Operators Can Reduce the Risks Associated with Buying Radio Spectrum

Published on: 19th February 2009

Purchasing spectrum is no longer a straightforward matter for operators. Uncertainty in supply and demand may lead an operator to play it safe and acquire spectrum to meet all its needs. But, according to Analysys Mason, operators have alternative options that could justify a more opportunistic, low-cost strategy.

As Bart-Jan Sweers, Consultant at Analysys Mason, explains, "it used to be relatively straightforward for operators to formulate a strategy for the acquisition of spectrum licences. Once in a while, the authorities would release a certain amount of spectrum, with specific restrictions on service and technology usage, and hence for a clear purpose. Now, however, the situation has become more complex."

On the supply side, authorities have started auctioning spectrum in the 2.6GHz band, while many of them are still defining the exact band plan and award process. At the same time, the mobile community is seeking to claim a piece of the ‘digital dividend' pie, notably the 790-862MHz band. Finally, the refarming of GSM spectrum should make more spectrum available for deploying advanced 3G networks. Not all these frequency bands are alike, as different bands allow operators to achieve particular things. In general, timelines for these auctions are still very uncertain.

Demand, on the other hand, is ultimately driven to a large extent by mobile data traffic forecasts, which are still very uncertain. The overall economic sentiment and market volatility seems to be having a further impact on the demand for spectrum. As Sweers states, "the recent Hong Kong spectrum auction suggests that the credit crunch is preventing potential new entrants from raising funding and hence from bidding for spectrum."

These uncertainties imply that spectrum prices could fluctuate, leaving the operator with some tricky questions such as how much spectrum to buy at forthcoming auctions, and at what price. "With a number of potential auctions on the horizon, operators hoping to acquire spectrum need to decide on their strategy. If they buy spectrum in an early auction this will tie up critical capital, and there is the risk that spectrum prices could be lower in later auctions. On the other hand, if operators delay their spectrum purchases, they risk having to pay very high prices at a later auction, if there is a surge in data traffic."

Instead of just purchasing spectrum at auctions to meet all future needs, an operator has alternative options to accommodate increasing traffic, improve coverage or increase bitrates. Firstly, it could simply increase the number of sites. As Sweers points out, "this may seem costly, but one has to realise that spectrum licence valuations are often based on avoiding these costs. Hence, a competitive auction may very well result in spectrum prices which are comparable to the costs of network expansion."

Other options would be for the operator to deploy femtocells, or to co-operate with another spectrum owner. Co-operation would involve purchasing wholesale capacity or establishing a network-sharing deal with a spectrum owner who has an abundance of spectrum.

According to Sweers, "such alternative options could mitigate the risks of missing out on spectrum, and therefore allow operators to consider a more opportunistic, low-cost strategy by which operators pick up ‘bargain' spectrum as and when it becomes available."

 

Tags: [3g]  [sim]  [ict]  [itu]  [lte]  [gsm]  [play]  [auction]