Where’s the invisible hand?

5G spectrum remains elusive.

Why is 5G launching stateside and elsewhere this year? They’ve got spectrum. Plenty of spectrum. And they’ve been promised a whole lot more. In the Global Race to 5G, Analysis Mason points to 5G spectrum availability as the #1 leadership criteria and lauds South Korea and USA, where 5G will launch commercially within 12 months, along with China and Japan, that will go live in 2019. Leading European countries are also rans in the global race.

Spectrum policy in Europe and Latin America continues to be less accommodating. After the 3G auction trauma at the turn of the millennium, mobile spectrum users had to wait at least a decade before any new bands were offered up. By the time consumers in Europe and Latin America could experience 4G, it was already the technology of choice in the land of the free.

Whereas 84 MHz of digital dividend spectrum was auctioned by the FCC in 2008, by 2013 only nine of 27 EU member states had come good on their 4G spectrum commitments. Little wonder that the USA had 10 times as many 4G subscribers than Europe.

So with 5G, is Europe waking up to Groundhog Day and about to experience another false start? Well…definitely maybe. The good news is that this time around it’s different. It is not just the techies that see what might be.

From the top of government and across departments there is a growing consciousness that connectivity is a competitive differentiator and 5G can be a catalyst for disintermediation, productivity and growth. Call it the allure of the Fourth Industrial Revolution if you will.

Prepping for Christmas, last December European telecom ministers agreed a 5G roadmap which called for services to kick off in at least one city per member state by 2020. To back this up, many governments have published detailed 5G strategies. But without the missing link to ride on, 5G services remain stuck under starters orders.

The pioneer 5G frequencies come in three forms:

  • low (700 MHz) to go wide
  • high (26 GHz) to hike capacity, and
  • mid (3.4-3.8 GHz) for a bit of both.

In the US they have the low and the high but the midriff is missing albeit it soon to be filled. In Europe, the low band will start trickling into play next year but it may be used for 4G first. The fate of high bands remains largely undecided. So to meet the ministers’ modest Christmas wish list for 5G in 2020, all bets are on 400 MHz sitting in the mid band. And 10 countries have already licensed some of spectrum in this band. What could possibly go wrong?

Starting with the status quo, only Slovakia has licensed all the 400 MHz. And of the other countries, only a few are following the harmonised conditions defined by the European Commission in 2014. So even where licenses exist, there is a lot of refarming and negotiation that needs to take place before 5G can surf these waves.

Moving to the immediate future, a further nine countries are confirmed to be auctioning off various amounts of mid band spectrum. Six of the nine will make sufficient spectrum available such that all in market operators should be able to acquire the requisite amount of MHz to make 5G kit work well (in this band Ericsson recommends 100 MHz channels per operator). But three[1] will not.

Such a spectrum crunch and fragmented policy approach will most likely lead to sub-optimal market outcomes which is not good for governments aspiring to catalyse industry 4.0, a big risk for business that compete globally and a shame for consumers who will miss out innovative services.

And there are other factors to consider in terms of driving optimal market outputs. Auctions designed to maximises revenues may be “good for HM Treasury but not so good for consumers, as it leaves the operators with less money to invest in their 5G networks and services,” said Bengt Nordstom of Northstream, analysing the recent UK auction.

Annual fees are another drawdown. Seeking to cover some of its budget deficit Spain recently proposed to hike fees by a factor of 13 for 5G frequencies. Unlucky for some writes Brian Williamson of Communication Chambers as such yearly levies can be expected to  “reduce free cash flow, and reduced cash flow is likely to reduce investment”.

And even when 5G spectrum is ready to roll, it can take years for operators to get the various permissions required to build a base station. The odds of meeting the telecom ministers’ 2020 goals are lengthening.  

To get back in the race, policy makers must urgently prioritise the cleaning and assignment of 5G spectrum and look at new licensing approaches that incentivize investment and remove deployment obstacles.

France recently decided to forgo a renewal auction in exchange for an investment commitment to extend coverage. Inspiration for a regional renaissance perhaps?

 

[1] Czech Republic, France and Italy