Telecom Lead India: Mobile phones have become the main
means for making voice calls in the world and have brought telecommunications
access to many of the world’s people for the first time. Now the industry is in
the middle of another major transformation with rapidly growing take-up of
mobile broadband services across both developed and emerging markets. Mobile
data traffic is expected to increase 18-fold between 2011 and 2016 with growth
rates being highest in emerging markets, including the Middle East and Africa,
Asia Pacific, Central and Eastern Europe and Latin America.
Spectrum is the lifeblood of the mobile industry. The
amount of spectrum made available and the terms on which it is made available fundamentally drive
the cost, range and availability of mobile services. Across the world,
substantial new spectrum is needed to support ongoing growth in both
traditional voice and new broadband mobile services. It is also critical that
the rights to use the spectrum are provided in a way that enables the industry
to deliver maximum benefits to consumers.
The rapid growth in demand for spectrum increases the
importance and the difficulty of efficient spectrum management. The GSMA has commissioned this
report to examine the experience with mobile spectrum licensing around the globe to date and
draw out the lessons for policy. A key focus is on what works well in emerging
markets and how the lessons can be applied to the additional spectrum to be
allocated over the new few years. Choosing the correct spectrum policy will be
particularly important in emerging markets where mobile services can be
expected to provide the principal access to high-speed data, as they have with
voice.
The countries that get their spectrum policy right will
achieve widespread access to affordable and innovative mobile broadband
services. Strong communications infrastructure, in turn, brings significant wider economic benefits including in boosting
productivity and living standards.
Governments that currently face significant fiscal
demands also stand to benefit both directly from licensing revenues as well as
more generally through the higher economic growth generated by access to mobile
broadband.
Achieving a flexible licensing framework to support
substantial new investment Traditionally, many governments imposed highly
prescriptive operating and spectrum licences that required operators to supply
only certain services and/or use specific technology (although other countries
have not had separate operating and spectrum licences). Given the rapid pace of technological and market developments, restrictive
licensing requirements will limit operators’ ability to make the best use of
their networks to supply services and risk delaying the investment required to
introduce new broadband services. Detailed spectrum licences that are specific
to one operator, type of service, network or technology also risk distorting
competition if operators supplying competing services face different licence
conditions. While, in the past, operators have been subject to extensive
restrictions, many licensing authorities provide little guidance on their own
approaches to forthcoming spectrum issues. This increases regulatory risk and
deters operators from making the large investments required to deploy new
technologies and services.
Following are our key recommendations in relation to
reforming the overall licensing framework:
Recommendation 1 – Licensing authorities should
progressively remove restrictions that unduly restrict operators from determining which services
they will provide and the technology that they will use. Restrictions that do not
result in clear net benefits should be relaxed. Operating licences should be expanded to cover a
greater range of services or, where appropriate, replaced altogether by simpler
authorisations or class licences. Where restrictive operating licences are maintained they should
be separated from licences for the use of spectrum. Spectrum licences should, in general,
contain spectrum management provisions only or principally. This will assist changes
in business activities and spectrum holdings and support the evolution of technologies and
the different needs between radio spectrum management and other aspects of the licence.
Operators offering similar services should be subject to the same terms and conditions.
Recommendation 2 – Spectrum should be managed to ensure
that a country obtains maximum benefit from the use of its spectrum resources.
Spectrum rights should be assigned to the services and the operators who can
generate the greatest benefits to society from the use of that spectrum, i.e. to achieve the
efficient use of spectrum. Market-based approaches represent a key means to ensure that spectrum
is used to supply the services most in demand and operators are able to use the best
available technology to deliver those services.
Recommendation 3 – Licensing authorities should ensure
that the overall licensing framework offers stability and transparency to reduce
regulatory risk and promote investment. Key principles should include:
– establishing and adequately resourcing an independent regulator
with responsibility for operator and spectrum licensing among other matters;
– announcing in advance a long term plan for reform of
the spectrum and operating licensing framework;
– facilitating international harmonisation so that
equipment and devices use the same frequency bands to support international roaming and
enable the realisation of scale economies in manufacture;
– publicly setting out the criteria and process to be
followed in licensing decisions and including public written consultation in advance of key
decisions being made with both consultation responses and the assessment of input
in reaching final decision being published;
– clearly defined spectrum rights that are backed up by a
robust compliance/enforcement regime;
– taking a holistic approach to licensing that ensures
that the overall package enables the ongoing development of the mobile industry (including
a process for the renewal of licences at their expiry); and
– taking into account investors’ legitimate expectations
and providing compensation mechanisms where decisions are made in conflict with
those expectations.
