Everyone is getting excited about the brilliant future that 5G offers, but let’s face it: without a lot more spectrum dedicated to mobile services, dreams of faster speeds and greater capacity will just remain dreams.
But only last week the world saw two more small steps to fulfil those 5G dreams with two 3.5GHz auctions which offered spectrum discussed for 5G services coming to an end. And, with them, came a very noticeable disparity in final results between the two.
While three Finnish incumbent operators went just slightly above the starting prices, Italian bidders splashed out on their investment, paying almost 11-times more than the reserve price (and 56 times more than Finnish bidders) for nearly half the amount of spectrum. With a few 3.5GHz auctions completed in the past 18months and several more on the way, it’s a good moment to look at what happened so far and anticipate what may happen in the future.
Of course, there are other bands important for 5G deployment as well, like mmWave bands (especially for densely populated areas). However, only Italy and South Korea have organised 5G-specific mmWave tenders so far (with operators paying only slightly more than starting bids), making 3.5GHz the most instructive as far as 5G goes.
Less (spectrum offered) is more (in prices paid)
Across these recent auctions, Finland offered the most spectrum: 390MHz. That is almost twice as much as offerings in Spain and Italy, with the UK auctioning even less (150 MHz). This was reflected in final prices: in terms of €/MHz/Pop (PPP adjusted), Spain paid almost twice; the UK four-times; and Italy nearly 13-times as much as Finland did.
It’s noteworthy that none of the recent 3.5GHz auctions ended with unsold spectrum.
Less spectrum offered means scarcity, but this does not necessarily mean it was artificially imposed by national regulators. In some countries, spectrum has been reserved to vertical industries or there already have been incumbents in the band, as licences have been assigned to fixed wireless access (FWA) or WiMax services (Spain, Italy, and the UK). Regardless, it creates the pressure for bidders to fight fiercely for any piece of spectrum left, which naturally pushes the prices up. And MNOs will need a lot of spectrum to deploy 5G properly; at least 80MHz to 100MHz of contiguous spectrum per operator in the mid-band, according to ITU.
Offering a sufficient supply of spectrum in the 3.5GHz band will take some of that pressure from the bidders and leave them with more resources to invest in actual 5G deployment.
Noteworthy, some mobile operators have been able to get access to the 3.5GHz band through the secondary market rather than government auctions, acquiring spectrum licences from incumbent FWA providers: Masmovil acquired Neutra and Eurona in Spain; Three UK purchased UK Broadband; and Fastweb bought spectrum licences from Tiscali in Italy. This may be a way of gaining access to some of the much-needed spectrum in the band without having to wait for government action. However, acquiring the spectrum piecemeal may mean that some band pre-planning will have to occur.
Lot size matters…a lot
Countries assigning spectrum in 3.5GHz have shown two different approaches so far when it comes to block sizing: offering a small amount of larger blocks (Finland, Italy, Czech Republic); or offering large amounts of small 5MHz to 10MHz blocks (South Korea, UK, Spain, Ireland).
Large contiguous blocks of spectrum ensure the higher quality of future 5G services. However, offering lots that are too big during tenders may also cause spectrum scarcity and lead to higher prices if the number of potential applicants exceeds the number of blocks. This can be illustrated by the recent example of Italy, where only two lots of 80MHz and two smaller lots of 20MHz were offered, forcing operators to fight for the bigger lots. Appropriately sized lots may allow operators more bidding flexibility and ensure more participants will end up with winning spectrum, and that more end customers will be offered 5G services.
5G hype is attracting new players
In Finnish and South Korean auctions, only incumbent operators participated and the price increase compared to starting bids was rather low (19 per cent and 13 per cent respectively), as applicants had a lot of spectrum to bid for (130MHz and 93MHz respectively). In other markets, however, participation of potential new entrants increased the competitiveness, which left the bidders with less spectrum available, on average, per bidder (typically only 30MHz to 40MHz in the UK, Czech Republic and Italy). This fuelled the struggle to secure as much spectrum as needed.
While allowing new entrants shouldn’t be avoided, their presence within the bidding process has to be taken into consideration, in terms of auction elements such as reserve prices, lot size or overall auction design, especially regarding three- or four-player markets.
Everyone is closely watching the forerunners
It’s no surprise that 5G spectrum auctions are garnering more interest and analysts are trying to use those results to predict the future pricing trends. While benchmarking to other markets should not be the only element considered in spectrum valuation, results from previous auctions are carefully studied by regulators in terms of setting their own reserve prices and the temptation to set them on a higher level may be strong.
However, every country is unique, with its own market forces and conditions to consider, so benchmarking at this stage, especially given the wide variety of outcomes, is risky. So far, 5G auctions have happened only in developed markets and the dynamics and conditions are very different from those in the developing world.
Designing auctions with sufficient spectrum offered, appropriately sized lots and reasonable reserve prices is important and also complicated: it’s possible that some countries may even turn away from auctions as the assignment mechanism for some of the 5G spectrum. The Hong Kong Secretary for Commerce and Economic Development suggested spectrum could be assigned to MNOs for free in order to ensure access to spectrum and result in boosting national competitiveness. Additionally, many countries have already assigned fixed wireless/WiMax licences in the 3.5GHz band, often to MNOs.
The question remains whether the operators would be able to convert their licences to tech neutrality and offer 5G services, without having to undergo a long and costly process of reapplying and competing for the same band they already use. The ultimate goal is putting spectrum to good use and, clearly, regulators are recognising that auctions are not the only approach for spectrum assignment in the 5G era.
– Robert Wyrzykowski, analyst – Mobile Spectrum, GSMA Intelligence
The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.