Spectrum Management Policies: Striking the balance between sustainability and competition By Ing....

Spectrum Management Policies:

Striking the balance between sustainability and competition

By Ing. Joanna Formosa Borg

Senior Technical Specialist - MCA

1. Basic concepts

2. Trends in spectrum management

3. Practical Example of Spectrum Assignment

Contents

• Spectrum is a valuable national resource: significant

economic and social value to a nation

• Economic value –> new services, increased user productivity, issue of affordability for operator and customer

• Social value -> broadcasting / education, emergency services, etc.

Spectrum should be managed in the most efficient and effective way

ANDSpectrum management techniques should be flexible

The Value of Spectrum

Facilitate access to spectrum with as few constraints as possible

Ensure that spectrum is used efficiently

Avoid harmful interference between spectrum users

Promote competition

Facilitate innovation

Protect the consumer

Improve choice and quality of services

Spectrum Management - Key Objectives

Spectrum Management - Principles

Proportionality

Objectivity

Transparency

Non-Discrimination

Spectrum Management

Key to strike the balance between sustainability and competition is in:Working towards these objectives whilst adhere to these

principles:

1. Basic concepts



Contents

• Until a few years ago• One Network = One Service

• The key trend today is represented by convergence• Network Convergence• Service Convergence

• Need to establish a flexible parameters for spectrum usage• Wireless Access Policy for Electronic Communications Services

Communication

Info

rmat

ion

Broadcasting

Fixed Mobile

Entertainment

Convergence

Convergence

• In certain instances one has to consider spectrum harmonisation

• This offers both constraints and benefits

• International harmonisation is required for cross-border movement of certain systems (ships, aircrafts, mobile communications)

• Harmonisation lowers potential for interference

• Global harmonisation allows: • equipment manufacturers achieve larger economies of scale • operators achieve a rapid rollout of new services

• Harmonisation can lead to inefficiencies • Spectrum usage• Regulatory delay

• To achieve harmonisation countries might also be required to migrate existing users of spectrum to other bands

Spectrum Harmonisation

1. Basic concepts



Contents

Spectrum Assignments

• An assignment is the ultimate process to put into practice spectrum management principles

• Whilst there is considerable international co-ordination in the allocation of spectrum Each state has the prerogative to assign spectrum

• The main tool to achieve our objectives lies in the design of the spectrum assignment process

What Triggers a Spectrum Assignment?

Government Decision

Request from interested Party

Define high-level policy

Policy Definition

• Represents a high-level framework for the assignment

• Outlines government position on a number of issues:• Technology to be used• Services to be offered• Spectrum ‘packaging’• Any particular licence obligations• Pricing• Assignment mechanism

• These are critical success factors for the whole process

Critical Success Factors (1)

• Technology/Service neutrality or harmonisation?

• How will the spectrum be packaged? Predefine the number of lots assigned to each licensee? Allow applicants to apply for as much spectrum as they need? FDD or TDD? Decisions will impact effectiveness of technology neutrality

• Should we impose specific licence obligations? Nationwide rollout obligation Rollout of a specific service

• Assignment Methodology: Administrative assignment First come / first served Comparative process ex. Beauty contest Competitive process ex. Auction Hybrid solutions

Critical Success Factors (2)

• Pricing is perhaps the most difficult and crucial decision one has to take

• Several factors to be considered: Establish a fair price for a scarce national resource Encourage efficient use If price is too high:

• Disincentive for new entrants• Successful applicants could experience financial difficulties when it

comes to network deployment

• … sometimes these could actually be conflicting

• Various forms of pricing lend themselves to different needs

• Assignment methodology could influence pricing decision

Outline of the ProcessGovernment

DecisionRequest from

interested Party

Define high-level policy

Consultation

Finalised High-level policy

Assignment process starts

The Assignment Process

• The policy clearly stipulates the framework for assignment The technology and service, if any The price

• or at least the reserve price in case of an auction The spectrum packaging The assignment method

• But the design of the assignment process still needs to be defined

• This usually consists of two stages The call for application – which tests market demand The second stage – if demand exceed supply

• Auction or Beauty Contest

Thank you for your attention !

Any Questions?

Past Assignments: Lessons Learnt

• Consultation process: Introduced second round of consultation:

• Enabled Authority to discuss possible changes to original proposals to take on board feedback received in the first round

• This helped refine process and get stakeholders on board

• Assignment process: Open call

• Ensured any interested party could apply –> strengthening market competition

Adopted a hybrid of beauty contest and auction • Initial qualification phase (similar to beauty contest) ensured that

successful applicants would be capable of meeting licence obligations.

