And last week, the regulator agreed to give 15-year licenses to incumbent state agencies to operate their telecom spectrum, before this must be returned to be auctioned and refarmed. It has also cleared the way for 3G auctions in the 2.1-GHz band later this year.
There has always been a difficult balance to strike for regulators, between expanding competition and ensuring that operators are sufficiently financially stable and spectrum-rich to be viable. This has got far worse in LTE, because to deliver the full performance of 4G, carriers need to be able to deploy in wide channels, plus they are trying to build up more capacity for the data explosion and for the rising number of MVNOs in many countries.
That means that operators, old or new, need to be sure they can win sufficient spectrum to achieve a profit model – otherwise they will either never launch viable services, wasting the frequencies, or they will be forced into acquisition by larger players.
This is being seen in various European markets where smaller cellcos have been able to bid at auction, but claim they have insufficient capacity to be competitive.
Denmark is a country where consolidation is expected, with TeliaSonera said to be interested in bidding for 3 Denmark. While 3's parent, Hutchison Whampoa, is thought to be open to offers as Danish competition mounts, it will want to recoup the estimated $1.2 billion (€906 million) it has invested in the subsidiary. But local analysts think that would be “way too expensive.”
TeliaSonera chief executive Lars Nyberg said recently: "I always buy if it is the right price.” He added: “We are not going to leave Denmark, but we have concerns in Denmark. It is a very difficult market - that much is certain. No one is making real money in Denmark.” The Danish situation highlights how hard it is for operators like 3, which has no 2G spectrum to refarm in its various territories, to secure sufficient frequencies for true mobile broadband.
The market has become too fragmented and will have to consolidate, argue many parties. Nyberg commented in a recent interview: "The regulators were given the task many years ago to make sure there was sufficient competition and they have interpreted that as meaning that the more operators there are, the better. I am not sure that is the whole answer. If you look at all the third biggest and fourth biggest operators, they are not making any money.”
Wind boycotts Canada's auction
This situation has come to a head in Canada too, where new player Wind Mobile is threatening to boycott the sale over proposed spectrum caps. The company, owned by VimpelCom of Russia, says the rules would not enable small cellcos to win sufficient spectrum to launch viable LTE services. The regulator, Industry Canada, plans to sell 700-MHz licenses early next year and 2.5-GHz frequencies within another 12 months. But it will not earmark spectrum for new entrants as it did (controversially) for the AWS sale in 2008, which ushered Wind (then called Globalive), Mobilicity and Public Mobile into the market.
Critics say that policy did not succeed in introducing new competitors capable of making a real impact on the big three (Bell, Telus and Rogers Wireless). And Christian Paradis, minister of Industry Canada, does not plan to pursue the same policy again. Instead, it will try to limit the triumvirate's power through caps. The three incumbents will be limited to one 10-MHz block apiece in each of the 14 operating regions. That will leave a fourth 10-MHz block for smaller bidders – new entrants, regional providers such as MTS AllStream or SaskTel, or the minor 3G carriers. Canada also proposes to set aside 10-MHz in the 700-MHz band for public safety.
Wind and Mobilicity are not happy at the new rules, though the latter has just criticized them as a “compromise”, and said it would “bid aggressively” nonetheless. However, the former is threatening to stay out of the auction. Chief executive Anthony Lacavera told Reuters: "As I understand that cap system, we will not bid,” as the 10-MHz effectively reserved for smaller operators would be insufficient to build a full LTE network. Companies like MetroPCS, which have deployed 4G in limited amounts of bandwidth, are unable to deliver peak speeds or some of the more demanding broadband services.
[Lacavera] added in the interview: “There's technically no way for us to roll out LTE. This is a classically Canadian solution, which on the surface looks like they gave all market players an opportunity, but at the end of the day what they've actually done is hurt the Canadian wireless industry and therefore hurt Canadian consumers.”
Another issue, thrown into the spotlight in Thailand, is whether conventional spectrum license periods are long enough to support a stable business model and give operators sufficient time to get good return on investment, and also to reassure partners. Thailand's state owned telco TOT has successfully lobbied the regulator for 15 years to run LTE on 64-MHz of its 2.3-GHz spectrum. The carrier has claimed the license terms of 7 or 12 years, suggested by the National Broadcasting and Telecommunications Commission, would not be long enough to attract private partners, such as MVNOs.