UK MNOs set to claw back £200+ million in licence fees

A UK court has ruled in favour of the telcos in an on-going battle with regulator Ofcom over licence fees paid on spectrum assets between 2015 and 2017.

The legal battle concerns the process which was undertaken by Ofcom prior to increasing licence fees paid by each of the telcos for access to the airwaves. The decision to increase the licence fees was met by much criticism during the initial announcement, and you can see why.

The licence fees concern 900 MHz and 1800 MHz spectrum assets awarded to each of the telcos during a 2013 auction.

Telco Fee paid (post-2015) Fee paid (pre-2015) Difference
Vodafone £76,245,025.10 £21,865,536 £54,379,489.10
O2 £76,245,025.10 £21,865,536 £54,379,489.10
Three £44,390,398.53 £17,463,600 £26,926,798.53
EE/BT £139,823,997 £57,380,400 £82,443,597

While telcos are constantly complaining about regulation, as well as the amount paid to regulators around the world, the drastic difference in licence fees was too much to stomach here.

Following the decision to increase licence fees, EE was first to act, challenging the ruling in the courts in 2017. The other UK MNOs were quick to follow, with Ofcom being named as a defendant in the lawsuit.

“We welcome the court’s decision that finds in favour of the mobile operators,” said an O2 spokesperson. “We are however disappointed that Ofcom has been granted leave for appeal and we will strongly defend any future appeal brought by Ofcom.”

Ofcom will most likely appeal the decision.

The argument from the telcos is one which we have heard before. The more money which is demanded from Ofcom, the less which is available to invest in networks to ready the UK for the digital economy.

Following EE’s decision to challenge the changes to licence fees in 2015, a move which was supported by the other MNOs, Ofcom decided to revert back to the licence fees which were paid in the previous regime. There has been another consultation since, resulting in an increase to licence fees paid moving forward, though this case is focused on the period between 2015 and November 2017.

Aside from clawing back the payments made during this period, the parties have agreed simple interest be applied on whatever sum is due, calculated at 2% above the Bank of England base rate during the period.

For the MNOs, this news will be very much welcomed considering the financial burden they face ahead of the 5G era. With billions set to be spent rolling out the networks, a bit of financial relief will go a long way.

Senators call for 5G slowdown because weatherman won’t be accurate

Two US Senators have asked President Trump and the FCC to halt spectrum usage on the 24 GHz spectrum brands as it would decrease the accuracy of weather forecasts.

Democrat Senators Ron Wyden (Oregon) and Maria Cantwell (Washington) have jointly penned a letter for the Oval Office suggesting use of the 24 GHz spectrum brands should be blocked as it would interfere with the accuracy of weather forecasts. The pair claim accuracy of these forecasts could be impact by as much as 30%, similar to the guesswork offered in the 1980s.

“American advancement in 5G networks and devices is critically important to maintaining global leadership,” said Wyden. “It’s just as imperative, however, for our nation to do 5G right. If the FCC continues advocating for standards that fail to pass scientific scrutiny, their decision will lower America’s standing in this global race for 5G leadership and risk serious damage to our economy and national security.”

Although linking weather forecasts back to national security might cause some to scoff, the pair suggest this insight is used by the navy, military and coast guard to help plan operations. Some of these operations’ focus on warning and preparedness when it comes to dealing with tornadoes, hurricanes and typhoons.

“Millions of Americans live in areas under increasing threat from hurricanes, tornadoes, and other extreme weather events,” said Cantwell. “The US military and our aviation, maritime, and numerous other industries rely on accurate forecasting information every day to ensure safety and make crucial decisions.

“We can’t afford to undermine our data and set the quality of weather forecasting back to the 1970s. Instead of overruling or ignoring the experts, the FCC and the administration should look at the science, listen to experts, and take the time needed to get this right.”

While the Senators are seemingly jumping on the bandwagon in an attempt to generate PR inches, the concerns of the use of these frequencies have dated back to 2010. The National Academies of Sciences, Engineering and Medicine put forward a report in 2010 suggesting 30% of the data collected on the 23.8-gigahertz signal would eliminate 30% of all useful data, making a significant impact on the ability to forecast conditions accurately.

The US National Oceanic and Atmospheric Administration (NOAA) and National Aeronautics and Space Administration (NASA) have now completed an investigation, which is yet to be made public, on the effects of interference from usage in neighbouring frequency bands.

