate to market shares, but it may cast a blight on investment at the end of the earlier licence. Moreover, if incumbent licensees have a major cost advantage in the following period, competition for the licence may be weak. Renewal on the other hand requires the regulator to bargain with incumbents or to make an ‘as if auctioned’ valuation. It is not surprising that spectrum regulators in different jurisdictions have come down on either side in making this decision.
A notable recent spectrum decision in France has linked licence renewal with the goal of 4G network deployment being brought forward. In summary, the regulator ARCEP, with the support of the French government, agreed to waive the fee for renewing the spectrum licences of operators in the 900, 1800 and 2100 MHz band frequency licences expiring between 2021 and 2024, on condition that those operators made immediate additional deployments to extend and improve 4G connectivity.26 The precise nature of the
additional deployments was agreed by bilateral bargaining between the regulator and each company individually.
This process is functionally equivalent to the government borrowing money from the companies to pursue its deployment objectives now and repaying the loan by the abatement of spectrum charges later. The implicit interest rate of the ‘loan’ is not known, but one might expect the firm to seek to recover at least its own cost of capital. Since the loan is given in kind (increased deployment) and repaid in cash (fees abated), the borrowing side must have accurate information on the costs of incremental deployment in order to secure a good deal. In a regime of bilateral bargaining with each operator, there is no mechanism for competition among operators to take effect.
Of course, this approach only works in the context of licence renewals. It is hard to imagine that many spectrum regulators would agree fully to waive operator charges on a newly released 5G band. On the other hand, as noted above, new 5G spectrum can be assigned subject to more granular coverage obligations, focussed on general benefits to a country, than happened with 3G and 4G spectrum. Some governments understand that there is a trade-off between maximising spectrum revenues and operator’s ability to deploy networks and are choosing to trade up to expansive connectivity.
22 www.cerre.eu/sites/cerre/files/170330_CERRE_5GReport_Final.pdf
23 Two 5G variants can be identified: a limited version, in which 5G is a faster and more efficient version of 4G, specialising in enhanced mobile broadband, and an expansive version in which very fast and low
latency communications capacity is going to be available everywhere, and employed in ‘verticals’ not yet much penetrated by connectivity, such as connected cars, advanced manufacturing and e-health. See W Lemstra, ‘Towards the successful deployment of 5G in Europe: What are the necessary policy and regulatory conditions?’ Telecommunications Policy 201824 Two 5G variants can be identified: a limited
Conclusions
Over the past 25 years, spectrum auctions have become a standard means of assigning high value spectrum. They have offered a competitive means of allocating spectrum efficiently among operators, at a time of large increase in spectrum scarcity. It does not seem likely that the allocation system they replaced – ‘beauty contests’ – could have achieved this goal.
Auctions allow the government, not the operators, to capture the rents associated with that increased spectrum scarcity, and use them for various public policy objectives, including policy objectives pertaining to the mobile sector itself. Spectrum auctions have also had grafted on them, in the form of spectrum caps and coverage obligations, by means of which greater downstream competition and wider deployment of networks can be gained at the cost of some of the government revenues achieved. Obligations are an increasingly important trade off to consider in wake of the potential positive external benefits that could be associated with the expansive version of 5G.
This would be a more constructive approach than a poorly constructed ‘command and control’ approach. It retains the competitive advantages of spectrum auctions, which have brought considerable benefits to the countries which have employed them. At the same time, auctions can be adapted to the new circumstances, and the balance between government revenue and increasing deployment can be flexed. This is likely to be a better course of action than ‘throwing the (auction) baby out with the bathwater.’
To promote the reach, availability and quality of connectivity some auction best practise approaches have emerged: — Align spectrum pricing with policy goals, for example, by including coverage obligations in the pricing objective — Package spectrum into small lots to enable rational and competitive bidding
— Avoid sealed bids, reduce complexity and ensure transparency
— Avoid set asides and artificial scarcity and maximise the spectrum available per band. C-band assignments in many countries keep aside spectrum that is being held by incumbent users that ultimately must be moved out of the band
— Maximise license duration to increase the asset life and investment horizon and set out renewal criteria to reduce uncertainty around investment
— Ensure predictability and allow for budget planning by providing a clear road map of spectrum assignment over the medium to long term
Authors
Prof. Martin Cave
Martin Cave is an economist specialising in competition law and the regulation of network industries, especially the communications sector. He formerly held chairs at Brunel University (in the Department of Economics), at Warwick University (in the Business School), and in 2010-11 at the London School of Economics (as a BP centennial chair in the Law Department). Between January 2012 and January 2018, he was a deputy chair at the UK Competition Commission and a deputy panel chair at the UK Competition and Markets Authority. He has advised governments and regulator in several sectors in a number of countries, and undertook a number of independent reviews for the UK government on the regulation of airports, social housing, telecommunications and the water sector.
Gabriel Solomon
Gabriel leads Ericsson’s regulatory and policy practise across some 110 countries. He has more than 25 years international communications experience in roles spanning different business functions. Before joining Ericsson, Gabriel served as Vice President, Public Policy at the GSMA where he developed a comprehensive thought leadership portfolio and led multiple advocacy initiatives. Earlier in his career, Gabriel worked in management consultancy and finance. He established commercial technology ventures in Africa, Asia and Europe. Gabriel has a MBA from INSEAD and volunteers as Chairman of the UK Telecommunications Academy.
