T-Mobile uses FWA and digital divide as latest Sprint merger justification

T-Mobile US has announced the launch of an LTE Fixed Wireless Access service, which could address the connectivity needs of 50 million people, assuming the Sprint merger is approved of course.

It hasn’t been billed as an Uncarrier move from T-Mobile, however it has the potential to be quite disruptive. The team has pointed to statistics which suggest 61% of rural customers either have no or only one home broadband services available to them, offering a significant opportunity for CEO John Legere and his magenta army, if they can prove the concept works effectively.

In the first instance, T-Mobile plans to invite 50,000 customers to participate in the live trial, though should the bureaucrats approve the Sprint merger, the team would be able to open this up to 9.5 million customers by 2024. And thanks to 5G, T-Mobile is promising speeds “in excess” of 100 Mbps to 90% of the forecasted FWA footprint, also by 2024.

“Two weeks ago, I laid out our plans for home broadband with the New T-Mobile,” said Legere. “Now, we’re already hard at work building toward that future. We’re walking the walk and laying the foundation for a world where we can take the fight to Big Cable on behalf of consumers and offer real choice, competition and savings to Americans nationwide.”

Although FWA is not a long-term, realistic alternative to fibre, at least not on the current airwaves, T-Mobile could certainly craft a useful position here. Pricing the service at $50 per month, the team suggests customers could save $360 per year, assuming the average monthly cost of home broadband is $80.

For T-Mobile this is perfect timing to plug the benefits of the Sprint merger and gain the interest of influential politicians. With the 2020 Presidential Election machine beginning to crank into first gear, potential candidates and the President himself will be looking for soundbites to rollout to the Middle America rallies. The FWA service ticks two boxes here.

Firstly, with so many rural consumers (and potential voters) either unable to purchase a home broadband service, or only having a single option, T-Mobile is providing an answer. In most cases, the reason home broadband is not available is due to an inability for the telco to prove ROI or the geographical landscape makes it incredibly difficult. FWA addresses these problems.

Secondly, $360 is a lot of money. T-Mobile has a track record of undercutting rivals while delivering a service which is at least on par. This might well be an offering which will attract the interest of many.

Should any politician be involved in forcing the T-Mobile and Sprint merger through, it would be an excellent anecdote for the ambitious politicians to take to potential voters. Not only are they delivering Middle America the internet, they are doing it cheaper than what is available to everyone else around the country.

T-Mobile is promising the merged company will use a low-cost structure to aggressively capture market share by undercutting rivals. This strategy is not only a chance for Legere to further irritate AT&T and Verizon, but it is a massive plug for the merger. In an FCC document, T-Mobile suggests by “monetizing available spectrum and leveraging off of other deployed network assets, the in-home service will be profitable on its own”. The underlying message is quite clear; look what we can do once you greenlight the merger.

Interestingly enough, T-Mobile seems to be fighting the competition concerns in the wireless market, with the opportunity to enhance competition in the wireline market. Soon enough, the merger judges will have to decide what is more important; maintaining the four MNO balance or creating more competition in the home broadband arena.

“These pro-competitive and pro-consumer in-home broadband benefits are clearly merger-specific, verifiable, and compelling considerations to inform the Commission’s overall review of the merger’s effects on competition and the public interest,” the statement to the FCC reads.

Another point which will gain the attention of the pro-consumer politicians and bureaucrats is the promise of free hardware. T-Mobile is promising the LTE router will be provided and installed at no-cost to the consumer, and as soon as 5G is available in the area, the upgraded 5G router will be provided free of charge.

The merger is still hanging in the balance, but the promise of increased competition in the broadband world, especially with the prospect of a race to the bottom, might turn some heads. The pros and cons of the T-Mobile/Sprint merger are starting to become very interesting

Silicon Valley doesn’t know where to look in the 2020 Presidential race

Traditionally Silicon Valley has supported Democrat Presidential candidates but, with the resident internet giants increasingly becoming a political punching bag, this might change very quickly.

More specifically, Silicon Valley tends to lean towards ‘progressive’ Democrats. Many of those who would want to be included in this list have been running events in California recently to woo voters and potential donors alike, but these are candidates which have not been friendly to the internet giants in recent months.

Some of those who would call themselves ‘progressive’ Democrats include California Senator Kamala Harris, Massachusetts Senator Elizabeth Warren and New Jersey Senator Corey Booker, all of which have made moves against the technology giants for varying reasons. Harris and Booker have sponsored or supported bills which would place greater scrutiny on acquisitions, while Warren made the outlandish promise to break-up big tech and reverse certain acquisitions.

