Does the Italian spectrum auction prove that LTE1800 has reached maturity?
At the conclusion of the Italian auction on 29 October 2011, the main noted outcome was the achievement of a new record price for 800MHz spectrum in Europe (approx EUR0.80 per MHz per population) following intense competition between the four mobile operators in this band. A lesser noted outcome was the willingness of three mobile operators to pay a significant premium for 1800MHz spectrum (approx EUR0.26 per MHz per population) over the 2.6GHz (paired) spectrum (approx EUR0.06 per MHz per pop) – a multiplier of over 4 times.
Whilst part of this may have been due to ‘auction fatigue’ (a desire to avoid the auction continuing for several months), we believe the outcome is also a strong indicator of the immense amount of progress made by organisations such as the GSA (the Global mobile Suppliers Association) and GSMA (GSM Association) towards establishing an ecosystem for LTE in the 1800MHz frequency band. The results of the Italian auction suggest that Telecom Italia and Vodafone prioritised obtaining 20MHz of paired spectrum in the 1800MHz band over obtaining this amount in the 2.6GHz band.
The case for this is clear – the propagation characteristics of 1800MHz mean that around 30% fewer base station sites are required if 1800MHz spectrum is used to cover urban areas rather than rural areas (see presentations on the GSA’s LTE 1800 zone for further details) and the delayed availability of 2.6GHz in some countries (e.g. due to scope for interference with aeronautical radar systems) and corresponding migration of GSM subscribers to 3G devices has meant that it is increasingly possible for many operators to free up sufficient 1800MHz spectrum to make LTE deployment in 1800MHz feasible (initially 10MHz of paired spectrum rising to the full 20MHz over time).
In May 2011, Deutsche Telekom, France Telecom and TeliaSonera joined together to encourage vendor support for LTE devices operating in the 1800MHz band, promoting it as their main band for urban LTE deployment. The outcome of the Italian auction, coupled with Vodafone Australia’s recent arrangement for accessing 1800MHz spectrum held by the state rail authorities in order to deploy LTE in this band, together hint that LTE 1800 may also become a key part of Vodafone’s technology strategy (in previous European auctions, such as Germany 2010 and Spain 2011, Vodafone has primarily sought to secure 2x20MHz of spectrum in the 2.6GHz band, showing little interest in acquiring additional 1800MHz spectrum). It will also be interesting to see if the Swedish auction for 1800MHz which started on 11 October also results in relatively high prices for this band.
The real test for the success of the LTE 1800 ecosystem is whether the band does becomes part of the essential core portfolio of bands in all LTE mobile handsets and dongles. Perhaps the biggest indicator of success will be whether the iPhone5 released in 2012 includes 1800MHz as one of the supported LTE bands by default?
Note: Aetha Consulting assisted an Italian mobile operator with its preparations for the recent spectrum auction. Our role included providing an assessment on the development of the mobile broadband market, a competitive assessment of the potential bidder strategies and an independent review of the company’s business model for valuing the spectrum. Our work included advising on the approach to valuing differing amounts of spectrum in each of the frequency bands. In a highly competitive auction running for 469 rounds over 22 days, our client successfully acquired the frequencies it had targeted prior to the auction.