A round-up of news on area sharing, forthcoming licensing rounds, use restrictions, spectrum trading, and frequency de-regulation
Interest is growing in 'area sharing' as a cost effective way to roll-out radio based network services: two or more licensees install shared infrastructure in unprofitable areas which is paid for and maintained from their own private 'universal service fund'. Mobile infrastructure such as sites, radio masts and certain basic radio equipment can be used on a shared basis within that area to the maximum extent permitted by commercial needs and regulatory policy which, as the chart below shows, varies between jurisdictions.
More profitable areas are then shared out between co-operating network operators so that in each area, one network is rolled out and is used by its owner on a cost basis and by the sharing operator on a wholesale roaming basis, achieving cost-effective, widespread network coverage without costly duplication of infrastructure and giving due respect to environmental restrictions.
The disadvantage of area sharing is that it may defeat one of the objectives of paying for an individual spectrum licence, particularly in the case of 3G: the deployment of common denominator technology may make it impossible to cash in on service differentiation.
Also, some regulators and competition authorities have voiced concern that area sharing could be detrimental to competition when it takes on the characteristics of market sharing - a potential infringement of Article 81(1) of the EC Treaty. Deutsche Telekom and BT have notified the Competition Directorate General of the European Commission of their proposed area sharing agreement, under which BT would roll out a 3G network in the UK and Deutsche Telekom would roll out a 3G network in Germany. Each party would then purchase roaming services from the other, without rolling out their own 3G network infrastructure in the other parties' territory. The Commission has indicated that this may raise competition concerns, without yet indicating what these may be.
However, as long as terms for access can be shown to be negotiated on a fair and transparent basis, it seems likely that whatever competition concerns there are can be overcome, thus bringing within the scope of the technical or economic progress exemptions in Article 81(3) any arrangements which might otherwise have been treated as restrictive agreements. An obvious example is to comply with any relevant guidelines on setting input charges, to show that the parties to the agreement are not artificially inflating one another's cost bases and are passing on costs savings to end users. Terms in the agreement which prevent either party from rolling out a network beyond the agreed geographical divisions and into one another's 'territory' would also have to be constructed with care.
Regulatory authorities can control whether the incentive to area share exists by ruling on whether or not roaming can contribute to the roll-out obligations in licences. So far, only Sweden positively allows roaming as a form of network roll-out. However, regulatory action to price control fixed-to-mobile call termination rates may have such an impact on revenues that other Regulators are forced to be more sympathetic to cost cutting measures such as area sharing if 3G services are to materialise before being overtaken by wireless local access networks and even fibre to the kerb.
Area sharing in other Member States
- France – While 3G licenses are granted for the whole of France, area sharing is possible from a regulatory point of view. Nevertheless, coverage resulting from roaming on a partner’s network cannot be taken into account by an operator to meet its coverage obligations.
- The Netherlands – 2 bilateral 3G infrastructure sharing arrangements have been announced (Orange Dutchtone – TMO and KPN Mobile – mm02); neither involves sharing of intelligent elements; at the moment the arrangements are being considered by the regulatory and competition authorities.
- Sweden – As regards 3G, area sharing is encouraged by the regulator, but the market is still in very early stages - 30% of the geographical area covered by an operator’s licence has to be covered by its own network whilst 70% of the licensed area can be covered under market sharing arrangements. In practice this means co-operation in building infrastructure in rural areas and each operator having its own network in the major cities.
- Belgium – Market sharing is not forbidden, but it is not yet clear if any licensee proposes to do it.
Forthcoming Broadband Fixed Wireless Access (BFWA) auction
Spectrum auctions are getting very sophisticated and no-one can say that the regulatory authorities do not learn from experience. The UK Radio Agency's proposals for licensing the old Ionica spectrum at 3.4GHz have just been published and they are a million miles from the 3G auction 2 years ago and even the BFWA auction in 2001. The 15 available licences will be regional, based on 8 hot spots and their surrounding areas, and will be auctioned through a simultaneous, multi-round ascending auction process. Unsold licences will continue to be available for 1 year after the auction closes, open to sealed bids above the original reserve price. What is interesting about these licences is their flexibility: the radio spectrum can be used for retail services, wholesale capacity to ISPs and other carriers, and even for backhaul. One of the failings of the last BFWA licensing round was its proscription of anything but retail services, when much of the demand came from wholesale carriers wanting to sell backhaul to the new 3G licensees. This is a vast improvement, particularly given that it is technology neutral. There is also good news on payment terms - licence fees can be paid in 3 equal instalments over 15 years, with no requirements for bankers guarantees, and an option to return the licence after 5 years without penalty when the 'build it or lose it' base station roll-out obligation expires. What is wrong with these proposals is that the licensing round will not even begin until October 2002 - and reserve prices remain to be disclosed.
Further spectrum licensing rounds elsewhere in Europe
- France – A 3rd 3G licence is to be granted before the end of September 2002 and a 4th may be granted after beauty parades.
- The Netherlands – There are currently discussions about allocating further spectrum, but no definite plans.
- Sweden – The national regulator is currently investigating the possibility of awarding both a 4th national BFWA licence and various regional BFWA licences through a beauty contest. The intention is that licences shall be awarded before the end of 2002. There are no current plans for a further 3G spectrum assignment.
- Belgium – Network roll-out is not taking place as quickly as expected. A 4th operator may be appointed but there are no definite plans yet.
