Spectrum Renewal

In many markets a large number of existing spectrum licences will expire within the next five years and the effective management of the expiry process presents significant challenges and risks for both operators and regulators. As mobile networks are increasingly seen as a critical part of a country’s national infrastructure, the expiry process presents risks in terms of continuity of service and network resilience and the price at which spectrum is re-assigned can have a significant impact on the incentives for future investment and innovation. Every mobile market has a unique set of characteristics which means the process for managing spectrum licence expiry must be tailored to reflect the challenges in each market.

Operators now typically use 8 to 11 bands, of which three to four are sub-1 GHz, four to five are in lower mid-bands (1 – 3 GHz) and one in upper mid-bands (3.5 GHz). In some cases, one or two mmWave bands may also have been assigned. Licences were awarded over a number of years and some early licences, such as 850, 900, 1800 and 1900 MHz have already expired and have been reassigned. With so many bands in use and perhaps only two to three new bands to be licenced, e.g. 600 MHz and the upper 6 GHz (6425 to 7125 MHz), licence expiry is now a pressing topic and presents both operators and regulators with some significant challenges.

Some jurisdictions do not face a licence expiry problem because mobile spectrum licences are indefinite. The US, Canada, Finland and the UK are among them. However, most countries need to find a mechanism to deal with Expiring Spectrum Licences (ESLs) with the view to maintaining mobile services in the interest of users and the wider economy. Mobile services are now an essential service which supports a vast array of activity; from mundane aspects such paying for parking a car, use cases impact on every aspect of daily lives such as identity verification, payments, connected vehicles, public transport ticketing, smart city applications and even police services using a 5G network slice. Given the essential nature of mobile services, public interest considerations should guide policy with regards to ESLs.

Licences were usually assigned over a number of years and so licence expiry does not occur all at once, unless licence expiry have been synchronised. This may be seen as an advantage because of the incremental nature of potential changes in an operator’s spectrum holdings. However, in reality, operators designed their RAN to optimise the user experience to be delivered and costs using their entire spectrum portfolio. For example, load balancing between frequency bands takes into account all bands and the effect of losing spectrum in one band has a substantial impact which goes beyond simple cost avoidance. Therefore a wholistic approach covering all bands is preferable.

These few basic considerations apply to all countries, but simply copying the regulatory approach taken by another country is unlikely to be feasible. Approaches taken by regulators include re-auctioning expiring bands, administrative renewal, trading licence extension against geographic coverage build out obligations, extending licences to 40 years, extending some licences to synchronise expiry dates and combinations thereof. Countries differ in terms of the number of operators, market concentration (HHI), spectrum held per operator, licence duration, regional vs. national licences, licence duration in particular bands, coverage goals, quality of service targets, policy goals, and, most importantly, the legal framework. In some jurisdictions an administered renewal process may not be possible in the context of existing legislation as they may be required to use a market based (auction) mechanism to assign licence, even those previously assigned by auction.

Spectrum pricing is always a contentious topic. Approaches include free of charge renewal, using benchmarks, calculating the optimal deprival value (ODV) and pricing as an outcome of an auction. If operators have to make substantial payments, valuing spectrum is essential not only from a corporate governance perspective but also to verify that indeed there is a business case to renew all bands, even those with a narrow bandwidth.

Given the essential nature of mobile services, dealing with ESLs is risky for the regulator. Get it wrong, and a great deal of damage can be inflicted on service continuity, quality or service and competitive service provision. Therefore regulators are well advised to start the process of preparing for ELSs three to four years ahead of the expiry date. Carrying out a multi-stage stakeholder consultation will ensure that the regulator is well informed, taking into account not only the views of mobile operators, but also interested parts such as consumer advocates, other spectrum users, business users, first responders, public administrations, rural interest groups and vendors. Stakeholder engagement means that regulatory decisions with regards to ESLs are more likely to deliver policy goals. Three to four years may seem a long, but it may turn out that legislation needs to be amended and the parliamentary process itself may take over a year. Of course, operators need to know what the process is, including spectrum pricing, at least two years prior to expiry. If some bands are not renewed, new sites may need to be built and the technology upgrade path will need to be adjusted.

ESLs also present an opportunity. The usual assumption is that an operator would like to keep all existing licences. However, as we approach 6G, are small chunks of bandwidth, say 2×10 MHz, still useful or can they be deployed cost effectively? Is there an opportunity for band reorganisation with the view to reduce the number of band per operator and increase channel bandwidth? Can band reorganisation increase efficient use of spectrum? Following mergers, do regulators have to take pro-competition measures?

Coleago has unrivalled expertise in spectrum strategy, spectrum policy, spectrum valuation, and advising on expiring spectrum licences in renewal and auction situations. Operators and regulators can benefit from this experience. Please contact Coleago early on, prior to the start of any consultation, to explore relevant issues in your country to leverage Coleago’s expertise.