Water vapour in the atmosphere emit very faint signal which is used by probes to monitor energy radiating from Earth at this frequency. This data offers insight to humidity in the atmosphere below helping to predict how storms and other weather systems will develop over the short- and medium-term future. The 23.8 GHz frequency is used to measure water vapour, 36-37 GHz for rain and snow, 50.2-50.4 GHz for atmospheric pressure and 86-92 GHz for clouds and ice.

During the most recent spectrum auction, the FCC sold licences for frequencies in the 24.25-24.45 GHz and 24.75-25.25 GHz but set noise limits on the 5G network of –20 decibel watts. The FCC might suggest this is protection enough, however the European Commission put limits of –42 decibel watts for 5G base stations, and the World Meteorological Organization (WMO) is recommending –55 decibel watts.

While the two Senators are not necessarily complaining about the limits, the pair are asking the FCC to clarify a few different notes:

  • Provide details on investigations that support the FCC’s assumptions that emission limits will not negatively impact applications in adjacent frequency bands
  • Provide details on the FCC’s public interest analysis, including any cost-benefit analysis, which addresses the loss of investments made in weather-sensing satellites, the costs to public safety and national security, and to the nation’s commercial activities that rely on weather data
  • Plans if the International Telecommunications Union (ITU) does not accept the emissions limits in the 24 GHz band
  • How the FCC addressed the concerns of the NOAA, NASA and other bodies

It does appear the Senators are looking for a stick to swing as opposed to any specific objections. That said, these are some valid concerns.

Numerous businesses and industries rely on accurate weather forecast, not to mention the security and safety of US citizens. In Europe, we are not at the mercy of some severe weather conditions, or not to the degree the US is. You only have to look at the $65 billion in damages caused by Hurricane Irma in 2017 or the 3,000 lives claimed during Hurricane Maria in Puerto Rico to understand the importance.

Faster isn’t always better – O2

With a new Opensignal report suggesting O2 has the slowest download speeds of the UK MNOs, the telco has hit back suggesting experience is about more than just speed.

According to the report, O2 has the largest proportion of customers experiencing slower speeds across the UK. This is down to a number of different factors, one of which is how spectrum holdings have shaped 4G deployment strategies.

The image below outlines what percentage of customers are experiencing different speeds across all the UK MNOs.

Openreach 1

While this might not paint the prettiest of pictures for O2, the telco has pointed out faster is not necessarily better.

“O2’s network deployment is focussed on customer experience and demand rather than maximum capabilities of certain aspects of network performance such as download speeds,” an O2 spokesperson said. “Some of the most popular mobile applications such as playing the game Fornite or streaming high definition content from Netflix require around 3-5 Mbps.”

Such is the obsession with speed, the entire telco industry is built on the concept of ‘bigger, faster, meaner’. Performance of telcos are measured on average speeds, however, one should perhaps question what speeds are necessary to produce the desired customer experience. Sometimes 10 Mbps is all that is required.

“We continue to invest £2m every day to improve the network experience for our customers as well as using a combination of technical and customer insight to gauge how well the network is performing and how satisfied customers are with their service. For the second year running O2 recently won uSwitch’s 2019 award for best network coverage as voted by the public and continues to have among the lowest levels of churn in Europe.”

In fairness to O2, you can’t argue with the numbers. In terms of market share, O2 is the leading telco in the UK. It must be doing something right otherwise how would it maintain this position? It isn’t the cheapest, the fastest or one which can offer any sort of convergence offering.

This second image from Opensignal indicates the spectrum holdings which are being utilised by each of the telcos.

Openreach 2

As you can see O2 is heavily reliant on the sub-1 GHz bands. The advantage of this band is greater range and better indoor coverage, though there is a trade-off when it comes to speed. And while some might complain about the lack of horse-power, it doesn’t seem to matter than much at the end of the day.

In the last financial results, O2 boasted of year-on-year revenue growth of 5.3%, a total subscription increase of 2.3% and customer churn of 0.9%, the lowest in the market, it claims.

What is worth noting is this is relevant for today. This might seem like an incredibly obvious statement, but developers are constantly bringing out new applications which test the boundaries of acceptability. Video and more immersive gaming content are ensuring demands on the network, and capable speeds, are a constant threat.

For the moment, this position from O2 seems perfectly sustainable, but how long the status quo lasts remains to be seen. Speed is not necessarily the defining factor of experience today, as long as fast is fast enough.

