21 February 2023

Last week, the European Commission released a wide-ranging study into the efficiency of spectrum award processes in EU countries, focusing on how conditions attached to the awards affected 5G rollouts. In this blog, Jonathan Wall (Principal at Aetha) reflects on the study’s conclusions and its lessons for other countries considering 5G spectrum awards.

What factors enable a successful 5G rollout?

The study found that early spectrum awards were correlated with swift 5G rollout and higher population coverage. Exactly as one might expect, making harmonised spectrum available earlier enables operators to deploy their networks faster.

The study also confirmed a second ‘common-sense’ correlation, between greater mobile broadband data consumption and faster 5G rollout. In countries where users demand large data volumes, 5G and (arguably more importantly) the additional spectrum bandwidth are crucial tools in providing a good experience to customers.

Perhaps the most interesting correlation from the study was that higher telecoms investment is correlated with both lower consumer pricing and higher competition in the spectrum awards. As the study notes, this contradicts mobile operators’ arguments that lower ARPUs reduce the ability of operators to invest in their networks. However, this is perhaps not the full story…

How can regulators encourage network investment?

European telcos have been able to invest (and compete on network quality) because the cost of spectrum has generally not been so high as to prohibit investment in the physical networks. This is a direct consequence of two major regulatory decisions:

• European spectrum auctions have not generally aimed to maximise revenues, as the EC’s Connectivity Toolbox recommends
• Similarly, in most spectrum auctions, regulators have set sensible spectrum caps and avoided generating artificial scarcity, which would push prices upwards.

The study also notes the correlation between competitive markets and the speed of rollout. However, we note that the study looks at mature mobile telecoms markets where the vast majority of operators offer close to nationwide LTE coverage prior to 5G rollout. In less well-covered markets, the breadth of 5G rollout is likely to depend on geographic and economic obstacles to providing this nationwide coverage.

Regulators should also be very careful when limiting the availability of spectrum – potentially raising spectrum prices to unsustainable levels –  in order to encourage new entrants, as other structural factors are equally important. We wrote about this previously here.

The most obvious European example of a case where regulators have not been so successful is in Italy, which we cover in detail here, where artificial scarcity led to very high spectrum prices. While Italian 5G rollouts have progressed well, the operators are now feeling the strain of this investment cycle and have requested to delay payment of the spectrum fees.

Optionality enables efficient network rollout

Even where spectrum awards have been well designed, operators benefit from flexibility in planning and investing in the physical 5G rollout.

The study makes comparisons between the speed of 5G rollout in the EU and advanced international countries, noting that the ability of South Korean and Chinese networks to use Chinese vendors’ equipment has likely reduced the cost of the 5G rollouts compared to Europe. However, the 5G investment cycle is often well aligned with operators’ natural network upgrade cycle, so there have been some efficiencies gained from performing a full network swap. Overall, though, greater choice in network vendor should enable cheaper widespread 5G rollout – one reason why Open RAN is so eagerly awaited.

Finally, regulators should not overlook the importance of making existing spectrum assets technology-neutral. While 5G in Europe has typically focused on 700MHz and 3.5GHz, 5G deployed in already-owned 2100MHz via Dynamic Spectrum Sharing has also been one way for operators to start their rollouts. More generally, the use of existing low- and mid-band spectrum as an anchor band for the 3.5GHz (increasing its coverage) is a vital tool for operators to create a wide coverage 5G network.

Looking ahead to other 5G launches

The EC study is a useful review of Europe’s progress in 5G. It confirms some common-sense observations: spectrum availability is key, serving data growth requires new bandwidth, and that where spectrum pricing is reasonable, competition can help stimulate network investment.

However, it is also a good reminder of the importance of spectrum award design and flexibility of rollout strategies. Making the correct calls on these parameters opens the door to widespread 5G connectivity – getting them wrong risks years of delays to network deployment.