• No ranking -> the ultimate selection left to the market through auction

Past Assignments: Lessons Learnt (2)• Assignment Process

Introduction of Brokered Meetings (prior to auction stage)• Led by an independent party• Meetings held individually with applicants• Final proposal given to all applicants

– All had to agree for proposal to become finalised• Gave possibility to all qualified applicants to find a mutually

acceptable solution for the spectrum assignment– Guarantee of spectrum assignment – Spectrum acquired at base price

• When spectrum assigned is already in use by existing operators:– Brokered meetings useful to balance the need for continuity of

service and market needs/competition

WAPECS is a framework:

• for the provision of electronic communications services within a set of frequency bands to be identified and agreed between European Union Member States

• in which a range of electronic communications services may be offered on a technology and service neutral basis

• provided that certain technical requirements to avoid interference are met,

• to ensure the effective and efficient use of the spectrum

• and the authorisation conditions do not distort competition

470-862 MHz (digital dividend?)880-915 MHz / 925-960 MHz (900 MHz GSM)

1710-1785 MHz / 1805-1880 MHz (1800 MHz GSM)1900-1980 MHz / 2010-2025 MHz / 2110-2170 MHz (3G)

2500-2690 MHz (3G expansion)3.4-3.8 GHz (BWA)

WAPECS

CSF - Technology

• Promote economies of scale ex. UMTS band

• Less potential for interference

• Refrain the market from evolving as the technology advances ex. GSM band

• Bar a more efficient technology from being deployed

• Should government impose the technology to be used?

• Need to strike the right balance between harmonisation and flexibility

• Technology neutrality must be introduced carefully and after adequate studies are carried out

Greater potential for interference

CSF - Services

• Should government define the services to be deployed?

• Ensure that a given service is offered

• Limits innovation – negative effect on consumers

• Limits operators flexibility to compete esp. in view of triple / quad play offers

• Deemed to favour incumbent

• Need to develop a compromise ex.• Offer broadband connectivity • … and any other service

CSF - Licence Obligations

• Licence obligations can help us achieving specific objectives

• Effectiveness of the process Ex. Include bid elements undertaken by successful applicants

during the beauty contest (more of which later)

• Realisation of Government’s objectives Ex. Impose nationwide coverage in an effort to bridge digital

divide

• Effective use of spectrum Ex. Impose a ‘use it or lose it’ clause to avoid spectrum

hoarding

CSF - Licence Obligations

• These obligations have to be used very carefully Could create constraints in terms of flexibility for successful

operators ex. Malta’s BWA assignment

• Licence term This has an impact on the attractiveness of the licence Must be sufficiently long to ensure an adequate return on

investment

Clearly stipulate penalties for non-compliance

CSF - Spectrum Packaging

• Spectrum subdivision directly affects future deployments

• A spectrum package is defined in terms of: Amount of spectrum Mode of operation (FDD / TDD)

• The mode of operation mainly relates to how the technology functions FDD – frequency channels are paired

• Ex. GSM: The base station transmits of one frequency and the mobile transmits on another paired frequency

TDD – No pairing exists• Ex WiMax: Transmissions are distinguished in terms of time slots


In defining the mode of operation a technology could be preferred over another

CSF - Pricing

• Fixed Fee: Initial one-off fee or Annual fee

• Annual fee could be either fixed or varies according to an established formula

• Gives visibility to market players • If set at the right value – acts as an incentive for efficient use

• Fixed & Variable Fee: Ex. Fixed fee (one-time or annual) + % revenue

• Good incentive for new players– Low fees at the start of the operation

• Over time fee is no longer conducive to efficient use– As revenues increase – the variable part could become greater

than the fixed fee– Incentive for operator to buy more spectrum than it actually

needs?

CSF - Pricing

• Fixed & Variable Fee: Ex. Fixed fee of €7000 per channel and a variable fee of 2%

revenue Assume revenue of €5,000,000

• Variable fee: €100,000

5 channels: €135,000 6 channels: €142,000 Minimal increase in licence fees !!!

• Variable Fee: This is a possibility but not so popular

CSF - Assignment Methodology

• A number of methods exist Administrative assignment First come / first served Comparative process ex. Beauty contest Competitive process ex. Auction Hybrid solutions

All serve diverse needs

CSF - Administrative Assignment

• Used in very specific cases to support national development Public interest ex. defence International agreements ex maritime and aviation

• Still one has to ensure efficient use of spectrum Assess the requests Try to optimise where possible Review periodically say every 5 years

CSF - The Market Demand

• In most cases assignment should reflect market demand• Usually done through a public call for applications

This also fulfils transparency obligation

Call for Applications

Does Demand exceed Supply?