US drives solid Deutsche Telekom numbers but German 5G auction is a drag

German operator group Deutsche Telekom has reported solid Q1 revenue growth, driven largely by T-Mobile US.

As you can see from the table below, revenues and EBITDA all grew nicely in Q1 2019. Profits, however, went in the opposite direction, apparently due to one-off things like the cost of trying to get the merger between TMUS and Sprint approved. Speaking of the US the second table shows just how much of the revenue growth is attributable to TMUS.

Q12019

millions of

Q12018

millions of

Change% FY
2018
millions of

Revenue 19,488 17,924 8.7 75,656
Proportion generated internationally in % 69.0 66.6 2.4p 67.8
EBITDA 6,461 5,269 22.6 21,836
Adjusted EBITDA 6,901 5,549 24.4 23,333
Adjusted EBITDA AL 5,940 5,487 8.3 23,074
Net profit 900 992 (9.3) 2,166
Adjusted net profit 1,183 1,190 (0.6) 4,545
Free cash flowa 2,370 1,382 71.5 6,250
Free cash flow ALa 1,557 1,318 18.1 6,051
Cash capexb 3,827 3,139 21.9 12,492
Cash capexb(before spectrum) 3,682 3,076 19.7 12,223
Net debtc 71,876 50,455 42.5 55,425
Number of employeesd 214,609 216,926 (1.1) 215,675

 

Q12019

millions of

Q12018

millions of

Change% FY
2018
millions of

Germany
Total revenue 5,357 5,325 0.6 21,700
EBITDA 1,946 1,915 1.6 8,012
Adjusted EBITDA 2,114 2,082 1.5 8,610
Adjusted EBITDA AL 2,108 2,058 2.4 8,516
Number of employeesa 62,358 64,695 (3.6) 62,621
United States
Total revenue 9,796 8,455 15.9 36,522
US-$ 11,124 10,394 7.0 43,063
EBITDA 3,210 2,360 36.0 9,928
Adjusted EBITDA 3,309 2,332 41.9 10,088
Adjusted EBITDA AL 2,679 2,331 14.9 10,084
US-$ 3,042 2,865 6.2 11,901
Europeb
Total revenue 2,891 2,811 2.8 11,885
EBITDA 1,035 905 14.4 3,757
Adjusted EBITDA 1,059 911 16.2 3,880
Adjusted EBITDA AL 945 898 5.2 3,813
Systems Solutions
Order entry 1,609 1,506 6.8 6,776
Total revenue 1,630 1,665 (2.1) 6,936
Adj. EBIT margin (%) (0.2) (2.3) 2.1p 0.5
EBITDA 79 19 n.a. 163
Adjusted EBITDA 125 57 n.a. 429
Adjusted EBITDA AL 92 60 53.3 442

“We got off to a successful start to the year,” said Tim Höttges, CEO of DT. “Deutsche Telekom has much more to offer than just our sensational success in the United States. We are seeing positive trends throughout the Group.”

Not included in his canned comments, but picked up by Reuters, was Höttges inevitable irritation at the amount of cash DT is having to drop on the interminable German 5G spectrum auction. We’re on round 305 of the bidding, believe it or not, and the total pledged has now reached €5,687,520,000. Expect to hear persistent muttering about how that’s money they can’t spend on infrastructure, etc, before long.

Trump calls for US 5G leadership once more

At a press conference the US President endorsed FCC plans to improve the country’s position in the global 5G race.

President Trump likes to cherry-pick the people who stand behind him when he is public speaking and, as well as FCC Chaiman Ajit Pai, on first glance he had what appeared to be a Village People tribute band in attendance. As you can see from the video below, however, they turned out to be telecoms engineers and some kind of rural broadband lobby group.

The main theme of Trump’s introduction to the latest 5G initiatives was the need for the US to be the world leader in 5G technology. He apparently views 5G as a key component in his geopolitical tussle with China and had previously tweeted his enthusiasm for the technology, even going so far as to bring up 6G in the process, a step too far he seemed to acknowledge in this speech.

He then made way for Pai, who announced a bunch of initiatives designed to make Trump’s 5G dreams come true. This wouldn’t be the US if the plan wasn’t encapsulated by a forced acronym and in this cast we have FAST, which stands for Facilitate America’s Superiority in 5G Technology. Here are the essentials of the FAST plan, which you can read more about here as well as watching Pai’s presentation below.

