Cellcos ally to keep their hands on beach front spectrum for 4G

Lobbying regulators to avoid paying huge license fees

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But the dream of creating a wireless-only quad play, and making the wireless operators once again the highest valued providers, depends on continuing access to significant swathes of spectrum in appropriate bands for the next generation network.

And just as other technologies, outside the 3G-plus field – such as 802.16e – may take their place in the 4G mobile broadband picture, so a new breed of operators will use them to try to eat away at the cellcos' market share.

The best defensive weapon the mobile operators have, especially in Europe, is their control of the beach front spectrum, leaving WiMAX confined to less desirable bands, such as 3.5GHz, whose propagation qualities make a fully mobile business model hard to support in many areas.

New bands will open up, such as the 700MHz and 450MHz frequencies, but despite excellent propagation these are limited in quantity for full service offerings. The available frequencies between 1Ghz and 2.5GHz are rightly prized and the mobile operators will want to ensure they do not fall into the hands of a possible challenger such as a wireline-only carrier, cable or satellite broadcaster, or well funded start-up – or another cellco coming in from abroad, such as Egypt's rapidly expanding Orascom.

European policy

The argument has started in Europe around the 2.5GHz band, which is due to be auctioned in 2007-8 and which was earmarked for 3G expansion, meaning that UMTS/HSxPA would remain the technology of choice and the existing operators would be in the strongest position to buy the spectrum to add to their existing UMTS networks.

But the European Commission favours a shift to technology neutrality, which would allow other technologies such as WiMAX to be used, and some regulators, at least, will support this, notably the UK's Ofcom (which is under pressure from a clear candidate to bid for a licence, wireline-only British Telecom).

Such a shift would entice a wide range of bidders to some auctions, pushing up the prices and potentially depriving major cellcos of additional 3G spectrum in some regions. While it may be too late to lobby all the EU nation regulators into submission on this issue, the 2.5GHz is just the start of the issue. Cellcos dread that a new wave of frequencies and auctions will be devised for "4G" at the end of the decade, creating a new level playing field before most of them have achieved ROI on their 3G roll-outs.

Hence the call to be allowed to use their GSM and 3G frequencies – and to renegotiate the licenses as they approach expiry, rather than returning them to the pot – for new technologies.

This is an argument that is already being played out, with characteristic complexity and political tension, in India, where cellcos are challenging regulator plans to allow 3G services in 2G spectrum. And Japanese operators such as DoCoMo are feeling under intense pressure as new 3G licenses are about to be awarded, and so are keen to improve the long term value of their own spectrum. And the inclusion of China Mobile is also significant, partly because of its increasing focus on international activities, but also because it will be eager for protective clauses to be included in the 3G licenses when they are finally awarded at home.

The problem with the argument of the cellcos is that it seeks to preserve a closed market that is entirely at odds with evolving concepts of deregulation, open competition and new wireless business models. It is certainly important that operators should be able to deploy whatever they deem to be the most appropriate technology in their spectrum, as US players largely do.

The days when regulators decided on which technology was best, and the timescales for its replacement, should have died long ago. Cellcos are starting to maximize the value generated by their licenses by using multiple technologies – T-Mobile and Orange deploying broadband wireless networks in the TDD portion of their UMTS bands, for instance, and the interest of the mobile providers in separate television licenses. But this flexibility remains highly constrained by the regulators.

However, the move towards operator choice and a back seat role for the regulator does not necessarily benefit the cellcos. Indeed, the extreme view is that the fourth generation will be built in spectrum that is largely license-exempt or lightly licensed, as 5GHz bands currently are, allowing any party to compete, differentiating purely on the basis of the appeal and quality of the offering.

This picture would save the cellcos spending large sums on spectrum, but would not suit their needs as it would open them up to vast new competition, dwarfing what they already face from the low cost, flat rate wireless data services provided in Wi-Fi and broadband wireless systems.

Instead, they want the freedom to be able to make any decisions they wish in their own spectrum – quite reasonably – but also want full protection of their markets from possible new spectrum holders, by seeking a virtual guarantee that they can, subject to some performance criteria, hold on to their GSM and 3G spectrum indefinitely (even though the former cost very little, and so does not support the argument that, having raised so much money from auctions, governments have an obligation to allow the operators time and the right conditions to cash in).

In other words, spectrum should be cheaper and even free, and come with fewer conditions attached. But in order to support not just the technologies of 4G but its vision – open, universal access at low end user cost and high service level, with innovative multimedia services enabled – the market needs to be open to any operator with a creative business model and an attractive service.

Copyright © 2006, Wireless Watch

Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.

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