While Warren’s promise might end up meaning very little, we suspect there is too much of a focus on popularity instead of practicality, she has been the focal point of some criticism. Texas Representative Beto O’Rourke, another confirmed candidate, poked fun at Warren’s approach instead suggesting the digital economy should be more tightly regulated, avoiding the difficulties of breaking up incredibly complex, private organizations.

The prospect of new regulations is certainly a better option for the internet giants than Warren’s alternative, however O’Rourke is a bit of a difficult horse to back right now. Looking at O’Rourke’s website, it offers little (in fact, zero) insight into potential policies, but if you want to buy a t-shirt this is the place to go.

Of course, regulatory reform is top of the agenda for many of the potential candidates, and the technology industry is a hot topic here as well. Let’s start with the positives.

The majority of the candidates on show were supporters of net neutrality, battling against FCC Chairman Ajit Pai’s mission to undo the protections. Of the potential candidates, Washington Governor Jay Inslee might steal the crown here.

California might have grabbed the headlines for introducing localised net neutrality rules, potentially paving the path for a constitutional crisis, however it was Inslee who was the first to put pen to paper. Washington’s localised net neutrality rules were introduced in March 2018, six months ahead of California.

More positive news focuses on the Lifeline Program, an initiative which helps poorer families access broadband options. This is another area which felt the fury of Pai’s administration, though several of the candidates opposed the cutting of funds. Warren, Vermont Senator Bernie Sanders and New York Senator Kirsten Gillibrand are three candidates which would support the Lifeline Program.

Former Maryland Congressman John Delaney is another who would want to shake the infrastructure game up. Sticking with the rural digital divide, Delaney is proposing the formation of an Infrastructure Bank, with funds of $50 billion, to help close the virtual chasm. This might sound attractive, but Delaney shares the same anti-China rhetoric as President Donald Trump. And that has been working out really well.

Should one of these individuals win the keys to the White House, the FCC could be in-line for yet another shake-up.

Now onto the negative side of regulatory reform. The privacy and data-handling activities of the internet giants have come under a lot of scrutiny and criticism over the last few months. This is unlucky to change, and perhaps will become a lot more aggressive as politicians search for PR points. This is a popularity contest after all.

Almost every candidate is calling for more regulatory reform, pulling down the curtain which hides the data machine fuelling the sharing economy. No-one who is involved in the data sharing economy, internet giants and telcos alike, want too many of these practises exposed as it would lead to public backlash. The industry has allowed the education of the general public to fall too far behind technological developments; any bold revelations will be scary.

Two candidates are setting themselves out from the pack with bold regulatory change, Minnesota Senator Amy Klobuchar and tech entrepreneur Andrew Yang.

Klobuchar’s idea is to introduce a digital dividend on participants of the sharing economy. A levy would be placed on any company which transfers personal data to a third-party, penalising those who monetize data. Those who collect data and use it internally, current or new product development for example, would not be included in the tax.

Yang on the other hand is perhaps proposing the most revolutionary idea; Universal Basic Income (UBI). Effectively, every person over the age of 18 in the US would be entitled to apply to receive $1,000 per month. Yang claims one in three jobs is under risk from automation and AI, therefore the money will help people compensate for this.

The UBI would be funded by consolidating all welfare payments for efficiencies, a new value added tax (VAT), new revenues through increased consumer disposable income and improvements to other areas such as healthcare. However, we suspect this would not cover the outgoings, so it would not be unfair to assume a tax would be placed on those companies benefiting from automation.

Another development mid-way through last year was an attack on the state sales tax regime which the eCommerce giants have enjoyed for so long. These rules would effectively end tax avoidance benefits so many national players have enjoyed by locating head quarters in states like Delaware. Gillibrand, Sanders, Warren and Klobuchar were Senators to voted in favour of the state led digital sales tax.

What is worth noting is policies are still in their early days, and the genuine lobbying from industry will not have started yet. Who knows what the headline policies will be in the run-up to the 2020 Presidential Election, but the Democrats aren’t looking as Silicon Valley friendly as previous years.

BT pleads for open access to street furniture

BT is attempting to rally the industry in an attempt to convince local authorities to ditch the current exclusive concessions model in UK cities in favour of an ‘Open Access Model’.

As it stands, many local authorities operate a concessions model which grant a single player exclusive access to council-owned street furniture, such as lamp posts, to place mobile network equipment. This might seem attractive to the councils from a revenue perspective, but BT is arguing this will be to the detriment of the digital economy in the long-run.

“While the concessions model made sense in the early 2010’s when it first came into common use, the market and regulatory landscape have changed, and it’s become clear that exclusivity agreements act as a barrier to further 4G and 5G investments,” said Paul Ceely, Director of Network Strategy for BT.

“Government initiatives such as the DCMS Barrier Busting taskforce are showing the way, but we believe that industry needs to act. We are leading the way by handing back exclusivity in nine key areas.”