Spectrum

Later this year, the FCC will auction the upper 37 GHz, 39 GHz, and 47 GHz bands. There were only vague aspirations offered about mid and low band spectrum as well as unlicensed spectrum

Infrastructure Policy

They’re trying to make infrastructure investment more attractive as well as reducing the bureaucratic hassle around deploying small cells.

Modernizing Outdated Regulations

This includes the net neutrality dispute, ease of access to cell sites, investment in fibre and of course the ongoing matter of keeping Chinese companies out of the network.

Since you have all the footage below we won’t bother extracting any written quotes, noting only that Trump moves on to troll critics of his immigration policy towards the end of the speech, which is quite amusing. The most substantial criticism of the FAST plan seems to be the lack of activity around mid band spectrum which will, initially at least, be much more useful for 5G than all that millimetre wave stuff they’re currently focused on.

 

Rivals get Rogered in Canadian 600 MHz spectrum auction

Canada made 70 MHz of 600 MHz spectrum available nationally in a recent auction and Rogers got nearly half of it.

Low frequency spectrum such as this is especially handy in huge countries such as Canada due to its long range. Canada split the band, which covers 614-698 MHz including the guard band and duplex gap, into seven chunks of 10 MHz. Each of those in turn was divided into 16 regions, making 112 licenses in total. As you can see in the table below Rogers got 52 of those, dropping C$1.725 billion for the privilege.

Canada 600mhz auction

“We are proud to make leading and meaningful investments to build the 5G ecosystem in Canada and to help drive our country’s global competitive advantage,” said Joe Natale, CEO of Rogers Communications. “This 5G spectrum is a precious and scarce resource that will benefit Canadians and Canadian businesses across the country.”

It’s interesting that this is being positioned as 5G spectrum. Unlike millimetre wave, for example, there’s nothing uniquely 5G about low frequency spectrum, so we can only assume the Canadian government made the spectrum available on the condition that it’s used for 5G. Having said that the quote further down from Shaw appears to contradict that.

In distant second place in terms of spend was Telus. “The acquisition and deployment of this spectrum is critical to the advancement of our national 5G growth strategy and to the global-leading network quality, speed and coverage we provide to Canadians,” said Telus CEO Darren Entwistle. “As the demand for wireless data continues to grow, the acquisition of 600 MHz spectrum will enable Telus to deliver enhanced urban and rural connectivity to our customers on Canada’s fastest and most reliable network.”

Shaw Communications subsidiary Freedom Mobile seemed to get a good deal by paying half as much as Telus for more population coverage. “We have made significant investments to improve the wireless experience for Canadians, becoming a true alternative to the incumbents, with a differentiated value proposition,” said Brad Shaw, Shaw CEO. “The addition of this 600 MHz low band spectrum will not only vastly improve our current LTE service but will also serve as a foundational element of our 5G strategy providing innovative and affordable wireless services to Canadians for years to come.”

Conspicuously absent from the process was Bell, which seems to think it didn’t need any because it’s already sorted for low frequency spectrum. “Bell leverages each new generation of wireless network technology to drive renewed innovation and productivity growth, and with 5G we’ll take connectivity further than ever before with smart cities, connected vehicles and other revolutionary service advancements for both consumers and business users,” said Bell’s CTO Stephen Howe. “Bell looks forward to participating in upcoming federal auctions of the mid band 3500 MHz and high band millimetre wave spectrum that will be required to drive the Fifth Generation of wireless.”

So while Rogers got loads more licenses than anyone else, Freedom Mobile could be viewed at the big winner in terms of cost per population covered. According to Ovum’s WCIS Freedom only accounts for around 5% of Canadian mobile subscribers right now. Judging by the outcome of this auction it has ambitions to significantly increase that share in the 5G era.

TDC hoovers up Danish spectrum in latest auction

The Danish Energy Agency has completed its latest spectrum auction, with TDC running away with the majority of the available assets.

Of the 20 blocks in the 700, 900 and 2300 MHz frequency bands, TDC won 14, the maximum available to the telco at this auction. 3 Denmark acquired two 10 MHz blocks in each of the 700 and 900 MHz bands, while TT Network, Telia and Telenor’s joint venture, two 5 MHz in the 700 MHz and two 10 MHz in the 900 MHz band.

“Several frequency blocks provide higher speed, longer range and stronger indoor coverage, which gives us a unique position to strengthen and develop the best coverage in Denmark,” said TDC CEO Allison Kirkby.

