Sustainable Spectrum Pricing
Whether or not a 5G business case is workable depends on how much operators have to pay for spectrum licences. 5G requires more spectrum but generates little or no incremental revenue. Regulators need to assess the sustainability of spectrum licence fees by comparing the annualised cost of spectrum to mobile operator revenue. The methodology is easy to apply and only relies on data specific to a particular market.
Related insights
5G mobile is an enabling technology for enhanced mobile broadband, delivering a fibre-like user experience at a price which is lower than 4G. 5G also facilitates the Internet of Things, making it an enabling platform for what has been described as the “4th industrial revolution”. Recognising its immense transformational value, governments in developed and developing markets are keen to facilitate the deployment of 5G mobile services in their respective countries.
Ever-Increasing Mobile Data Usage
The average monthly data usage per SIM is increasing by up to 50% annually. In some countries, the average data use per smartphone now exceeds 20 gigabytes, reflecting people’s reliance on screens for various aspects of life. Fortunately, mobile users are not charged more for increasingly larger data bundles, allowing even lower-income groups to benefit from the mobile broadband revolution. However, making this possible requires continual investments from operators in mobile broadband capacity, encompassing both 4G and now, increasingly, 5G.
From a technical perspective, 5G optimises the scarce spectrum resource. Nonetheless, 5G also demands significantly more spectrum across low, mid, and high-frequency bands. Operators must acquire spectrum licences for these bands, but licences alone are just the beginning. Deploying 5G necessitates substantial investments from mobile operators, especially in 5G radios, additional physical sites, and establishing high capacity backhaul to cell sites.
Competition Keeps Prices Low
Despite the considerable investments operators must make, fierce competition among mobile operators prevents increased costs for smartphone users. Consequently, mobile operator revenue in most countries has remained stagnant or even declined. This poses a considerable challenge to the viability of the business case for 5G.
The feasibility of a workable 5G business case largely hinges on the costs associated with spectrum licences. Although 5G demands more spectrum, it generates minimal or no additional revenue. Analysing mobile revenue per MHz of spectrum in use presents a striking trend: since the introduction of 3G, mobile operator revenue per MHz of licensed spectrum has decreased by approximately 50%. With the licensing of up to 400 MHz of C-band spectrum and other 5G-related spectrum, revenue per MHz will decline by a further 50%.
Rising Spectrum Licence Fees
In numerous countries, governments have elevated spectrum licence fees. However, as observed, deploying more spectrum does not yield incremental revenues. Consequently, in some countries, spectrum licence fees have reached unsustainable levels. Policymakers are confronted with a choice: assign spectrum, notably 700MHz, the C-Band, and other band(s), at prices conducive to fostering 5G deployment or risk lagging in the 4th industrial revolution.
Spectrum Roadmaps
To ensure sustainable spectrum licence fees that do not impede 5G development, regulators can assess the annualised cost of spectrum against mobile operator revenue. Evaluating their spectrum roadmap, regulators can confidently set spectrum licence fees, ensuring timely acquisition and deployment. Given the substantial additional spectrum required for 5G, traditional benchmarking for spectrum prices is ineffective as it relies on backward-looking approaches. Instead, regulators should evaluate the sustainability of spectrum license fees by calculating the proportion of the annualised spectrum cost to mobile operator revenue. This methodology, reliant only on internal market data, is easily applicable. Coleago offers worked examples and Excel calculation tools in this paper, ready for use by policymakers and regulators.
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.