Technological neutrality and its impact on spectrum licensing
The new EU Framework Directive, published in the Official Journal in April 2002, talks about 'technological neutrality'. The idea behind this is that decisions about which technologies a network or service should deploy should be a matter for the network or service provider, and not up to the regulatory authorities. Thus, whether a network operator delivers services through a medium traditionally associated with telecommunications, broadcasting or the Internet, it should be regulated in the same, or at least in a consistent, way.
It is not clear where this line of thinking ends though, and in particular, can it be used as a justification by regulatory authorities which licence use of radio spectrum to be more flexible than they have traditionally been?
International standards and harmonisation bodies such as the International Telecommunications Union (ITU) and the European Conference of Postal and Telecommunications Administrations (CEPT) issue decisions about which technologies should be used in certain parts of the spectrum, usually to promote band alignment and the EU Radio Spectrum Decision gives information society policy endorsement to such harmonisation of spectrum allocations. But the relationship between harmonised spectrum allocation and the flexibility assumed by technological neutrality is a new and unresolved question.
Obligations to pursue regulatory policies which are technology neutral may persuade regulators to approach harmonisation at a more basic level, to impose controls relating to interference control and sound spectrum management and even in relation to services to be delivered, as in the 3G licence, but to forbear from associating particular frequencies with particular technologies.
For example, spectrum has been allocated on a harmonised, Europe-wide basis for TETRA use and licences were duly granted which could be revoked if a technology other than TETRA were deployed. However, TETRA has not been a commercial success. Technologically neutral licensing might encourage the radio authorities to permit the use of a different, more efficient technology such as CDMA on the former TETRA frequencies, as long as it respects services using adjacent bands and the broader requirements of spectrum management policy. If there is no impact on spectrum use beyond diversifying from harmonisation guidelines and efficient use of the spectrum is maximised, the arguments against permitting this seem weak. The obligation to respect technological neutrality would strengthen the authorities justification were it minded to go down this route.
Many existing spectrum licensees use their frequency allocations with old, inefficient technologies, or not at all. Such companies might be acquired at a fraction of the value they would have if their spectrum could be regarded as clean and unencumbered by usage restrictions. For a licensee, this points to immediate shareholder value in taking a licence in the name of a subsidiary rather than the main operating company because it facilitates spinning off unproductive areas of the business with nothing to offer but a radio licence.
Broadening specific use licences in other Member States
- France – The principle of technological neutrality encourages the French regulator to permit the use of different, more efficient technology, so long as the licensee respects the General Terms and Conditions of its licence using adjacent bands and the broader requirements of spectrum management policy.
- The Netherlands – This issue has arisen in the radio network market but the process for getting approval of a change of use is generally very difficult.
- Sweden – The principle of technological neutrality applies in Sweden. Specific use licences tend not to be granted.
- Belgium – Specific use licences tend to be avoided in Belgium.
At the moment, you cannot buy a licence or rights to use radio frequencies in any EU Member State, except from the licensing authorities. The Framework Directive changes that, specifically allowing national regulatory authorities to introduce spectrum trading. The UK Government has responded by including spectrum trading in its Communications Bill, published May 2002, giving OFCOM the ability to legislate for licensees to sell on all or part of their spectrum assignment on commercial terms. OFCOM is given the widest possible discretion as to the form trading takes, and may attach some fearsome conditions: the right to approve all transfers and to charge for the privilege is only the beginning. Don't expect a spot market in UK radio bandwidth, but anticipate the opportunity to increase or reduce your assignment sometime towards the end of 2003.
Spectrum trading elsewhere in Europe
- France – Licences are granted as personal rights and therefore spectrum trading is not currently possible.
- The Netherlands – Regional licensees have sold parts of their spectrum to each other. This is under the approval of the authorities and is possible only where there is no distortion of competition.
- Sweden – No spectrum trading is allowed, however there is large over-capacity for GSM (and similar over-capacity is anticipated for 3G) and so the right to trade spectrum is being actively pursued.
- Belgium – Licences have been granted as personal rights and so no spectrum trading is taking place.
Licence exempt spectrum
Bluetooth and 802.11 are polite technologies which can use unlicensed, de-regulated spectrum at 2.4GHz for commercial purposes. Wireless Local Access Networks (WLANs) which use these or similar technologies are springing up across Europe. The UK Radio Authority is expected, any day now, to publish firm proposals which permit the use of unlicensed spectrum for commercial services to third parties in the UK. When this happens, spectrum will be available to anyone using compliant equipment (respecting power and distance restrictions likely to be imposed by the Radio Agency) without charge. If you are content to stick to offering data services and you have actual or potential customers who can live with variable service quality, this is a bargain.
Use of unlicensed spectrum elsewhere in the EU
- France – Frequencies used in WLANs technology do not require a licence, for local networks using low-range devices and low power technologies in the 2.4 GHz frequency bands.
- The Netherlands – The range of spectrum which is available to use without a license is very limited. Its use depends on a lack of scarcity and no interference with other users. The maximum capacity is limited. Typical use is for garage doors, digital videocamera’s etc, but no commercial use is yet permitted.
- Sweden – The general rule is that all use of spectrum must be licensed. However there are an increasing number of exemptions for eg telemetry solutions, HIPERLAN and so-called Short Range Devices.
- Belgium – All use of spectrum must be licensed other than public and military radio and radio equipment with low effective radiated power (ERP).
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Important - The information in this article is provided subject to the disclaimer
. The law may have changed since first publication and the reader is cautioned accordingly.