BT currently operates nine exclusive concessions (Glasgow, Cardiff, Brighton, Plymouth, Carlisle, Newcastle/Gateshead, Nottingham, Gloucester and Leicester) and is proposing to end these contracts should the result be an open access environment. The new model would grant all mobile operators and infrastructure companies access to street furniture, paying the local authorities a flat, consistent rate.

Although it is not a new gripe, the bureaucratic and regulatory environment across the UK has once again been blamed for connectivity problems. Almost all the operators have had a moan at the red-tape wrapped regulatory landscape at one point or another, but an open access model would appear to be a sensible step forward to encourage improved mobile coverage and experience.

However, what should be worth noting is there are authorities who have made progress in this area without prompts from industry.

“One of the reasons why the West Midlands was chosen as the location for the UK’s first region-wide 5G test bed was our commitment as a region to do what it takes to work with operators to get the 5G networks we need built in the fastest, fairest and most cost effective way,” said Henry Kippin, Director of Public Service Reform at the West Midlands Combined Authority.

“The timing and spirit of this Open Access initiative is ideal as we will make faster progress through operators and public services working together to a shared agenda so that 5G can fulfil its full potential in driving economic growth that can benefit all our diverse communities.”

While some small-minded public servants might point to the lost revenue when ending the exclusive concessions, you have to look at the long-term benefits. The West Midlands is now home to numerous 5G test beds, R&D facilities and is home to hubs of excellence for emerging technologies.

Whether the local authorities pay attention to logic is an entirely different matter, but any suggestions to decrease the red-tape complications of UK bureaucracy should be welcomed by all.

Three UK readies assault on broadband market

While its latest financials might not look mind-blowing, Three UK is steading the ship as it casts its eye towards the promised land of convergence and 5G.

Convergence is not really much of a buzzword anymore, such is the accepted nature of the model across the telco industry, though Three is seemingly readying itself for a broader push into broadband segment. The first job is to rebrand Relish, which will happen next month, and the next box to tick will be 5G.

“We are well set up for some transformational shifts in 2019 for our customers and our employees,” said Three UK CEO Dave Dyson. “It will be a year when our customers will start to see the real benefits of the next generation of 5G “mobile” technology, a technology that will not only replace 4G, but will also replace the need for wired broadband services.”

With the new ‘Three Broadband’ branding and a 5G network launching in H2, the Three marketers will have plenty to talk about when attempting to add to the 800,000 broadband customers it already has. In terms of the current state of play, Three said 10% of its current customer base is already ‘converged’ but 5G offers an opportunity to accelerate growth in the broadband business.

The team feels it has an advantage over rivals with its 5G holdings, offering superfast broadband connectivity which is not reliant on fibre. Whether UK consumers are swayed by the Fixed Wireless Access promise remains to be seen.

Looking at the position of the business, it would be fair to describe the last twelve months as healthy without being particularly good. This might not sound the most positive, but the raw materials are certainly in place for Three to make some very strong strides forward.

Total revenues over the last 12 months rose 1% to £2.4 billion, while total network connections reached 11.3 million. 99% of new customers were brought in through Three’s own sales channels, churn is down to 1.1% and net promoter score has reached a new high of +15. Three might not have torn up many trees last year, but the foundations of the business are very healthy.

Looking forward, the team is in the testing stages for its fully-virtualized 5G-ready cloud core network, while there are now 21 data centres live on the network. The business has also signed an agreement with SSE to improve mobile backhaul and 3G spectrum is being continuously re-farmed for 4G. All these initiatives will incrementally improve the customer experience.

“Three is fully embracing a business transformation to take maximum advantage of the opportunities digital businesses enjoy,” said Dyson. “2018 was the year when we set the foundations in place for us to jump up to the next level and become the UK’s best-loved brand by our people and customers, meeting all our customers’ connectivity needs.”

This kind of feels like a ‘calm before the storm’ scenario. Once the broadband rebrand is finished and 5G launched, we feel there will be some very aggressive moves from Three, staying true to its data-orientated roots but heavily integrated convergence messages on-top.

BT shared rural network snub is not as it seems

Everyone agrees that there needs to be some sort of collaboration to meet the extra-ordinarily difficult coverage objectives of the Government, but BT is snubbing rivals’ latest plans?

According to The Times, O2, Vodafone and Three have tabled a plan which would see all four of the UK MNOs pool resources to tackle the digital divide. Shared infrastructure would reduce the financial burden of investing in geographical regions which offer little potential for ROI, due to the sparse or non-existent population.

