The outcome of the recently completed Principal Stage in the UK’s 700 MHz and 3.6-3.8 GHz spectrum auction led to prices being significantly lower than analyst forecasts. What could be the reasons for spectrum being sold at prices well below the industry average, particularly in a highly competitive market such as the UK? The outcome of a spectrum auction depends on many factors – the reserve prices, market structure, competition and existing spectrum holdings are factors most commonly highlighted. In addition, there are some hidden factors that significantly influence the outcome of an auction. The timing of release is one of them. In 2012 Real Wireless predicted the impact of the availability of 700 MHz band in our report on Techniques for increasing the capacity of wireless broadband networks: UK, 2012-2030 produced for Ofcom. We indicated that “in the absence of 700 MHz, a spectrum “crunch” is encountered between 2022 and 2025, … the only option for meeting further demand growth is to rapidly increase the number of sites. By contrast, bringing 700 MHz availability forward to 2020 reduces the scale of the rapid build-out programme”. The fact that the mobile industry is benefitting significantly due to the availability of the 700 MHz band in 2021 to avoid large site-build programmes is not known to many of the analysts.
As a result of the outcome of this auction, all UK MNOs have a similar amount of spectrum i.e. 80 – 100 MHz of mid- band spectrum (i.e. 3.4-3.8 GHz) in total. MNOs have the flexibility to deploy the mid band spectrum (distributed RAN or centralised RAN etc.) depending on the requirements and the strategy. We found in our techno-economic analysis of a 5G network deployment in London for 5G NORMA, that the TCO for the selected MBB scenarios is not too different. It will be interesting to see how the impact of new opportunities such as FWA and the availability of mmWave spectrum changes the demand for the mid band spectrum in the future.
Now that the Principal stage is over, here are some insights that may determine the outcome of the Assignment Stage which determines the precise frequencies of the spectrum won by each bidder. Of course, how much more will be spent by the MNOs in the Assignment stage depends on each MNO’s strategy. Looking at the existing holdings in the 3.4-3.8 GHz band, it may beneficial for EE to acquire the lowest 40 MHz. This may allow it to trade with H3G in the future to have a contiguous 80 MHz of spectrum in the mid-band i.e. current holdings from 3.4-3.6 GHz band plus the 40 MHz acquired from 3.6-3.8 GHz band.
In 700 MHz, again, competition might be low at the Assignment Stage. But EE might try to acquire the Supplementary Down Link (SDL) spectrum (i.e. 20 MHz of unpaired spectrum within the 700 MHz paired spectrum) next to the 2×10 MHz paired spectrum to make the best use of the 10 MHz of SDL spectrum.
Looking at the current spectrum assignments, there is another interesting proposition for EE. In the UK, the current 800 MHz band has a reverse duplex arrangement. This means UL and DL are reversed compared to normal operation where DL uses the lower portion of the band. This means if EE gets the top end of the 2×10 MHz in 700 MHz band, EE is 8 MHz away from their 2x5MHz assignment in 800 MHz band. This is well within the range of the instantaneous bandwidth of a power amplifier used in the base station. This could potentially give significant benefits to EE when it comes to deployment and implementing carrier aggregation. EE could potentially trade with H3G to get (almost) contiguous assignment, (there is a guard band of 3 MHz). This is a long shot and subject to consultation with the industry where other MNOs could object to this based on competition grounds i.e. other MNOs may argue that EE will have an unfair advantage. But there is a potential opportunity for EE to push the efficient use of spectrum which is one of Ofcom’s primary objectives.
Real Wireless, the world’s leading independent wireless advisory firm, provides informed, independent, up-to-date expert knowledge based on our deep understanding of all of the issues surrounding auction strategies – from both the operator and regulator perspective. We offer evidence based independent advice to help regulators and spectrum users make informed strategic decisions on digital infrastructure.