CSF - First come/first served

• Used when there is sufficient spectrum to fulfil market needs Demand equals Supply ex. 3 applicants for 3 bands Various options to fulfil demand ex fixed links

• One still has to ensure efficient use Accurate assessment of request An adequate fee structure Periodic review

CSF - Competitive Process Auction• Based largely on monetary terms

The highest bidder gets the goods

• Potential problems that could arise Successful player pays a very high price – winner’s curse Collusion between participants Lack of visibility of what the others are bidding Hoarding

• Design is very critical Various variations possible … this need only be considered after the policy is defined ! Some regulators publish consultations concerning the auction

design – this is not a legal requirement

CSF - Comparative ProcessBeauty Contest• Gives the opportunity to fulfil specific objectives

Cultural diversity Nationwide coverage esp. in remote areas Delivery of a specific service

• Price is set at the start of the process

• Winners are not solely determined on price but need to ‘bid up’ on other aspects Ex. rollout and coverage Number of employees Innovative services

Beauty Contests vs Auctions

Beauty Contest

• Gives importance to factors other then monetary terms

• Price is defined a priori

• Difficult for NRA to determine the correct price

• Lengthy process • Decision is very subjective

Could lead to legal disputes

Auction

• Transparency• Low cost of operation• Very efficient

• Can lead to excessive pricing

• Auction design critical

Hybrid option also possible

The Call for Applications

• Usually very simple – mostly based on policy Defines basic criteria / requirements Provides administrative details such application procedure

• Eligibility requirements: Applicants must not be related in any way Submission of all required documentation / fees

• Bid bond / Bank guarantees Sum of money that can be called by the Authority any time Linked to certain clauses to ensure that applicant:

• Obeys call for application rules• Honours application if supply equals demand• Participates in second stage, if applicable• Honours highest bid (beauty contests / auctions), if applicable• Honours the licence obligations

The second stage

• If demand exceeds supply then a second stage is required Usually either an auction or beauty contest

• Some important criteria to keep in mind: Spectrum caps

• Useful if total flexibility in the spectrum packaging is adopted• Cap should be such as to allow licensees the possibility to deploy

innovative services• During call for applications no caps need to be applied

– Could still opt to adopt spectrum caps from application stage• If demand exceeds supply

– Spectrum caps useful to avoids hoarding by an operator– Ensure equitable access

• The design criteria for each method are included in the following slides

Beauty Contest Design

• Various criteria can be used to select successful applicants

• Managerial Competence and Experience Applicants organisational structure

• Including information on mother companies Proposed team structure CV of key company officers

• Or proposed qualifications for key management positions Past projects undertaken by organisation

• Financial Standing Historic financial performance ex. last 5 years


• Technical Proposed network design Rollout plan Key design features such as redundancy

• Commercial considerations Project’s business plan Project financing

• Endorsement of bank loans Financial Projections ex for first 5 years of operation

• Balance sheets, Profit & Loss, Cash flow statements• Key ratios ex. NPV or IRR


• Others New entrant Services to be offered

• Criteria need to be: Objective

• Can be met by both new entrants and incumbents Quantifiable

Beauty Contest Marking


The MOST IMPORTANT concepts are that:

• Avoids: Having disconnected areas in submission Skewing the overall results through strength in a given area

Submission must be analysed HOLISTICALLY

&

Applicants must have a PASS in all areas

Auction Design

• A number of designs exist – most popular being: Sealed bid Simultaneous ascending auction (SMA)

Sealed Bid:• Considered to reflect the true market value of the spectrum

for each player

• Methodology is very simple

• Creates considerable uncertainty

• Some variations include having highest bidder paying the second price Considered to result in a fairer price

Auction Design - SMA

• Theoretically should reflect the market value of the spectrum for each player Price could be driven up by competition Still the company in question has to answer to its shareholders

• Eliminates uncertainty Everyone knows what the highest price is at any point Full visibility of situation in other lots

• Particularly if applicants are bidding for more than 1 lot

• Usually done using software system over the Internet Design can be complex Very easy to include other criteria such as spectrum caps Extremely fair and transparent

• Extra slides showing sample website interface

Auction Design - Hybrid

• Another methodology was developed that is a hybrid of the sealed bid and SMA Combinatorial Clock Auction

Auction Design

The MOST IMPORTANT concept is that:

This avoids having applicants raising the price and then bowing out

Constraints should be in place for HIGHEST bid

Auction – Website Interface

Hybrid Assignment Methodology

• An option is to design an assignment process that merges both methods: Detailed due diligence followed by an auction if demand

exceeds supply

• Due diligence is reflective of a beauty contest but ... Carried out irrespective of demand level i.e. on all applicants Applicants are not ranked .. It is simply a pass/fail process Applicants that pass this due diligence are considered

‘qualified’

• Following due diligence the assessment of demand is carried out for qualified applicants If demand does not exceed supply – assign spectrum Else an auction is carried out

Spectrum Management Policies: Striking the balance between sustainability and competition By Ing....

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