spectrum auctions and new market entry nov 2013

Spectrum auctions and new

market entry

6 November 2013

Stefan Zehle, MBA

Tel: +44 7974 356 258

[email protected]

CEO, Coleago Consulting Ltd

© Copyright Coleago 2013

1

The process of awarding spectrum has become more

sophisticated over time

1990’s: Beauty contests

Widely used outside the US for GSM

licences

Difficult to administer, bureaucratic

Open to dispute and vulnerable to

corruption

2000’s: Auctions

Transparent process (no subjectivity)

Policy objective: maximise economic

efficiency

Theoretically whoever values spectrum

the most will produce the greatest

social good


2

Different formats of allocating spectrum served their

purpose in the context of market development

Beauty contests and auctions

achieved policy goals set at the

accelerating growth phase of the

industry life cycle

Emergence of competitive mobile

markets

Competition and commitment driven

coverage roll-out

Rapid growth in mobile subscribers

and tele-accessibility from single digit

penetration numbers to almost

universal use


3

Do we need to rethink the method of allocating spectrum

in the light of maturing mobile markets?


4

Mobile markets have reached the

maturity phase of the industry life

cycle

In most market revenue growth has

slowed down to single digits, often

barely keeping up with inflation

Some markets, notably in Europe,

show declining revenues

A different industry life cycle stage

suggest that that policy goals should

be revised; encouraging new network

based competition may not be

appropriate

Maturing markets are characterised by consolidation, not

new market entry

M&A in full swing

The pace and size of cross-border

M&A has been breath-taking, with five

mega-deals announced or completed

during the past three months.

Markets with consolidation potential

include India, Indonesia, Canada, Italy,

Germany and Brazil - although

regulation is likely to be a constraint in

most of these.

Not surprisingly, we are seeing

numerous infrastructure sharing deals.

Investors should expect further M&A,

but at a less frantic pace.


5

Consolidation is likely in large and small American

markets


6

Technology evolution also favours consolidation or at

least spectrum sharing

The shift from voice orientated

networks to mobile broadband

favours consolidation at network

(spectrum) level

The user experience is part governed

by maximum speeds produced by

2x20MHz LTE and wider bands in LTE

Advanced.

The cost of deploying an eNodeB in a

band is the same regardless of

whether 2x5 or 2x20MHz are

deployed.

5G will require very wide allocations

i.e. well over 100MHz for an individual

operator.


7

The GSMA has commissioned

Coleago to undertake some initial

spectrum requirement estimates for

IMT to the year 2020. A report on

this work from Coleago is attached

indicating the total spectrum

required for IMT of 1600 to 1800

MHz for the year 2020. The GSMA

believes this is a reasonable

number.

Radiocommunication Study Groups

Document 5D/XX-E, Sep 2012

Given the existing spectrum, new entrants will have too

little spectrum to compete

In an LTE world large contiguous

spectrum holdings confer particular

competitive advantage

The exit of some operators in Europe

and the insolvency of Mobilicity in

Canada demonstrates that it is

impossible to succeed in the market

with small spectrum holdings.

When industry logic has driven

consolidation, trying to reverse the

process by regulatory is unlikely to

produce societal benefits.


8

It is misguided to continue to insist on network based

competition in its present form

Some evidence that regulators have

not evolved their policies

We are seeing few conventional in

market consolidation deals, due to

regulatory constraints. In no developed

country we track are there more than

four directly competing wireless

operators with significant market

share.

For regulators, four is often the magic

number, limiting consolidation

potential.

Not surprisingly, we are seeing

numerous infrastructure sharing deals.

Investors should expect further M&A,

but at a less frantic pace.


9

Regulators are placing network mobile competition on life

support

Some regulators appear to view new

spectrum as a tool to hold the wave of

consolidation

Examples include Jamaica, France,

Austria

Measures include:

– Reserving spectrum for new

entrants

– Spectrum caps

– Conditions to divest spectrum to

new entrants


10

Using new spectrum auctions to increase network based

competition is unlikely to succeed

Regulators may wish to consider:

Allocate spectrum in a manner which

does not reduce competition while at

the same time maximising the benefit

of a wide band.

Facilitate a transition from network

based competition to other forms of

competition.

Focus on other regulatory remedies if

competition is failing, such as a

regulated access price offer. The

conditions attached to Hutchison

Three’s acquisition of Orange Austria

can serve as an example.


11

Consolidation is

normal when the

industry life cycle

reaches the maturity

stage

Wide band allocations

are required for an

economically and

spectrally efficient

deployment of LTE

Questions?

Stefan Zehle, MBA

Tel: +44 7974 356 258

[email protected]

CEO, Coleago Consulting Ltd

A specialist telecoms management

consulting firm

About Coleago Consulting


13

Coleago offers specialist advisory services to the

telecoms industry


14

Spectrum Valuation

and Auctions

Marketing &

Customer

Management

Interconnect &

Accounting

Separation

Business

Transformation &

Cost Reduction

Strategy and

Business Planning

Improving Network

Performance

Due DiligenceDigital Content &

Media

Training

Coleago has carried out over 60 spectrum consultation,

valuation, auction and beauty contest licence projects

Current projects

Canada - 700MHz

New Zealand - 700MHz

Paraguay - multi-band

Oman - 800MHz & 2.6GHz

Completed in 2013

Myanmar – greenfield

Australia – 700MHz & 2.6GHz

UK – 800MHz & 2.6Ghz

Sri-Lanka – 1800MHz

Completed in 2012

Belgium – 2.6GHz

Netherlands – multi-band

New Zealand –1800MHz spectrum

trading

Switzerland – multi-band

Russia – 700MHz & 2.6GHz

Pakistan – 2.1GHz valuation

Bangladesh - 2.1GHz valuation


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