Regulation & Radio Electric Spectrum in Latin America and the Caribbean

The saturation of the traditional markets of telecommunications operators, the convergence of services and the desire of governments to increase accesses and broadband coverage are some of the reasons that Latin American and Caribbean nation Governments are looking at the granting of radio electric spectrum licenses, mainly oriented to the implementation of UMTS/HSPA and WiMAX, with great optimism. Research firm, Signals says that it believes that the optimal assignment of this resource should revolve around three essential items: the delivery systems, the coverage guidelines and the deployment timetables that are imposed as a limit for the commercial launch of the services.

Recent experience indicates that the adoption of a spectrum assignment policy focused on maximizing monetary return instead of coverage and investment requirements is often times counterproductive. This is due the fact that if the minimum price is excessive (as is the case of the US$ 120 million cost imposed by Venezuela for the 30 MHz frequency on the 1.9 GHz band), it could force local operators (in this case Digitel) to opt not to participate in the process (something that would leave the company at a disadvantage with respect to Movilnet and Movistar Venezuela).

Signals highlights the fact that two of the greatest risks faced by regulators in the region are that of a bidding process that is declared void due to lack of interest or that of a winning bidder being unable to offer commercial services on the spectrum acquired. Such could happen for a variety of reasons:

• Delays in the process of granting new licenses allowing already established operators to increase their market position via aggressive client acquisition strategies.
• A geographic distribution of licenses that allows interested companies to select only those regions with higher per capita incomes or greater population densities.
• The awarding of licenses to operators that lack the capital necessary to finance the deployment of infrastructure that allows for the commercial launch of services.

Among the examples that illustrate these types of situations are the delay in the opening up of the mobile telephony markets in Costa Rica, Surinam and the Bahamas or the time it has taken the Argentine Government to reassign the spectrum given back by Movistar after it acquired Movicom. In contrast, Signals believes that the Brazilian requirement of "tying" the attractive IMT-2000 license for the City of São Paulo to licenses for northern Brazil sought to avoid the lack of interest by operators in acquiring broadband IMT-2000 in the (northern) states of Amazonas, Amapá, Pará, Maranhão and Roraima and also will force them to comply with coverage requirements for the newly acquired spectrum.

Finally, the lack of financing is also a huge problem for regulatory agencies that have seen how companies having difficulty obtaining financing have delayed, limited and even stopped infrastructure deployment throughout the region. There are many examples; the ex-Smartcom (Chile), Solutrea (Jamaica), Alegro (Ecuador), LaqTel (Trinidad & Tobago), Midicel (Mexico), CaymanOne (Cayman Islands), ICMS (Surinam), ex-Digicel (El Salvador) or the Sunbeach mobile operation (Barbados).

Signals highlights the fact that one of the big dangers faced by regulators is that of awarding a spectrum license and then having a winning bidder that does not launch commercial services in the short term. Telmex (Mexico), Wiiscom (Barbados) and Embratel (Brazil) are only some of the cases that could be cited in relation to the 3, 4 GHz bands that finally, after several years (according to statements made by these companies) will be operational for the mass market and small and medium sized business segments as from 2008. Something similar has happened in Colombia with what are known as the WiMAX licenses. Here, there are more than 20 holders of 58 licenses, although only Avantel Colombia and UNE-EPM, via Orbitel, have launched commercial services.

Services that can be provided via a spectrum licensing represent another fundamental regulatory element. Limiting the offering could go against the technological agnosticity that the majority of the regulatory agencies defend. Signals believes that this approach by regulatory bodies is historically based on attempts to maximize the number of licenses as well as funds generated by the same. One desirable way of handling this question is that being used by the Spectrum Management Authority in Jamaica. Here, the 2.5 GHz spectrum licensing is divided in two parts: one for everything that can be offered via WiMAX and the other that allows for the provision of all these services, but adds the offering of video services as a requirement.

One of the main difficulties found within the regional regulatory framework is that at the time many of the existing laws were approved, these did not include any mechanism that allowed for any possible adjustment for the technological changes that have been developed in this sector. Depending on the way regulations are written, for example, a mobile operator can offer value added services, such as mobile TV, without delving into problem of content supply.

Moreover, there is an asymmetry with regard to the legal obligations of operators when offering services within specific market spectrum bands, without paying attention to whether they use the same technologies in order to do so. This refers to the difference between the requirements for "cellular" operators and those for "PCS" operators. For microwave spectrum, mainly the bands set aside for WiMAX licenses, one of the main challenges for regulators is how to adjust the service requirements for these licenses if they have been issued at different times. The licenses for WiMAX spectrum awarded at the beginning of the decade, for example, do not make any provisions for mobility.

Signals believes it important to avoid the mistaken tendency of isolating a service to the bands commonly referred to as "WiMAX", "PCS" or "3G", especially when such services could technically be implemented on different bands. The band difference in radio-electric spectrum has an impact on the coverage area of the base radio as well as on the economies of scale that the technology could have, but does not impede the deployment of a specific technology. It can be observed, for example, that while Telebucaramanga (Colombia) offers limited WiMAX service on 5.8 GHz, Telebarbados does the same on 3.5 GHz and OneMax (the Dominican Republic) provides it on 2.4 GHz. Signals highlights the fact that as from October 2007, the UIT considers WiMAX to be a 3G technology.

Signals thinks it is important for regulators to avoid the arbitrary assignment of frequency - as happened with national WiMAX licenses in Colombia - unless minimum coverage requirements and the marketing of services to geographic areas that lack the same are complied with. This could be done by making use of part of the countryÃ's universal service funds. Radio-electric spectrum is a finite asset belonging to governments that can speed up the arrival of telecommunications services to rural areas or to areas where the local population has low disposable income levels. It is important, however, to understand the limitations that the technological offering for these bands have, especially when competing in broadband accesses with cable alternatives like DSL, fiber optics and cable modem.

Posted to the site on 22nd June 2008