Freeing up spectrum resources to meet growing demand
Licensing authorities can take a number of key steps to
free up spectrum that is currently poorly utilized and use that spectrum to deliver higher valued
services. In particular, authorities should both identify what spectrum rights
are able to be assigned to provide additional spectrum capacity as well as
enabling current spectrum assigned for mobile services to be used more
effectively. Enabling flexible/technology neutral use of spectrum so that
operators who currently use spectrum for 2G services have the ability to
determine when the use of part or all of this spectrum should be changed for 3G
and newer mobile technologies such as Long Term Evolution (LTE) services. This
is an important way to expand over time the services able to be carried with
existing spectrum as well as facilitating lower cost services, expanded
geographic coverage and better indoor coverage, depending on the bands
considered.
Recommendation 4 – Current rights to use spectrum should
be clearly specified and spectrum bands that are currently idle or being poorly
utilised (including by public sector agencies) should be considered for re-allocation to
services that could use the spectrum to generate greater benefits for society.
Recommendation 5 – Licensing authorities should publish a
road map of the planned release of additional spectrum bands to maximise overall
benefits from the use of spectrum including taking into account the benefits of
international harmonisation. In doing so, aligning spectrum rights with the internationally
harmonised mobile spectrum bands will ensure that operators and their customers can acquire
competitively provided equipment and devices and that customers can readily access
international roaming services.
Recommendation 6 – Licensing authorities should
progressively remove service and technology restrictions in existing mobile spectrum usage
rights to enable operators to choose when to deploy mobile technologies that can
technically co-exist so as to increase spectral capacity, reduce cost of provision, extend
coverage to rural areas and improve indoor coverage. Operators themselves are likely to be
best placed to determine the speed of migration particularly recognising that 2G services
are likely to remain important for the next 5 to 10 years.
Recommendation 7 – New spectrum usage rights within the
mobile bands should be issued on a service and technology neutral basis subject to the
use of technologies which can technically co-exist without intolerable interference.
Recommendation 8 – Licensing authorities should
facilitate harmonisation of spectrum through allocating radio frequency bands in accordance
with international agreements and by applying spectrum management approaches aligned with
international best practice.
Assignment and renewal of licenses
A major forthcoming issue for many licensing authorities
is to determine what should happen to spectrum rights as licences approach the end of their
initial term. Uncertainty about the future rights to spectrum can lead to
operators reducing or delaying investment in upgrading their networks and
deploying new services. Securing funds for investment is difficult in the
current economic environment even for established players. As such, authorities
should be alert to the real danger that their investment incentives can be
undermined by uncertainty over future rights. The loss of rights to spectrum
currently being used for the supply of services also carries risks to customers
in relation to the loss of service. Reflecting these risks, many authorities
have established a presumption of licence renewal with only exceptional and
well specified circumstances under which licences will not be renewed. More
generally, where licences are to be re-assigned or assigned for the first time,
authorities will need to determine whether market-based or administrative
approaches will best promote efficient allocation of spectrum in the specific
market context.
Recommendation 9 – Licensing authorities should clearly
set out their approach to licence renewal in advance (a range between 2 to 4 years as a
minimum should be adequate) of the expiry of the licence so as to avoid network investment
being postponed. The authorities should publish the criteria that they will use to assess
renewal as well as the terms and conditions that will apply to the renewed licence.
Recommendation 10 – There should be a presumption in
favour of licence renewal for operating and spectrum licences to encourage long-term
investment and minimise the risk of service disruption to customers. Reasons for not
renewing licences should be limited to spectrum replanning, where there is little risk of
stranding substantial investments, or where there has been a serious breach of licence
conditions which should be evident in advance of the renewal time. Exceptionally, a licence may
not be renewed in relation to the whole or part of the relevant spectrum so as to
promote competition through reassignment of spectrum. However, before not renewing a licence for
this reason, regulators should first (i) assess whether competition is
already effective in the market; (ii) identify whether competition can be promoted by other
means such as the release of alternative spectrum; and (iii) assess whether the
expected competition benefits will exceed the potential costs such as in relation to
spectrum replanning, customer migration and the risk of deterring investment.
Recommendation 11 – Re-auctioning spectrum at the end of
the licence should be limited to situations where there has not been evidence of
substantial investment and there is a reasonable prospect that spectrum will be re-assigned
between operators (or where additional, alternative spectrum is being made
available), or situations where an existing licensee decides to reject a licence renewal offer. In
most cases, the existing operators would be expected to re-acquire the licence with the
consequence that an auction only creates unnecessary uncertainty and costs.
