Telecoms

Spectrum auctions can’t be cash cows

Read time 6min 00sec

Inflated spectrum pricing and other spectrum management practices are burdensome on consumers, as this leaves millions unable to access mobile broadband services.

This is according to a new report from the GSM Association (GSMA): The Impact of Spectrum Prices on Consumers. The study is based on an econometric model that evaluates the impact of spectrum prices on market outcomes over the period 2010 to 2017, in developed and developing countries.

According to the GSMA, while previous research showed a link between high spectrum prices and negative consumer outcomes, more work was needed to establish whether this is a causal relationship rather than a correlation.

The findings in this latest study present strong evidence linking high spectrum prices to slow network rollout, reduced quality of service and poor mobile coverage.

The mobile industry body highlights that efforts to maximise spectrum revenues at the expense of consumers is not consistent with government objectives to leverage mobile technology to reduce poverty and achieve economic prosperity, including meeting the UN Sustainable Development Goals. 

“Spectrum auctions can’t be viewed as cash cows anymore,” emphasises Brett Tarnutzer, head of spectrum, GSMA.

“Any government that prices spectrum to maximise revenue now does so with full knowledge that its actions will have negative repercussions on citizens and the development of mobile services. We now have clear evidence that shows by restricting the financial ability of operators to invest in mobile networks, millions of consumers are suffering.”

The GSMA report comes as the South African government noted licensing spectrum is not only vital to bringing down the costs of data, but is an important element of the economic stimulus and recovery plan, as a spectrum auction could raise several billion rand for the state.

After years-long pleas from mobile operators for more spectrum, communications and digital technologies minister Stella Ndabeni-Abrahams issued the country’s policy for the licensing of high-demand spectrum and directive for the licensing of a wholesale open access network.

South Africa’s last big set of spectrum issued was in the 2.1GHz band, which helped the operators in their 3G network deployment. Vodacom and MTN were allocated such spectrum, in 2004 and 2005, respectively, while Cell C received such spectrum in 2011.

The report states: “The radio spectrum that governments license to operators is central to the quality and affordability of mobile broadband services. However, some government policies – inadvertently or not – result in high prices being paid to access spectrum.”

 

Key findings

The report found that in developed countries, high spectrum costs played a significant role in slowing the rollout of 4G networks and drove a long-term reduction in 4G network quality.

Meanwhile, in developing countries, high spectrum costs slowed the rollout of 3G and 4G networks and drove long-term reductions in overall network quality.

In terms of network coverage, the report notes that in both developing and developed countries, there is compelling evidence that high spectrum prices had a consistently negative and statistically significant impact on 4G coverage.

“Actual coverage levels are compared to the 4G coverage that would have been achieved if spectrum prices had been in line with the median spectrum price globally.

“On average, these operators would have achieved 7.5 percentage points higher coverage by the end of 2017 if spectrum prices as a percentage of revenues had been in line with global averages,” it states.

 

“Early allocation of spectrum drives significant benefits for consumers. For example, an operator that was able to access 4G spectrum at least two years earlier than another achieved average 4G network coverage levels 11–16 percentage points higher.”

Looking at network quality, the report found that in developed countries, there is strong evidence that higher spectrum prices drove lower 4G download speeds.

Furthermore, there is evidence to suggest higher spectrum prices drove reductions in 4G upload speeds in both developed and developing countries.

“In the period of analysis, consumers in these markets would have experienced on average 1Mbps higher download speeds.”

Concerning consumer prices, the GSMA found some evidence that higher spectrum costs may have driven higher consumer prices in developing countries.

“There is emerging evidence of a link between higher spectrum prices and higher consumer prices in developing countries. The results show that higher spectrum costs as a proportion of revenue drive higher prices for both voice and mobile broadband.

“For example, a one percentage point increase in the cost of spectrum as a percentage of revenue increases the monthly price of the voice basket by 0.2% and the 500MB mobile broadband basket by 0.5%.

“However, the results are not robust to all of the analytical approaches we employed so the results cannot yet be considered fully conclusive.”

For developed countries, it says further research is needed for this set of results to be fully conclusive, and better data on consumer prices is needed to assess the impact.

It states: “The evidence for developed countries is inconclusive as the results are not consistent across different analytical approaches. Furthermore, the price baskets considered in this study are unlikely to be representative of consumption patterns in these markets over the 2010 to 2017 period.”

Way forward

According to the GSMA, the findings have important ramifications for regulators, particularly when so many are trying to prioritise improved coverage and increased investment in 4G and 5G.

To this end, the body concludes by making the following recommendations as a way forward:

  • Maximising revenues from spectrum awards should no longer be a measure of success. The report points out that excessive spectrum prices can cause serious harm to consumers that outweigh any potential benefits obtained through higher auction revenues.
  • Auctions can deliver inefficient outcomes when poorly designed, but when well designed, auctions can be effective in allocating spectrum to those that can generate most value from it.
  • Artificially limiting the supply of spectrum, including through set-asides, risks slowing services and inflating prices. “When additional spectrum is instead made available for the benefit of all, consumers experience higher quality mobile services.”
  • Spectrum should be released to the market as soon as there is a business case for operators to use it. According to the report, early release of spectrum drives better consumer outcomes, which is important in markets where high coverage and affordable services are prioritised.
  • Policymakers should work with stakeholders to enable timely, fair and effective spectrum licensing to the benefit of society. It is the view of the GSMA that a coordinated approach to mobile sector regulation by different parts of government is essential if ambitious digital inclusion and industrial policy objectives are to be realised.
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