At a breakfast briefing in London, Vodafone UK CTO Scott Petty laid out the concerns in a relatively simple fashion; sheep don’t pay phone bills. This is the challenge the telcos are currently facing; the vast majority of the UK’s population have coverage, but geographical demands of the government are a different kettle of fish (or herd of sheep). When no-one lives somewhere, what is the incentive to invest in infrastructure to provide coverage?

While this might seem like a reasonable approach, BT is reportedly taking issue with the plan, at least according to The Times.

“BT has already invested heavily to create the widest 4G coverage in the UK, and we are keen to collaborate with Government and industry to extend rural coverage into areas where there is none today,” BT said in a statement. “To this end, we have recently proposed a new model for consideration over the coming weeks.”

It has been widely reported BT is snapping the olive branch put on the table from rivals, but BT suggests this is just PR spin.

Reading into this statement, BT is not objecting to the idea of collaboration, the spin which has seemingly been played over the last few days, but suggesting a different approach. And from our perspective, it is a completely reasonable objection to make.

When you look at different coverage surveys and 4G connectivity analysis reports, EE is regularly crowned the best performer overall, and takes top-spot for most of the regional measurements as well. There is a simple reason for this; EE has spent more money improving its geographical coverage than its competitors.

While this is an achievement which should be applauded, the idea of rural roaming and generic shared infrastructure would erode this competitive advantage which it has been building towards. Don’t forget, EE has not been building out this 4G network because it is run by people who are just nice guys and want to help everyone in the UK. This investment has been made to give the team something to shout about and create an advantage when attempting to secure more customers.

EE wants to be able to go to potential customers and tell them they won’t only have better signal in all the normal places, but everywhere they could possible think of going. It’s a long-term strategic decision to put it in a stronger position than its rivals. Should there be any surprise EE does not want its rivals to benefit from the hard work, foresight and investments it has been making for its 4G networks?

Reading between the lines, this is what the objection is based around. BT is prepared to have discussions on collaboration to provide coverage in areas where there is none but allowing competitors to piggy back on its investments is a commercially idiotic idea. Why would it give away such a competitive edge in an industry where profits are so difficult to come by? It has made investments in commercially unattractive areas, so its rivals should have to as well.

From BT’s perspective, this is simply an attempt for rivals to increase connectivity coverage, but not having to pay for the achievement. Collaboration should be focused on areas where everyone is facing complications, not those where everyone aside from BT has an issue.

Another point to consider is whether a shared network would actually work from a differentiation perspective? The telcos are fighting for subscriptions, but if they are all using the same network in the rural markets, it becomes nothing more than a race to the bottom, eating away precious profits and marching towards utilitisation.

Finally, does such a broad-brush approach to geographical coverage actually work? Does the discussion about generic rural network sharing detract from the critical point, which should be focus on areas which have zero coverage, instead of those which have partial coverage? This is a six of one, half a dozen of the other argument, as while it sounds reasonable to concentrate on the areas which are complete data black spots, try telling that to Joe Bloggs who is potentially being screwed by only having a single provider to choose from.

This is an incredibly complicated argument, most of which has not been considered by the initial blame game which has been building over the last few days. When you take the nuances into consideration, there is no right answer, and neither are any of the suggestions wrong. In truth, something has to be prioritised, and not everyone is going to be happy with the final decision.

It might be easy to hurl blame towards BT/EE for its objection to a collaboration plan, but to do so without considering the commercial realities of the telco industry is incredibly lazy. BT/EE is objecting to this proposal, not to the idea of collaboration, but so would any other business which had built this position.

Qualcomm lands roundhouse in Apple legal battle

The on-going legal battle between Qualcomm and Apple has taken a twist as the US District Court for the Southern District of California has ruled in favour of Qualcomm.

The court has decided Apple’s iPhone 7, 7 Plus, 8, 8 Plus and X infringe two Qualcomm patents, while the iPhone 8, 8 Plus and X devices infringe on a third. As a result, the jury has awarded Qualcomm $31 million in damages.

“Today’s unanimous jury verdict is the latest victory in our worldwide patent litigation directed at holding Apple accountable for using our valuable technologies without paying for them,” said Don Rosenberg, General Counsel for Qualcomm.

“The technologies invented by Qualcomm and others are what made it possible for Apple to enter the market and become so successful so quickly. The three patents found to be infringed in this case represent just a small fraction of Qualcomm’s valuable portfolio of tens of thousands of patents. We are gratified that courts all over the world are rejecting Apple’s strategy of refusing to pay for the use of our IP.”

The three patents support different functions on iPhones, all of which has become normalised features of the devices. Patent No. 8,838,949 enables ‘flashless booting’, removing the need for a separate flash memory and allowing smartphones to connect to the internet quicker after being turned on. Patent No. 9,535,490 speeds up internet connections. Finally, Patent No. 8,633,936 enables high performance and rich visual graphics for games, while also increasing battery efficiency.

