Kazakhstan 3.6 GHz Spectrum Auction
The Ministry of Digital Development, Innovations and Aerospace Industry of the Republic of Kazakhstan recently announced the results of their spectrum auction for two 100 MHz lots of 3.6 GHz spectrum. The spectrum was acquired by a consortium formed by mobile operators Kcell and Mobile Telecom Service (Tele2-Altel), both part of the Kazakhtelecom Group.
The Kazakhstan 3.6 GHz Spectrum Auction, held by the Ministry of Digital Development, Innovations, and Aerospace Industry, recently concluded with surprising outcomes. A consortium led by Kcell and Tele2-Altel acquired the spectrum, which is crucial for 5G deployment, for a total of US$ 336 million. However, the prices paid were exceptionally high, exceeding benchmarks by 79% and 167% for the two lots.
This commentary raises concerns about the auction design and its impact on competition in the mobile market. With only 200 MHz available and three major players, the decision to auction in two lots of 100 MHz each created artificial scarcity, contrary to industry best practices. Additionally, the absence of spectrum caps increased risks for bidders and also contributed to what the report terms as “blocking value.”
The sequential auction process, without spectrum caps, allowed the consortium to block a competitor in the final auction, leading to inflated prices. The report emphasises that the high prices achieved may damage the competitive landscape, adversely affecting consumer welfare in the long term.
To address these issues, the report suggests that smaller lot sizes, spectrum caps, and a simultaneous auction format could have achieved a better outcome. The report urges the Ministry to swiftly auction the remaining spectrum with tight caps to rectify the current imbalance. Furthermore, it advises against using the recent high auction prices, which were influenced by artificial scarcity, as a basis for future reserve prices.
In conclusion, the report encourages the Ministry to consider alternative auction approaches, that balance revenue objectives with competition concerns, to ensure a fair and economically efficient distribution of spectrum.
Other insights
The Case for Strategic Spectrum Renewal
As spectrum licences approach their expiry date, a strategic approach to spectrum renewal is crucial. Traditional presumption of renewal in favour of incumbents may no longer serve the industry’s needs. Instead, a more strategic approach to renewal can optimise spectrum assignments and improve spectral efficiency by up to 40%.
Best Practice Spectrum Management
The principles of best practice spectrum management are well established and their implementation can enhance the socio-economic value of spectrum and how much operators are prepared to pay to acquire new spectrum. Whilst most regulators in developed markets have adopted best practice, the same cannot be said for developing markets. Coleago recently studied the regulatory environments in 16 African markets and recorded the extent to which best practice had been adopted.
Learning From Best Practice Spectrum Management in Botswana
The Botswana Communications Regulatory Authority conducted a review of its spectrum management strategy to align with international best practice. The Authority was advised by Coleago and in this paper, Project Director Graham Friend highlights the lessons to be learned for other regulators in developing markets.
The End of Telecoms History? – Not Quite!
At the European 5G conference, Stefan Zehle highlighted that differences in mobile data usage across countries result from variations in price and network availability. While European policymakers celebrate 89% 5G coverage, gaps in both outdoor and indoor connectivity limit usage. William Webb’s prediction that data traffic will plateau at 20 GB per user per month by 2027 seems unlikely, given that top users already exceed 100 GB. To fully realise 5G’s potential, policymakers must address these coverage issues in a cost-effective manner.
Insights from a Strategic Spectrum Review
The mobile industry has accumulated a fragmented spectrum portfolio, consisting of various frequency bands that are sub-optimally allocated for modern technologies like 4G and 5G. As operators transition from legacy technologies such as 2G and 3G to newer, bandwidth-intensive solutions, the need for contiguous spectrum blocks has become critical.
The End of Telecoms History? Not Really
In his book The End of Telecoms History, William Webb uses extrapolation of mobile data usage growth curves to claim that mobile data user requirements are nearly met
and that we have all we need
. He predicts mobile data usage to plateau at around 15-20 Gbytes/user/month
. Webb claims that no further investment in 5G capacity is needed and that the only remaining problem is ubiquity, notably in-building coverage. This article provides evidence that, while the author makes some good points, his analysis with regards to mobile data usage is flawed and hence the conclusions he draws are quite wrong.
