GSMA cautions against poorly designed spectrum pathway

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As South African mobile operators await policy crafting the path for the allocation of spectrum, the GSM Association (GSMA) warns that poorly designed assignments have the potential to cause more harm than good.

The GSMA indicated this in its paper titled “Auction Best Practice”, highlighting some key concerns from recent 4G and 5G spectrum awards globally and offering recommendations to help governments guarantee affordable, high-quality mobile connectivity from spectrum awards.

Although local policy-makers are yet to decide on SA’s spectrum model, allocation should not be designed to artificially inflate prices, or inefficiently distribute the already scarce resource, the GSMA advises.

“Auctions can and do fail when poorly designed,” says Brett Tarnutzer, head of spectrum at the GSMA. “We’re seeing a worrying trend of badly run spectrum awards that could seriously impact the mobile industry’s ability to connect a higher proportion of people to high-speed mobile broadband.

“It’s important that South Africa does not repeat these mistakes, and place maximising revenues above the connectivity of its citizens, if a decision is taken to award spectrum in the country.”

In the paper, the GSMA notes auctions have become the dominant mobile spectrum assignment mechanism over the past three decades. They were designed to provide a transparent, impartial and legally robust means of assigning spectrum to those who will use it most efficiently to support competitive, high-quality mobile services. Alternative approaches like administrative awards and lotteries have generally proved less able to assign spectrum in an efficient, impartial and legally robust way.

However, the organisation says, the benefits of auctions can be lost when they are not properly planned.

Some auctions have failed to assign spectrum despite it being in demand, while others have been contested for artificially inflating prices, which risk harm to consumers. Some have led to claims they are biased in favour of some operators, or for not preventing strategic behaviour, leading to inefficient spectrum distribution. This means effective auction design has become vital to delivering the best possible mobile services, the paper highlights.

The long wait

South African mobile operators have for years been pleading for more spectrum in order to provide faster and more widespread high-speed data services. Recent promises from government indicated 4G spectrum would be allocated in 2019 and then spectrum suitable for 5G in 2020.

The Independent Communications Authority of SA (ICASA) last year confirmed plans to license high-demand radio frequency spectrum by the end of March 2019 but that deadline has come and gone.

The Department of Communications (DOC) then said a final policy directive on spectrum allocation would be issued by the end of April, which also did not happen.

Both president Cyril Ramaphosa and finance minister Tito Mboweni have emphasised the importance of the process. In his State of the Nation Address in February, Ramaphosa went as far as to vow that communications minister Stella Ndabeni-Abrahams would "shortly be issuing policy direction" to ICASA for the licensing of spectrum.

However, in early May, the DOC revealed in a statement a decision to hold back on the release of the finalised policy directive.

"Following extensive consultations in this regard, the minister deems it necessary to hold the policy direction on unassigned high-demand spectrum in abeyance for consideration in the sixth administration," it said, indicating the topic would only be revisited after the May general elections.

Economic recovery

When he detailed government's economic stimulus and recovery plan, Ramaphosa reiterated his administration is committed to accelerating the allocation of high-demand radio spectrum to enable licensing in the 2.6GHz, 700MHz and 800MHz bands to hasten the growth of mobile communications.

Further, a spectrum auction could raise several billion rand for government.

The mobile industry makes an important contribution to South Africa’s economy.

According to GSMA Intelligence, in 2018, the mobile ecosystem in SA generated 7.6% of gross domestic product or $28.5 billion in value added. This economic impact is expected to rise to $30 billion by 2023, due to the productivity benefits from increasing mobile Internet penetration.

“Spectrum is essential fuel for mobile networks and its ineffective use will only lead to bad consequences for consumers,” adds Tarnutzer. “All governments should recognise that the most important objective of awarding frequencies should not be about making the most money, but rather about ensuring consumers benefit from the best mobile connectivity.”

In 2016, operators thought there was finally hope when ICASA made plans to license spectrum in the 700MHz, 800MHz and 2.6GHz bands, which are usually considered as compatible for 4G/LTE technology.

However, the Department of Telecommunications and Postal Services (DTPS) challenged the licensing process, saying ICASA should have waited until the National Integrated ICT Policy White Paper was finalised before inviting operators to bid for spectrum. The DTPS won a court interdict to halt the auction.

In September 2018, the DTPS and ICASA finally agreed to settle the two-year court battle and plans for an auction appeared to be back on the table, but these seem to once again have stalled.

GSMA recommendations

Given that spectrum is a critical and scarce resource, the GSMA outlines its key global position for selecting the applicant who would use it most efficiently to deliver the greatest socio-economic benefits.

The GSMA highlights the following warnings and recommendations:

* The top priority for spectrum auctions should be to support affordable, high-quality mobile services.

* Auctions are a tried and tested award mechanism but can and do fail when poorly designed.

* Auctions should not be the only award process as they are not always suitable.

* Auctions designed to maximise state revenues risk serious harm to consumers.

* Assign a sufficiently large amount of spectrum and publish roadmaps to support high-quality mobile services.

* Spectrum caps and set-asides distort the level playing field.

* Licence obligations and conditions should be designed to minimise the cost of covering non-profitable areas, and avoid distorting the award of spectrum.

* The chosen auction design should not create additional risk and uncertainty for bidders.

* Poorly chosen lot sizes or inflexible packages of spectrum lots risk inefficient outcomes.

* Policymakers should work in partnership with stakeholders to enable timely, fair and effective awards.

To access the complete version of the GSMA paper, click here.

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