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
Maximising Shareholder Value in Spectrum Auctions
Spectrum auctions, while common in the telecom industry, are complex and high-risk events that can significantly influence a company’s long-term performance. Missteps, especially vague auction objectives and poor valuation discipline, can lead to substantial destruction of shareholder value.
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Future of the UHF Band after 2024: An Analysis of Options in the UK
Coleago Consulting in collaboration with its client, the UK Spectrum Policy Forum, has released a landmark report, “Future of the UHF Band After 2034,” setting out a detailed assessment of the United Kingdom’s Ultra High Frequency (UHF) spectrum landscape. The report looks at the industry trends and the critical trade-offs required to balance the needs of Digital Terrestrial Television (DTT), Mobile Communications, and Programme Making and Special Events (PMSE).
The Polish 700 and 800 MHz Spectrum Auction: Insights and Global Lessons
Poland’s final low-band spectrum auction marks a pivotal moment in Europe’s 5G rollout, offering key lessons in auction design, cross-border coordination, and strategic spectrum management.
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.