Russia's recent spectrum licensing wisely puts the objective of maximising mobile broadband deployment ahead of raising money for government coffers. Auctioning-off former TV broadcasting spectrum at 700 MHz and 800 MHz, together with 2.5 GHz and 2.6 GHz frequencies for mobile broadband with LTE offers the potential to raise billions in cash for every major nation. Maximising receipts would be a boon for cash-strapped governments running large deficits in these adverse economic times, but expropriating money from the mobile operator sector in this way is counterproductive. The money is needed for network investments including equipment and civil works. Widespread broadband deployment with mobile as well as fixed devices is most important for economic growth.
Mobile broadband for all
Russia's largest mobile operators--Mobile TeleSystems (MTS), MegaFon, Vimpelcom and state-owned Rostelecom--are all being awarded licences to provide LTE services in the 800 MHz band, according to telecoms regulator Roskomnadzor. Each company has been granted spectrum in national blocks of 2 x 7.5MHz. Spectrum in the 700 MHz, 2.5 GHz and 2.6 GHz bands will be made available later.
Rather than having to pay substantial fees for the spectrum, each licensee must commence offering commercial services no later than June 2013, and offer it in all towns with at least 50,000 residents by 2019. Interim rollout requirements are six regions by the end of 2013; 12 regions by the end of 2014; 20 by the end of 2015; 30 by the end of 2016; 50 by end of 2017 and 60 regions by the end of 2018. Each operator must invest at least RUB15 billion ($461 million) per year until its rollout is complete.
Russia's LTE licensing follows a somewhat similar approach in Germany where auction licensing fees were payable, but significantly lower than they would otherwise have been, due to mandatory prioritisation of rural rollout over network construction in urban areas. Since 2010, German operators have been bringing LTE to "white spot" rural and remote locations where fixed-network DSL services were unavailable, provided inadequate service or were uneconomic.
Slow lane for high-speed
LTE development has been disappointingly slow in Western Europe with services not starting in most nations until at least 2012. Several nations have yet to allocate or deploy 2.6 GHz frequencies and the prime "digital dividend" 800 MHz spectrum that is being refarmed from TV broadcasting. Refarming existing cellular frequencies for LTE has also been delayed.
Unions in France complained to the competition authority against last year's LTE spectrum licensing. They cited a lack of employment requirements and the possibility of foreign operators taking advantage of MVNO hosting obligations to win market share without making significant investments. In June, the three licencees--Orange France, SFR and Bouygues Telecom--launched pilot LTE services in Marseille and Lyon.
Progress has been particularly poor in the UK, where squabbles among existing licensees with legal challenges to Ofcom, the regulator, have slowed cellular spectrum refarming and new licensing. For example, Everything Everywhere has sought to deploy LTE in is extensive 1800 MHz allocations while facing strong opposition from Vodafone and Telefónica's O2, which obtained most of their 2G spectrum allocations at 900 MHz in the first round of cellular licensing in the 1980s. Most 900 MHz band operators, in Europe and elsewhere, have committed to upgrading this spectrum with HSPA rather than using it for new LTE networks. An auction is expected before yearend 2012 with LTE service launches anticipated in 2013.
Incentivising--not taxing--infrastructure development
Investment in infrastructure maintenance, rejuvenation and expansion are vital when demands are high, and to stimulate and support growth in recession. Recent events in France and the UK show how vulnerable infrastructure can be to catastrophic failure if not properly maintained. In separate incidents, France's Orange and the UK's O2 had major outages affecting most of their networks and subscribers for a whole day. O2's failure is particularly embarrassing because it is the official mobile network for the London Olympics, which start later this month. Similarly, the main M4 motorway from Heathrow airport to the games was also closed for days due to an infrastructure failure with the recent discovery of a major structural crack.
Fixed and mobile broadband development is as important to economic growth and social welfare as any other infrastructure programmes. This is particularly so during the worst recession since the 1930s. The UK news this week includes announcement of £9.4 billion ($14.6 billion) in railway investment and a £22 billion infrastructure upgrade from the nation's gas and electricity regulator.
Funding these programmes is a major challenge with government deficits and continuing demands for commercial returns on investments during weak economic conditions. Customers will be forced to pay for these other infrastructure investments through increases in regulated prices. Constructing mobile broadband with LTE is also costly for network equipment and civil works. Mobile broadband can do an excellent job providing access in remote and rural regions where fixed network deployment costs are highest and earmarked spectrum is sufficient to service relatively low population densities with high-speed services.
Spectrum licensing should incentivise this with the kinds of deployment obligations used in Germany and Russia, and enforcement including significant penalties for breaching those conditions, rather simply seeking to maximise financial proceeds in auction.
The 3G auction payments in UK and Germany were a catastrophic blow for the mobile sector around the millennium that severely impeded network developments. The 3G data services are still very patchy and poor in the UK and elsewhere. LTE licensing could help improve matters. The opportunity to ensure construction providing widespread availability should not be squandered through simplistic auctions that maximise proceeds to be spent on other causes while continuing to limit economic viability of mobile broadband mostly to population hotspots such as airports and urban areas.
Keith Mallinson is a leading industry expert, analyst and consultant. Solving business problems in wireless and mobile communications, he founded consulting firm WiseHarbor in 2007. WiseHarbor publishes an Extended Mobile Broadband Forecast. This includes network equipment, devices and carrier services to 2025. Further details are available at: http://www.wiseharbor.com/forecast.html. Find WiseHarbor on Twitter @WiseHarbor.