NZ spectrum debate highlights WiMAX regulatory dilemma
Wireless frequencies become prime real estate
An obscure spectrum debate in New Zealand highlights the dilemmas that will be faced in many countries as broadband wireless frequencies become prime real estate instead of neglected side streets.
The country's Ministry for Economic Development (MED) is threatening to take back blocks of 2.3GHz spectrum currently held by start-up operator Woosh Wireless, claiming these have been underused and that re-auctioning them would create greater competition.
This row comes against a general trend for large players to take a keen interest in WiMAX-suitable spectrum, an interest that will start to sideline most of the start-ups.
In the early days of WiMAX, it was widely seen as a weapon for small or alternative operators, giving them a rare chance to challenge the major players - because spectrum in 3.5GHz and even 2.3/2.5GHz bands was going cheaply in most areas of the world, devalued by the broadband wireless failures of 2000.
WiMAX remains a key spearhead for challenging the incumbents, but the disruptive forces are far larger companies - Google, Sky, Intel rather than start-ups - and this will make survival difficult for small players that are not fortunate enough to have the kind of backing Clearwire has achieved.
Already, many start-ups - or their spectrum assets - are being snapped up by bigger names (for instance, Iberbanda in Spain falling to Telefonica). This will often be a chance for the small companies to cash in, as they find themselves in possession of a spectrum asset that has gained massively in value, but interference by an active regulator may thwart their hopes, as in New Zealand.
The timing of the MED's proposal is odd. It claims that the 2.3GHz frequencies were originally allocated for MDS broadcasting but were never exploited as such, and so should be taken back and reallocated for their new purpose, rather than staying automatically with the companies that bought them in 1990 (the licenses expire in 2010).
This might be fair had Woosh not been one of the most active operators in deploying commercial broadband wireless in the past few years - using the IPWireless TD-CDMA technology, which it plans to supplement with some WiMAX also. To boost its roll-out, it recently increased its spectrum store by signing a leasing agreement with Telecom New Zealand to use the incumbent's own 2.3GHz blocks.
This suggests that MED has spotted the opportunity to raise a substantial sum by reauctioning the 2.3GHz licenses before 2010, especially as the adoption of 2.3GHz networks around Asia, led by Korea, adds new value to the band, with operators eyeing the opportunities for an Asia-Pacific roaming partnership to drive new value into their roll-outs.
The real motives may be financial and political - despite the recent leasing deal, Telecom New Zealand has been buying up WiMAX spectrum, mainly in 3.5GHz, and may well have ambitions of its own in this direction, should it be able to acquire sufficient bandwidth.
But MED does also raise a genuine issue, which will be echoed round the world as new allocations take place in key spectrum such as 700MHz. This is that, while governments may back the principle of encouraging new competition and creating suitable market conditions for new players, in practise, real challenges to the incumbents require big players with very deep pockets, with the ability to buy equipment on mass scale, and with expertise in running telecoms businesses and forming international alliances.
It is mobility that makes it inevitable that only a very few start-ups - and those, like Clearwire, backed by giants - can survive in broadband wireless. A network of small operators with roaming deals is conceivable for fixed wireless, but will not support the national and international scale required for successful mobile broadband.
This debate has been very clear in the US, during the deliberations over freeing up the analog TV spectrum in 700MHz. Some have argued that the FCC must set aside some spectrum for new entrants and services at a reasonable price, rather than putting it all on the open market. But this brings the danger that start-ups will acquire low cost spectrum, but prove unequal to the task of deploying attractive and competitive services in it, especially in the difficult rural areas. Tight conditions would need to be imposed to enforce roll-out deadlines - and prevent another NextWave fiasco - and perhaps to stop the spectrum being immediately traded on to a larger player.
Mobility will require national coherence, which means control by a small number of operators or a strong system of roaming to unite a large number of alternative operators. The history of small competitive service providers in the US has been dismal, as the examples of the CLECs, the broadband wireless carriers of the late 1990s and the Wi-Fi hotspot operators illustrate. And the prospect of a plethora of small, financially unstable operators creating a patchwork network is almost as unappealing as Cingular and its Baby Bell owners owning the whole country.
The most effective way to introduce new competition and services across the whole of the US, and disrupt the increasingly iron grip of Verizon, SBC and BellSouth on US fixed and mobile telecoms, would be to see an alliance of alternative wireless operators and the PC/IP industry that is so keen to take over the steering wheel for the next generation of mobile networks.
In the Clearwire deal we see a version of this model writ large - majors such as Intel putting their financial and political weight behind a start-up operator to ensure its growth and survival, and in doing so, protect their own business interests.
On a smaller scale, Intel and others have formed similar alliances with start-ups elsewhere, such as with Unwired Australia. Without such backing, small players like Woosh will find themselves quickly isolated and unable to keep up with the major operators.
The New Zealand debate
At the heart of the New Zealand argument are 12 8MHz blocks in the 2.3-2.4GHz band which were first allocated back in 1990 and which are not due for renewal until 2010.
NZ Telecom has rights to eight of these blocks, Woosh owns rights to two, and Sky TV and BCL each owns one block. Woosh has negotiated with Telecom over a few of its blocks, and has also been in negotiations with Sky, but the government is not convinced this would be the best use of the spectrum.
The government says it wants to take back some of these blocks, repackage them, optimise them for WiMAX use, and then re-auction them. The regulator says that, since the licenses were originally allocated for a different usage, they can be taken back. Woosh argues that the government cannot forcibly take back the blocks and so any plan to re-auction would mean that the new owners could not activate the services until 2010 at the earliest, putting New Zealand well behind in broadband wireless.
The government said: "In some of the bands that are able to be used there are some historic licenses around which haven't been used. What we are intending to do is to take some of those back, which we are able to do under their terms of issue, repackage them and optimise them for wireless broadband and take them to market in a way that will allow the fastest possible roll-out of WiMAX, for example."
There has been considerable controversy around WiMAX-suitable spectrum in New Zealand. Last month, providers led by Wellington-based Araneo demanded that the bands allocated in 3.5GHz should be widened from the current 7MHz pairs in order to support high speed services.
And earlier in the year, New Zealand Telecom was accused of acquiring a slice of 3.5GHz spectrum without regulatory clearance, according to the country’s Commerce Commission, which launched a probe.
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