The $31 million bill will actually mean very little to Apple. Looking at the iLeader’s 2018 full year results, it would take just under 62 minutes Apple to generate revenues to cover the $31 million, though it does set precedent around the world.

Alongside this ruling in San Diego, courts in China and Germany has also ruled Apple has infringed Qualcomm patents, questioning whether Apple is legally allowed to continue sales not only in these countries, but other territories around the world. In Germany, Apple has been barred from selling any iPhone 7 and 8 models, while in China all devices from the iPhone 6 to the iPhone X have also been banned from sale.

The legal battle between two of the digital economy’s heavyweights has been dragging on for some time now, but this round has been undeniably chalked up to Qualcomm.

OneWeb bags another $1.25 billion for global satellite mission

London-based satellite company OneWeb has announced it has secured an additional $1.25 billion in new capital, taking the total funds raised to $3.4 billion.

Having launched it first assets into the skies on February 27, the funds will be greatly welcomed considering the scale of ambitions here. In its mission to deliver high speed, low latency, seamless broadband access everywhere on Earth, from Q4 the team will begin monthly launches of 30 satellites to create an initial constellation of 650 satellites. OneWeb certainly has big ambitions.

“This latest funding round, our largest to date, makes OneWeb’s service inevitable and is a vote of confidence from our core investor base in our business model and the OneWeb value proposition,” said Adrian Steckel, CEO of OneWeb.

“With the recent successful launch of our first six satellites, near-completion of our innovative satellite manufacturing facility with our partner Airbus, progress towards fully securing our ITU priority spectrum position, and the signing of our first customer contracts, OneWeb is moving from the planning and development stage to deployment of our full constellation.”

While the images and PR story on the company’s website would leave some to believe this is a philanthropic mission to connect the unconnected, such good will would not attract weighty investments from the likes of Softbank, Grupo Salinas and Qualcomm. The addressable niches are quite broadly spread and certainly profitable.

“OneWeb has extended its first-mover advantage and is on track to become the world’s largest and first truly global communications network,” said Marcelo Claure, CEO of Softbank International.

“At SoftBank, our aim is to invest in transformative companies at the leading edge of technology disruption. OneWeb’s potential is undeniable as the growth in data from 5G, IoT, autonomous driving and other new technologies drives demand for capacity above and beyond the limits of the existing infrastructure.”

OneWeb has stated it will begin to offer commercial services from 2020, providing a neutral Internet access service, allowing any MNO or ISP to extend their services over OneWeb IP connectivity. The team is also pitching the constellation as a ‘5G Ready Network’.

OneWeb’s priority rights to a large block of globally harmonized spectrum and its Low Earth Orbit (LEO) constellation design will aim to create what it describes as a ‘truly global service’, addressing the connectivity needs of the autonomous vehicles, maritime logistics, offshore oil rigs and drill-ships, as well mobile backhaul in some of the more challenging geographical environments.

Although the concept of satellite connectivity has become relatively unfashionable in recent years, the demands of ubiquitous connectivity are creating a resurgence of interest. The perception of satellite might not be the most attractive, but it is quickly becoming a critical component of the connectivity mesh.

UK and Germany are a bit rubbish at mobile – Opensignal

A new study from mobile analytics company Opensignal notes the UK and Germany are falling behind in terms of mobile performance.

It took a look at the two operator groups that have networks in both countries and found they all deliver relatively low mobile broadband speeds in those two countries. As you can see in the charts below, Telefónica does a fair bit worse in the UK and Germany than in Spain, but maybe that’s to be expected since it’s a Spanish company. However the trend continues with Vodafone, for which the UK and Germany are two of its worst performers.

opensignal telefonica

opensignal vodafone

“So what’s the reason for these relatively poor mobile broadband speeds in Germany and the U.K.?” said Opensignal Analyst Peter Boyland. “It certainly isn’t market maturity or competition, as both countries have had mobile networks for decades and levels of competition, numbers of operators, etc. are comparable with their neighbours.

“Topographically, both countries have challenges in terms of size and population density, but no more than, say, Italy or Spain. It would be easy to blame poor performance on underinvestment in network infrastructure, but the reality is a combination of many factors including regulation, availability of spectrum, and mergers and acquisitions among network operators.

“The fact remains that Germany and the U.K. are punching well under their weight in terms of mobile network speeds. Both countries are on the verge of 5G launches, but it is likely to be some years before the benefits of these new networks are felt by most mobile users. And there is growing discontent among the business community in Germany, with claims that poor broadband speeds are hindering economic growth. Germany and the U.K. may not be able to wait for the 5G opportunity, as their operators urgently need to make improvements in their mobile network experience today.”

