U.K. regulator Ofcom has released new proposals for spectrum auctions to support fourth generation mboile service. The auctions ideally will be held in the fourth quarter of 2012, which leads some to estimate services could be available in 2013.
The new rules address some concerns potential bidders had about the dominance of the leading 3G mobile companies, and are intended to ensure a more competitive outcome. The rules aim for an outcome where there are at least four viable LTE spectrum owners.
As is expected to be the case at some point in the U.S. and other markets, the new spectrum for mobile is being reallocated from older uses, particularly broadcast TV, as well as spectrum in the higher 2.6 GHz band. Some will note that talk of such auctions has been taking place since 2009. UK 4G auction
Oddly enough, in February 2011 many European executives seemed not to believe that U.S. service providers already were activating Long Term Evolution networks. It is one of the consistent ironies in the communications business that observers believe the U.S. markets are “behind” other regions on some measure of communications intensity or development.
What isn’t so clear is what LTE and 4G really means. In what sense does Long Term Evolution and 4G mean for end users and service providers?
In a practical sense, “more bandwidth,” and easier ability to do work remotely, and on the go, is what 3G and 4G represents to users. For mobile service providers 3G and 4G represent mobile broadband revenue that is displacing lost voice, and declining messaging revenue.
In a broader sense, many expect that high-bandwidth mobile Internet access will cause disruptions of the fixed-line broadband access business, or support uptake of some brand-new killer app. But that was said for quite some time about 3G as well, and for a long time, no new unique application developed.
In fact, some would argue there was no killer app for 3G, nor will there be a killer app for 4G. Whether that is true, or proves to be sure, there is no question but that “volume” is a change, even if we cannot determine the broader impact.
Some might argue the existence of a “killer app” does not matter, in part because the “killer app is Internet access at high speed.” But is might also be accurate to say that email was the killer app for dial-up Internet access, while access to the web was the driver for adoption of fixed-line broadband. The point is that some relatively unique lead app typically arises.
Among the safe bets is that voice, email and even messaging will not prove to be those apps. “No operator can expect voice revenues any more in 10 years time.” Yoshihiko Nodera, the head of the Softbank Mobile’s Technology Development Center. LTE revolutionary?:
Nor can every service provider count on a clear, easy business case. The high costs paid by mobile operators in their bids to acquire spectrum for 3G services also affected the competitive landscape in a negative way, according to international law firm Freshfields Bruckhaus Deringer.
Mobile operators paid more than $150 billion for 3G mobile licenses worldwide but 28 percent of auctions examined involved license winners which failed to deliver 3G services. Where deadlines for roll-out were imposed, more than half (55 percent) were not met by one or more of the license winners, Freshfields Bruckhaus Deringer says.
Can many afford to bid for spectrum?
“Competition and expectations of charging consumers for data services encouraged operators to pay high prices for 3G licenses. But they also paid the price of finding it difficult to fund 3G infrastructure. In extreme cases, the combined cost meant some mobile operators failed to roll-out 3G services at all, to the detriment of consumers and the industry’s competitive landscape.”
In Germany $46 billion was spent to acquire spectrum, while in the United Kingdom $34 billion was spent. The high cost of rolling out 3G services affected two of the six license winners in Germany. One operator returned its license and another froze development of its planned 3G network. The spectrum usage rights have meanwhile been revoked, without any refund of the $10 billion paid for the spectrum.
While the five UK license winners achieved the coverage levels prescribed, one mobile operator missed the deadline to achieve this level of coverage. The UK’s competitive landscape has also reduced post-3G following the merger of Orange and T-Mobile.
Recent 4G spectrum auctions have encountered similar challenges. “The three dominant players emerged as the key winners in the 4G spectrum race in Germany. A fourth operator had to pull out of bidding for spectrum in the 800 MHz bandwidth – the frequency likely to be used for new 4G networks – which has fuelled rumours about consolidation in the Germany mobile market,” says Freshfields Bruckhaus Deringer.
“The UK’s draft auction rules explicitly aim to preserve competition but as we’ve seen with 3G and Germany’s auction of 4G, it’s debatable whether the UK mobile market will realistically continue long term in its current form post-4G. Mobile termination rates are being squeezed, voice is declining and there’s a huge amount of data coming across the networks. Where will the revenue come from?”
The point is that auctions of 4G spectrum might, or might not, affect competition in a material way. Some would-be providers will fail. But some unexpected developments also could occur, especially unique new lead apps. But it all requires spectrum. It will likely be two more years before we are able to evaluate anything more than the competitors themselves.