“TDC has connected all over Denmark for almost 140 years, and the new licenses ensure that Danish consumers, companies and society enjoy new experiences, services and the many opportunities that 5G offers.”

With ambitious plans to rollout 5G across Denmark by the end of 2020, this is certainly an aggressive sign of intent from TDC. The telco paid NOK 1.6 billion, roughly €210 million, for its haul, while 3 Denmark paid a total over roughly €68 million. TT Network paid €14 million for its 700 MHz assets and nothing for 900 MHz, though it will be charged with coverage obligations.

As it currently stands, according to Ovum’s WCIS database, TDC is currently the market leader with 42% market share, TT Network controls roughly 40% of subscriptions, while 3 collects the remaining 18%.

While these prices might seem ludicrously cheap in comparison to other spectrum auctions which have been taking place around the bloc, Denmark’s population of 5.8 million ranks it at 111th worldwide, while its land mass ranks at 130th.

DT CEO moans as bidding in German 5G auction tops €1 billion

Just for a change operators are moaning about the amount they have to pay for licensed spectrum, arguing that leaves less cash for infrastructure.

This time the country in question is Germany, which is in the middle of a 5G auction its operators have had a problem with from the start. According to the regulator bidding has already topped a billion euros and, while it still has a way to go before reaching the orgiastic excesses of the Italian one, muttering about the cost has already begun.

Commenting at its recent AGM, DT CEO Tim Höttges made it clear he has a problem with the fact that not all available spectrum is even being offered in the action, which he reckons is bound to have an inflationary effect. “An artificial shortage of public resources is being created, which may push up the price,” he said. “In the end, there is no money for the build-out.”

There was also some general dissent about excessive regulation, ease and speed of access to new cell sites and access regulation for new fibre networks that is considered counterproductive. But the main theme of his speech at the AGM was ‘sharing and participation’ and featured largely generic sentiments about the importance of communications networks and how totally committed to them DT is.

This auction is expected to hit at least three billion euros but, as we saw in Italy, auctions can easily become frenzied. European operators seem to be feeling increasingly inclined to challenge the terms of spectrum auctions but so far their attempts at legal challenges have yielded little. It does seem odd that the German state has held back a bunch of spectrum, however, and it would be interesting to know the rationale for that.

DoJ rumoured to be half-convinced by T-Mobile/Sprint 5G argument

The anti-trust chief in the Department of Justice is said to be receptive to T-Mobile and Sprint’s argument that the combined company will improve America’s competitiveness in 5G.

Fox Business reporter Charlie Gasparino claimed people close to Makan Delrahim, Assistant Attorney General for the DoJ’s Antitrust Division, have disclosed that the department is receptive to the argument that a third strong operator in the US will help the country compete better with China.

Gasparino first tweeted about his “Scoop sources” before he went on the screen:

As we reported earlier, the proposed merger still needs to overcome two barriers before it can be completed: the DoJ and the FCC. Gasparino explained that, unlike the FCC which needs a panel decision, the DoJ’s decision rests on Delrahim’s office alone. It looks that the argument for 5G competitiveness from the merger is outweighing his concerns for anti-trust consequences. Also significantly, Gasparino said, the FCC tends to follow the DoJ’s decision in cases like this.

5G has always been a central argument in the merger case. In its public interest statement published in June 2018, the companies stressed the investment commitment and the benefits the New T-Mobile would bring to America. $40 billion in the development of a nationwide 5G network and services will be made by 2024. “The New T-Mobile network will have approximately double the total capacity and triple the total 5G capacity of T-Mobile and Sprint combined, with 5G speeds four to six times what they could achieve on their own,” the companies said in the close to 700-page document.

The argument of competing with China on 5G with a third strong operator comes days after the companies claimed the merger would benefit up to 50 million Americans who currently do not have access to broadband, when T-Mobile launched its LTE FWA trial.

Meanwhile, the position of FCC is not getting clearer. On 7 March, for the third time, the agency put a hold on its 180-day countdown to gather feedback while ploughing through new information, which, FCC detailed, is related to the extension of a simulation model for the merger provided by the companies. The Commission will re-open the countdown at day 122 on 4 April.

The market was encouraged by the news. Both companies’ share prices grew following Gasparino’s tweet. T-Mobile closed the day up by 1.42%, and Sprint’s up by 1.75%.