UK 5G Spectrum Auctions – A missed opportunity?

millionpoundsThe dust has settled after the UK’s latest round of spectrum auctions, so perhaps it’s time to step back and ask whether the outcome is good for end customers, for existing operators, for competition and ultimately the long term economy. Was it a quick short-term fix or a long term masterplan?

 

 

What was on offer

There were two blocks of spectrum available:

  • 150MHz at 3.4GHz
  • 40MHz at 2.3GHz

Both blocks are intended for TDD mode, with the 3.4GHz targeted for 5G use while the 2.3GHz block is ideal for 4G capacity expansion.

The licence period is 20 years. Spectrum can be traded or transferred to third parties but at this stage cannot be leased. Ofcom's information memorandum provides comprehensive details.

Who else is affected

It’s never easy to free up spectrum, and existing users ranging from Defence to hearing aids have had to be considered. One concern with the 2.3GHz relates to medical equipment. Ofcom wrote to all hospitals to warn them of potential consequences, asking telecom operators to work directly with hospital trusts when locating basestations nearby. Other uses can be very occasional – one example is where the Ministry of Defence makes use of 50MHz of spectrum only in a remote part of Scotland for just 6 hours per year.

Who won what

The list below shows the outcome for 3.4GHz, with all four mobile incumbents winning a similar share for a total of around £1 billion ($1.4 Billion)

  • Vodafone 50MHz
  • BT/EE 40MHz
  • O2 Telefonica 40MHz
  • Three 20MHz

Telefonica O2 also grabbed the entire 2.3GHz block of 40MHz for around £200 million (approx $270 million)

Three’s special case

Although it may seem that Three lost out, it had previously acquired UK Broadband, including a swathe of spectrum totalling 208MHz between 3.4 to 3.8GHz allocated in 2003 for fixed wireless broadband services. Although the 15-year lease expires this year, Ofcom had already agreed to extend it on an annual basis.

40MHz could quickly be repurposed for 4G or 5G mobile services and is within the 3.4GHz block being auctioned. This will need to be agreed with Ofcom but would give Three a total of 60MHz of 5G spectrum – more than any other operator.

So although some reporters position Three as having lost out, or not having spent enough on these spectrum auctions, it could be argued that the £250 million spent to acquire UK broadband including up to 170MHz of spectrum compares favourably with the £302 million that EE paid for 40MHz of spectrum alone. The issue is not clear-cut because Three will likely pay additional annual licence fees and need to agree terms with Ofcom.

Business as usual

While the auction did raise money for the UK government, it’s effectively a tax on mobile service that all customers will ultimately fund from their monthly fees. Customers might prefer that money being spent on new infrastructure and network expansion. Governments elsewhere assign cellular spectrum to operators but insist on tough coverage and capacity within set timescales to encourage investment.

There was one newcomer to the auction, small cell vendor Airspan, who was effectively priced out by the dominant players.

It would seem that operators are likely to expand their existing sites with 5G and roll out new capacity in the next few years. We’ve noted before that 90% or more of 5G radio equipment will be supplied by the existing major RAN vendors. This is stifling the cellular industry by focussing innovation mostly on yet another faster radio interface.

Missed opportunity

What the industry needs is a dose of fresh competition, not just in radio equipment but in business models, even expanding the market to non-telco private networks.

Airspan’s intention was to build a shared infrastructure which would be wholesaled to the existing operators. Economies of scale, together with the benefits of allocating much wider bandwidth to each 5G carrier, can be argued to lower costs but it seems operators still want to differentiate themselves by using their own dedicated spectrum.

I’m told that 5G works best when using much larger chunks of bandwidth than typically used for 3G or 4G, something like 100MHz is where you start to see really significant benefits. Initial testing using 40MHz chunks suggest that 5G at 3.5GHz will match the coverage of 4G at 2GHz today, but with the chance of higher speeds. It will allow existing cellsites to continue to expand capacity giving a similar footprint. Handset vendors look forward to another complete refresh cycle where everyone is expected to want to upgrade to the latest handset to benefit.

But while much of the traditional telco world and mainstream vendors continue to hype 5G, it seems to me that there has been a missed opportunity to introduce a new business model. There are still plenty of buildings (especially newer ones) with inadequate 4G service today. These would benefit greatly from in-building solutions, and don’t need anything more than 4G to achieve very high spectral efficiency, high data rates and reliable service. It's also the case that 4G has plenty of evolution and life left in it.

It seems to me that making the 2.3GHz band available for non-telcos on a localised basis – whether as sophisticated a scheme as CBRS or just on a simpler building by building assignment – could have opened up a whole new ecosystem that augments rather than competes with existing telcos. It would have allowed Europe to experiment with new business models, introducing new vendors, neutral hosts and related specialisms. If you are in a building where you can’t make a reliable phone call or need to stand by the windows then 5G is unlikely to make a difference.

So while Ofcom search around for some more frequencies at 3.8GHz to auction off, I’d encourage them to reconsider the overall economic benefits and argue that these should be made available for innovation by third parties rather than again just being sold off to telcos who already have stockpiles of spectrum. 

Elsewhere, the Italian regulator Agcom has just announced a 5G auction in September where they hope to raise €2.5 Billion for 1.2GHz spread across low, mid range and mmWave bands. While their announcement also encourages new entrants, I am doubtful that anyone other than the existing mobile operators will win any of the existing cellular bands.

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Comments   

#1 Graham Payne said: 
Good summary David and a good balanced view. One reason for charging a lot for spectrum is that it also helps drive a business model and value to the Operators who acquire spectrum, this in itself encourages the Operator to invest in network build and upgrades. The model has worked and so it is easy to see why there is reluctance to change it. There are areas that are left wanting though where shared spectrum could be an enabler for wider coverage, it probably needs a different business model though where the main Operators retain the customer relationship (so the network sharer is not a direct competitor of theirs). The sharer then gaining the income they need to fund the additional network rollout from the end users and not just the Operators as the end users in hard to reach places now recognise they may have to pay extra to get connected and covered.
+1 Quote 2018-05-24 18:29
 
#2 Paul Senior said: 
David, Your article correctly explains why we wanted to acquire some spectrum in this auction. Our operating company Dense Air, which is focused on building shared wholesale "carrier and carriers" networks. The networks are designed to enhance and extend existing mobile networks in dedicated spectrum with small cells and the business model needs reasonably priced spectrum. We felt that $100m USD was sufficient, but it wasn’t. Shared “neutral host” networks are the only way to improve 4G / 5G networks and make the economics work for all concerned. The spectrum policies that most regulators still embrace are now out of date and do not reflect the realities of 2018 and the use of higher frequencies which drives small cell centric deployments. It a huge pity that a business like ours headquartered in the UK can’t deliver services into the UK. We will therefore focus on the markets where we have acquired spectrum, namely Ireland, Belgium and Portugal.
0 Quote 2018-05-25 11:08
 
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