Something’s certainly going on when two major operator groups can only manage around half the performance in the UK and Germany as they can in their leading markets. As Boyland said this situation will be the product of a number of factors, but our gut-feel is that regulation and spectrum availability are probably the most significant of them.

EE takes step towards content aggregator model

Content is a tricky topic to discuss around EE and BT, such is the scale of the disaster over the last few years, but a tie up with Amazon Prime and MTV Play is a step in the right direction.

The new content offer will see EE customers receive six-month memberships to both Amazon’s Prime Video service and MTV Play. The news starts to make a more comprehensive content platform for the MNO, with customers already able to access Apple Music and BT Sport, all of which is covered under the EE Video Data Pass, a zero-rating initiative available to all customers.

“It’s our ambition to offer our customers unrivalled choice, with the best content, smartest devices, and the latest technology through working with the world’s best content providers,” said Marc Allera, CEO of BT’s Consumer division.

“In offering all EE pay monthly mobile customers Prime Video and MTV Play access, in addition to BT Sport and Apple Music – we’re providing them with a wealth of great entertainment they can experience in more places thanks to our superfast 4G network, and soon to be launched 5G service. So, if they want music on a Monday, telly on a Tuesday, films on a Friday or sport on a Saturday, we’ve got something for them.”

While the content play over the last couple of years have been pretty dismal this is an approach to content and diversification which we like. It allows the telco to leverage the scale of their customer bases, while also adding value to the existing relationship with said customers.

Content fragmentation is an irk for many customers, not only because of the various apps which need to be installed, but also the number of different bills. EE doesn’t seem to be addressing the first issue but consolidating bills to a single provider might well be of interest to some customers. It also has the advantage of making EE a ‘stickier’ provider, perhaps having a positive impact on churn.

“Content is a key differentiator for telcos,” said Paolo Pescatore of PP Foresight. “However, consumers are now spoilt for choice resulting in too much fragmentation. Telcos are very well placed to aggregate content, integrate billing and provide universal search. Whoever achieves this first will have a significant advantage over their rivals.”

Sky is one of the companies which has had a good crack at addressing the fragmentation challenge, Sky and Netflix content is available on the same platform and through the same universal search function, though EE’s push on the mobile side would certainly attract attention. Consumers no-longer consider entertainment as simply for the living room, new trends show more preference for on-the-go content.

While this is a step in the right direction for EE, this is only one step. The content options need to offer more depth to meet the demands of the user, while streamlining all the content into a single app would be a strong step forward. It would certainly be difficult to convince partners to hand over customer experience to a third-party, Netflix has shown much resistance to this idea making the Sky tie-up all the more impressive, though whoever nails this aspect of the aggregator model would certainly leap to the front.

Spectrum Assignment Policies

Telecoms.com periodically publishes expert third-party insights on the industry’s most pressing issues. In this piece, the 5G World team invited Analyst Gerardo Mantilla to share his knowledge and experience on spectrum management around the challenges and new market opportunities for 5G.

Since the telecommunications opening in America, which began around the year 2000, the spectrum allocation policy has been evolving. In many Telecommunications Laws several methods were established. The spectrum allocation processes were based on Spectrum Auction and Beauty Contest. These last by compliance or assessment of parameters. In the beginning, the method used for the assignment by the majority of the regulators were Spectrum Auction. Where the clear intention was to obtain as many resources as possible from those interested in exploiting mobile services.

In some countries, these processes reached large sums of money in the market and announced as a great achievement by governments and regulators. But truth is, this did not necessarily translate into the establishment of the necessary networks for the provision of mobile services. There were even cases in some countries, where after the assignment the operators did not invest in telecommunications networks or provide services. They simply used that spectrum, as an investment they hoped to resell later for a profit.

Subsequently, the regulators reacted to this situation, using spectrum allocation models based on the parameter evaluation method, trying to exchange the spectrum for compliance with coverage obligations. With the intention of improving infrastructure and service access by users.

An example of these cases was Venezuela- where regulators used a mixed method of fixed base price and coverage obligations. In this case, the operators paid for the 3G spectrum bands, in the 1900 MHz bands, an amount of $120 Million and had the fulfilment of coverage obligations, derived from spectrum allocation.

However, this resulted in mobile networks with ample coverage, that is, the operators tried to obtain country cover with as few base stations as possible, but covering large amounts of land. As a result, the operators complied with their coverage obligations, but on the other hand, the number of base stations was extended throughout the territory but their concentration in the high traffic areas was very fair to offer a quality service.

Subsequently, with data services such as those used in 3G and 4G technology, operators realized that they needed to increase the number of base stations per covered area and thus offer better connection speeds. In some countries, operators increased the base stations number per covered area. In others, they managed to obtain a greater amount of spectrum to compensate for a low number base stations on interest area.