Recommendation 12 – Where spectrum is to be re-assigned
or assigned for the first time, licensing authorities should determine the approach or
combination of approaches to assigning licences taking into account their particular
objectives as well as the likely advantages and disadvantages of the different approaches
in the particular market context drawing on both theory and practical experience.
Licensing authorities should attach priority to ensuring effective competition in downstream
markets for services to end-users.
Whether an auction or beauty contest is adopted, the
detailed design of the approach is important. Open auctions are likely to be superior to
sealed bid auctions for spectrum relevant to mobile broadband services in terms of
promoting efficient spectrum use.
Efficient pricing of spectrum
The overall level of licence fees (including upfront and
annual charges) can significantly impact market outcomes including the number of players that
enter the market and, particularly where annual charges are levied, the prices
for mobile services. There is a strong economic case to avoid the level of
licence fees being determined on the basis of revenue maximising objectives.
Rather, licence fees can be used to help recover the administrative costs of
the licensing process and of managing spectrum and, in some circumstances, to
encourage efficient spectrum use.
Following is our key recommendation in relation to
spectrum pricing:
Recommendation 13 – Licence fees, if any, should
generally be limited to recovering the administrative costs of the licensing process and associated
regulatory costs (including spectrum management costs). However, where there is
excess demand for spectrum, then an auction or administrative assignment of spectrum with
a charge set in line with the Marginal Forward Looking Opportunity Cost (MFLOC) of
spectrum should be considered.
Indexation or benchmarking may prove a practical means to
estimate MFLOC in particular circumstances. The MFLOC should be estimated
conservatively to reduce the risk that valuable spectrum will be left idle. It is also important
that the estimated prices are set appropriately relative to spectrum prices in other bands.
The relative merits of upfront licence fees versus annual charges should be considered
with regard to the particularmarket circumstances.
Promoting competition
The approach to spectrum licensing can significantly
impact competition in the mobile services markets. There is a case for regulators to ensure that
national spectrum resources do not become excessively concentrated in the control of only one or
two operators. However, there is also a danger if spectrum becomes too
fragmented as mobile operators would be prevented from realizing scale
economies so that service costs and prices are higher than otherwise.
Generally, licensing authorities should ensure that operators are able to
expand their access to spectrum if they are delivering value and attracting
customers.
Recommendation 14 – Licensing authorities should aim to
ensure effective competition in the downstream markets for mobile services. Many sector
regulators and competition authorities have accepted that three to four national
operators are likely to be sufficient to achieve effective competition.
Recommendation 15 – Specific measures to promote
competition should only be imposed in markets where there is market failure and competition
would otherwise be ineffective and where those measures are assessed as being likely to
result in greater benefits than costs. Spectrum caps, spectrum set-asides, bidding
credits, competition law enforcement and open access requirements carry advantages and
disadvantages and should be assessed in relation to the specific market context.
Reviewing non-price terms and conditions
Efficiency can be promoted by licences that support
operators making substantial investments that reflect fundamental market
conditions rather than requirements imposed by regulators. Many governments have traditionally included a range of terms
and conditions in licences which go beyond those necessary for the intrinsic
purpose of the licence to authorise market access and/or manage the use of
spectrum. However, licence conditions tend to be relatively inflexible and can
create the risk of market distortions as competition develops in
telecommunications markets. Alternative, targeted regulation is likely to
better achieve particular goals such as the control of market power and
promoting universal access.
Following are our key recommendations in relation to
non-price terms and conditions:
Recommendation 16 – Licensing authorities should
introduce licence terms for mobile operators that are at least in line with the expected
payback period for the investments and should consider the introduction of indefinite licence terms
(with a specified minimum term, i.e. 15 years).
Recommendation 17 – Licensing authorities should provide
for national licences where customer demand and/or scale economies are likely to
support national provision as being most efficient. Where regional licences are under
consideration, the auction process itself could be used to determine whether regional or national
licences are valued most highly.
Recommendation 18 – As an alternative to licence
obligations, governments should achieve universal access and competition objectives
through policies that help to change the underlying economics of extending access or entering
the market or through alternative targeted regulation.
Recommendation 19 – Licensing authorities should enable
voluntary spectrum trading between operators and facilitate trading through well
specified spectrum rights, long licence terms and minimizing administrative costs. Such
trading helps to ensure that spectrum remains efficiently assigned over time.
Competition concerns should be assessed taking into account the specific circumstances of each
trade, although certain safe harbours could be established such as where the operator acquiring
the spectrum has a market share below a certain threshold and/or the spectrum represents
a relatively small share of the overall spectrum available for those services.
