The Government is auctioning rights to use radio spectrum
for mobile services.
spectrum will add to the bands
Mobile operators use to provide mobile services to consumers, including 850
MHz and 2100
At this stage, MBIE ha
asked for comments on
auction design by 21 June 2013. It plans to set a reserve
price at a later date, around 6
8 weeks before the start of the auction
later this year (with rights to be
allocated by December, say, a August/September timeframe)
This is important because the auction design,
coupled with the reserve price, will determine outcomes for rural consumers.
Why is the 700MHz band important for rural consumers?
A couple of chara
of radio spectrum and mobile technologies come together to make
band is one of the target bands for the latest fourth generation (4G) mobile
often called LTE (Long Te
are designed to provide
higher bandwidth at lower cost
. Mobile operators
LTE so they can offer high speed
“broadband like” services to customers; and
the propagation characteristics of radio waves mean that
lower radio frequ
, like those
band, operate over longer distances. This makes
MHz band particularly suited
for rural service
better services using fewer cell sites
In practice, mobile netw
ork operators will deploy LTE using a mix of low and high
. In NZ,
Vodafone has launched initial LTE services on 1800 Mhz and Telecom has confirmed plans to launch LTE on
1800 Mhz later this year. Operators are expected to use (i) the 1800
MHz band in urban areas to provide
increased capacity and the relatively short range is not an issue and (ii) the 700 MHz band in rural areas for
coverage. In practice, 4G LTE rural service is only economic by using the 700 MHz band as operators can use
xisting cell sites including those in RBI (using the 1800 MHz would require more than double the number of
cell sites and would likely make rural 4G LTE service uneconomic..
What does 4G LTE enable?
LTE is the latest generation of mobile technologies
intended to support mobile broadband services. For
example, these services could give
health professionals enhanced access to real
time, high quality video
communication with patients in their homes, or
consult a vet or a diesel mechan
ic on a
video call, and be guided through what they have to do for a calf or a tractor motor.
Policy makers also forecast that 4G LTE services will be used to meet demand for video, web browsing, music,
email, mobile TV, business applications such as sales
force automation and remote working and on the move
or as an alternative to fixed broadband when fixed coverage is not available. These are real possibilities.
From a technical perspective and to get an idea of speed differences, 3G networks
across all customers on a cell, whereas 4G LTE currently has peak speeds of 100Mbps
the speeds available via the UFB rollout, further more vendors will soon launch advanced versions of the LTE
technology with peak speed
s up 300 Mbps, and the target speed for the LTE standard is 1Gbps. The LTE
standard is intended to support quality, real world applications and this means higher upload speeds and
What is the policy issue?
The economic value of the spec
trum will be maximised when the spectrum is fully used and operators invest to
provide services to end users. While all spectrums might be allocated through the auction, this does not mean
it is actually deployed across a wide area rurally. Rural custome
rs are more costly to serve and it is possible for
operators to focus on high demand urban areas where the economics make the most sense.
To provide services to end users, operators also need to invest in cell site infrastructure (towers, antennas,
land access, power, radio equipment and transport back to the core switching network. Operators are making
significant investments. For example
in the context of RBI, Officials estimated that operators would spend a
further $200M on top of the RBI subsidy to deploy services to rural consumers. Apart from the initial
deployment, operators need to make ongoing investments in rural cell sites and e
quipment to meet demand
growth and to maintain network performance. This is driven by competition.
The key risk is that the Crown, in seeking to maximise revenue, sets a high reserve prices and this undermines
the wider economic benefits of the spectrum
. An MBIE commissioned study estimated that the wider
economic benefit of the spectrum ranged
from $1.1b to $2.4b.
This far exceeds Treasuries own auction
estimate of $119M
The danger of a high reserve price is that 700 MHz spectrum remains under
ed in rural areas or that it
undermines competition for rural consumers. For example, this can occur where excessive prices:
Results in operators withdrawing from the auction or failing to purchase the maximum quantity of
spectrum. Spectrum remaining un
sold means there is less capacity deployed for rural consumers
(the availability of spectrum at 1800 MHz means this has limited impact for urban consumers). This is
what has occurred in Australian where one third of available spectrum was left unsold;
ds to significant differences in holdings of
spectrum. Significant differences could result
in less competitive focus on rural markets. For example, an operator with significantly less (or no)
spectrum would inevitably focus on urban mark
ets where the 1800 MHz band is available. In
terms of customer impacts, there will be less overall capacity available as these operators minimise
coverage or allow rural network performance to degrade rather than invest in additional capacity;
through to rural consumers as higher prices or reduced service availability. The
band is primarily for rural service and operators will inevitably look to recover high costs from that
market or reduce coverage. A high cost slows network expansi
on into rural areas as rural sites
cannot provide an adequate return where fixed costs are high.
The Crown could seek to mitigate some of these impacts, particularly the incentive to reduce coverage and
investment in rural networks, through onerous service
obligations. However, this would simply seek to
replicate the outcomes currently achieved in today’s competitive market. Competition remains by far the
most reliable and best means of achieving these outcomes and an equal three
way split of the
spectrum is the best way of fostering competition in rural markets.
Treasury Half Year Economic and Fiscal Update, pg68
Possible comments rural groups may wish to make
Comments rural groups could make to MBIE include that:
band is an important resource for rural consumers. It will enable
rural consumers to
access services and economic benefits in a way not previously possible.
The government shouldn’t be looking to simply maximise revenue from the auction, but ensure that it
derives the most important economic value for the country. The G
overnment’s own advisors have
suggested the spectrum has between $1.1b and $2.4b value to the economy. This far exceeds
Treasury’s own auction estimates of $119M.
Accordingly, the Government shouldn’t focus solely on auction revenue, but set a reserve pri
facilitates deployment of rural services and competition. This means that the spectrum will be fully
allocated and used.
700 MHz spectrum is made available through the move away from Analogue TV. Every consumer has
had the added expense of movin
g to digital TV (needing to buy a set box or new TV). Therefore every
consumer has already contributed to the spectrum value
The digital dividend should be seen as economic, productivity and social dividend for the
benefit of the entire country.
y, to ensure the benefits are achieved, more focus should be put on roll out obligations.
This could include an obligation that purchasers:
Roll out 4G LTE based services to match current rural coverage; and
Engage with rural market to identify high priority new coverage sites.