In some cases, the decision to compensate for the use of more spectrum with a lower base stations number was taken because of restrictions found in some markets for the establishment of base stations, in addition to the time required for their construction. In 2005  discussions began on the possible damage to health due to excess exposure to radio-electric emissions.

This resulted in operators having great difficulty installing their base stations in populated areas, especially on the residential building’s terraces. Therefore, the need to compensate for this difficulty with the allocation of additional spectrum for these networks became more evident.

But some regulators did not understand this situation and imposed policies of spectrum allocation caps, called Spectrum Caps. With which, it established a maximum spectrum amount that an operator can have in the market. Also with the intention of distributing the spectrum in an equitable manner and ensuring real market competition, in addition to allowing the entry of new players on the mobile market.

However, the spectrum is a limited resource and the mobile market has raised a lot of interest beyond traditional mobile operators, so more space was introduced in the market for new competitors, who could use the established networks operators and compete in equal conditions. From there arise, Mobile Virtual Network Operators, in many countries such as Mexico, Chile, Colombia and others.

However, these policies, although have brought benefits to customers and mobile operators, have saturated the telecommunications market. In addition to this, the regulatory policy and the mobile market that has been investment-intensive have limited the profit margins of mobile operators. In some cases, their EBITDA in percentage terms has fallen by more or less 10% or 20% in recent years.

5G challenges

The fall in the profit margins of the investors on the mobile market has brought as a consequence that the mobile operator’s investment capacity on establishment new telecommunications networks such as 5G, has been limited. It is enough to analyze their numbers and the discourse in different discussion forums such as the latter, held at the beginning of December 2018, Argentina, by the GSMA. Where many mobile operators, expressed little interest in moving forward with the deployment of 5G, at least until expecting a return on investment of 4G networks.

However, some countries such as Mexico, Chile, Brazil and Colombia, its regulators have expressed interest in leading the 5G deployments. But for this, the spectrum policy allocation must take a turn that takes into consideration all these elements that have been mentioned previously.

For all this, we consider that the way in which the radio-electric spectrum is valued must change. As well as, the allocation processes and real objective of these allocations have evolved, and understanding that the market needs is a real boost so that investors can have clear incentives to carry out the 5G network deployments.

In this sense, our vision on spectrum prices is that it should deprive the investment incentive instead of obtaining a higher price for the spectrum. Therefore, our methodology is based on a projection of users, market share, income, CAPEX and OPEX, with which obtain an estimate the spectrum price.

This estimate considers the real spectrum price, made up of three clear elements: the initial payment derived from spectrum auction or its allocation, the investment in coverage obligations and the additional taxes derived from spectrum exploitation.

Understanding, the spectrum granting is an incentive to obtain greater revenues from the Treasury and National Regulatory Authority. However, the ultimate goal of each assignment is to improve access to services by telecommunications users. In addition, the increase in investments by operators. This has a greater advantage in the economy of developing countries than that obtained by the payment of spectrum allocations.

This is why we believe that establishing the spectrum valuation based on the investments of the operators, bring greater benefits to the countries economies, since it has a positive impact on direct and indirect jobs, better services coverage that directly impact the economic development of the areas that are not economically attractive for operators.

In another point of view, if changes or fiscal incentives are established for operators due to investments increase, the benefit of investments is directly transferred to the country’s real economy. What brings greater benefits compared to increase in regulator and country budget. These are benefits that end up being more direct, creating jobs and improving coverage that directly impacts the population economy. Without having to wait for the government to distribute the economic benefit obtained from the spectrum auctions.

As mentioned above, our methodology assesses the spectrum based on the investments made by the operator through the years of licenses duration. An example of this is that the spectrum assessment methodology that we propose allows obtaining an investment commitment from the operator. Holding this investment to the spectrum allocation, which favours the investments increase in exchange for a financial benefit or spectrum price reduction.

For example, suppose that the operator commits to making investments in the order of $ 50 Million, in the first 5 years of 5G network deployment. But if it is established that the regulator follows up on this investment commitment, in order to guarantee compliance, tax benefits may be fixed in the next year, such as a 1% discount on the tax payment, in exchange for an increase of 10% the initial investment. Even if the operator does not comply with the investment commitments, an increase in the tax payment of a similar or slightly higher percentage may also be established, in order for the operator to value maintaining its investment commitment.

Obviously, this is an innovative change in regulatory policy and, intrinsically, it must be evaluated whether the current regulation allows it or not, in each country where it is desired to implement. But it is a new way of guiding regulatory policy in general terms, to really guarantee the key factor of any regulation of services, which is to encourage investment levels.

Of course, we understand that, like any change, this will have favourable and unfavourable opinions from different parties involved in the country’s economic policy, particularly where this new regulatory model is evaluated. However, we are sure that the economic benefit in the country will be much greater, than if only a base price is established to obtain the spectrum, but it is not promoted beyond what the operator plans to invest.

For most countries, the increase of investments is key for the economic development, but understanding also, that the economic benefit of operators is limited to the amount of population that each country possesses, its average income per person and the GDP of the country in question. In addition, telecommunications has an important specific weight in the GDP of the countries.

If necessary, to increase these investments without promoting telecommunications services high prices, it is crucial to establish better policies to encourage investment. In such a way, that this investment incentive is not entirely transferred in an increase in prices to customers, which translates into a lower possibility for the population to access telecommunications services.

This strengthens our vision, that the spectrum prices, rather than a collection element, is an element that encourages investment, offers a balance of accessible prices to the population and an attractive return on investment that increases the interest of investors in terms of telecommunications. The balance of these elements is fundamental, understanding that these three elements that have been mentioned must be balanced in an attractive way.

We have discussed this with regulators and operators. We have sent our regulatory vision in this regard to regulators and operators in Latin America, such as Mexico, Colombia, Peru, Argentina, Brazil and Chile. For what we would like to highlight the case of Colombia. Where is currently discussing a modification to ICT Law? Where the ICT Minister, Sylvia Constant in a recent statement has acknowledged and quote textually “the spectrum should be used as a tool to close gaps and not as a collection instrument”.

In another order of ideas, it is not coincidental that the business model of 5G is only mobile telephony and smartphones. That market is saturated, with penetrations close to 100% and with a recent deployment of 4G. The true 5G market is the Internet of Things, IoT, specifically connected cars, smart cities, smart health services and the connected industry or IoT. That should be the focus of the regulators and operators for which it is necessary to have a broad vision.

5G new markets

However, in order to exploit these new markets by telecommunications operators, there must be a clear vision of the issue on the part of telecommunications regulators and other governments.

For there to be an increase in investments by mobile operators, there must be an increase in the market, which is only possible for a greater number of customers in the mobile services, which is not possible, since, in most of the countries, mobile telephony penetration is between 90% and 120%. Obviously, in the markets with greater penetration, there are customers with two or more lines from different operators.

On the other hand, there are new customers or markets that use mobile telephony services. This is where the true potential of this 5G technology is, which opens a new market, not explored, with new connection needs and willing to set payment for the services provided.

The difficulty is that operators must offer innovative solutions and become what they have always wanted but not achieved, go beyond the barrier of an actor that only deploys the network on which high-value services are lent by other actors such as Google, Facebook, Apple and others.

With 5G, operators have this possibility, but for this, they must leave the box, think and face 5G deployment, in a different and risky way. This vision is critical, and the present moment is crucial. However, this makes it necessary to work together between regulators and operators.

It is necessary to leave the natural conflicts between these actors to face joint work. As in the Chile case, where aspects such as Spectrum Caps are still discussed, an inefficient and restrictive investment policy. In this sense, regulators must provide all the possible elements to create the regulatory and market environment for operators to take advantage of these conditions, in a differential and innovative way.

An example of this is the themes of connected cars. If there is no joint work between the automotive industry, mobile operators, telecommunications regulators and automotive associations, you can miss the opportunity of what really lies at the centre of 5G advantages.

If 5G implemented, in a country that wants to lead its deployment, but has not specified that there is a similar launch of connected cars, the 5G deployment will not provide the necessary benefits to operators to maintain the technological deployment.

On the other hand, the spectrum selection to assign is fundamental because if only the allocation of the 3.5 GHz band is made, the deployment will not be fast enough due to the number of base stations that must be established. For that, the use of the 600 MHz band is key, because this band will allow offering greater coverage, although at speeds lower than 3.5 GHz.

This situation leads us to conclude that the successful 5G deployment involves a joint spectrum allocation in different frequency bands. That is, it is not enough just to assign the 600 MHz bands or assign the 3.5 GHz band. Or in the worst case, the 600 MHz band should not be assigned to some operators and the 3.5 GHz band should be assigned to different ones. Because this will not allow you to take advantage of 5G technology.

This is why this 5G issue, is more complex than have seen that is being discussed in different forums in the industry, the statements of those responsible for regulators and opinion articles, which can be accessed in the specialized media communication.

Conclusions

In short, having the elements that have been presented in this document is a start to address the 5G deployment properly. With a broad vision and defined objectives, with the intention of using the infrastructure deployment and operators investment in achieving a positive impact on the countries economy and life quality from people.

 

5G is here, are you ready? Visit 5G World on June 11-13, 2019 in London, which will bring together the 5G ecosystem to define the next steps toward 5G rollout and monetization.