The value of 800MHz spectrum in Europe is declining as markets mature

Introduction

Regulators are beginning to appreciate the financial struggles that operators are facing. Consequently, they have relaxed some of the formerly tight restrictions on auction design.

• A growing device ecosystem in alternative LTE bands.
• The launch of LTE networks in alternative bands before 800MHz spectrum became available.
• Market consolidation - MNOs are bidding jointly for 800MHz spectrum, joint ventures have been formed, and a takeover is underway in Austria. Such market developments reduce the level of demand for spectrum.
• Stricter coverage requirements.

This Comment outlines the background to the 800MHz auctions and analyses the reasons for the downward trend in the value of 800MHz spectrum.

The price of 800MHz spectrum has declined slightly

The 800MHz (790 - 862MHz band) is being released as a result of the switchover from analogue to digital TV in most European countries. Some countries in Europe are yet to complete the move to digital TV, but many have already switched off their analogue TV transmissions and have auctioned licences in the 800MHz band. Those countries are (in order of date of switch-off): Germany, Sweden, Spain, Italy, Portugal, France, Switzerland and Denmark. There has been a slight downward trend in the price of this digital dividend spectrum since 2010 (see Figure 1). Analysys Mason expects this trend to become more pronounced as 800MHz auctions continue to take place in Europe.

Figure 1: 800MHz auction prices in Europe, May 2010 to June 2012 ¹

[Source: Analysys Mason, 2012]

¹ The Swiss auction is absent from Figure 1. This is because the 800MHz spectrum licences were auctioned in a multiband, combinatorial clock auction. The licences are awarded as a result of package bidding, and this format does not lend itself to simple determination of price/MHz/population for a single band.

Note: Key data/information in this graph is hidden, while in the report is not.

There are a number of possible reasons for the downward trend in the price of digital divdend spectrum in Western Europe.

There is a growing device ecosystem in alternative LTE bands

Germany was the first Western European country to auction the 800MHz digital dividend spectrum. Three of the four incumbent operators in Germany acquired 800MHz spectrum, and two of those operators have subsequently rolled out 800MHz networks. At this auction 800MHz, 2000MHz and 2600MHz spectrum was also on offer. The low price paid for 1800MHz spectrum (0.025EUR/MHz/population) can be explained in part by the high price paid for the 800MHz spectrum (0.718EUR/MHz/population). The low price of the 1800MHz spectrum can also be attributed to the lack of LTE equipment available for that band at the time of that auction.

Since then, the 1800MHz band has come to be considered an attractive band for LTE. The band has typically been allocated in wide carrier channels (of 10MHz and above) - LTE becomes more spectrally efficient with wider bands and needs them to achieve its maximum potential throughput. The propagation characteristics of 1800MHz spectrum, although not as favourable as those of 800MHz, are much more attractive than those of the 2600MHz band, which has also been designated for LTE and also offers wide carrier channels. The South Korean auction in August 2011 was an emphatic endorsement of the potential value of 1800MHz spectrum. The spectrum in this auction reached a price of EUR0.66/MHz/population - only 8.5% less than the price paid for 800MHz spectrum in Germany.

In the Portuguese auction in November 2011, licences were available in the 800MHz, 900MHz, 1800MHz and 2600MHz bands. The three MNOs in the country have announced plans to use spectrum in all three bands suitable for LTE (800MHz, 1800MHz and 2600MHz). The now well-supported device and infrastructure ecosystem in these bands has played a part in diluting the utility, and subsequently the value, of the 800MHz spectrum.

LTE networks were launched in alternative bands before 800MHz became available

Availability of 800MHz spectrum represented the first opportunity to acquire the appropriate spectrum to deploy LTE in countries such as France, Germany and Italy. However, in Denmark in 2010 for example, the regulator awarded new frequencies for LTE in the 2.6GHz band. Four operators won licences in this band (Hi3G, TDC, Telenor and Telia). Telia launched LTE2600 in December 2010, and TDC launched LTE2600 services in October 2010. The existence of these LTE networks diminished the necessity to acquire sub-1GHz spectrum for coverage. Telia LTE network, for example, covered 75 per cent of the Danish population by the end of 2011.

Market consolidation reduces the level of demand within spectrum auctions

Network sharing has become an important characteristic of the mobile network industry. Operators' profit margins are being squeezed by falling ARPUs and competitive pressure to roll out LTE networks. Regulators are beginning to appreciate the financial struggles that operators are facing. Consequently, they have relaxed some of the formerly tight restrictions on the auction design - for example, by allowing joint bidding for spectrum. The effect of this is that there are fewer buyers in the market, and the price of the spectrum licences are driven down.

A key development in the Danish market since the 2.6GHz auction has been the formation of the joint venture between Telia and Telenor. The companies bid jointly for 800MHz spectrum, although they had previously bid separately for 2.6GHz spectrum. The operators only paid a price of EUR0.14/MHz/population, which was the lowest overall average EUR/MHz/population for 800MHz spectrum in Europe to date.

In another example of market consolidation, Net4Mobility, a joint venture between Telenor and Tele2 in Sweden, bid jointly for 800MHz spectrum in the Swedish auction in March 2011.

Consolidation in other European countries may also affect the price of 800MHz spectrum. For example, the forthcoming Austrian 800MHz/900MHz/1800MHz auction has been delayed to facilitate the proposed takeover of Orange Austria by 3 Austria.

Stricter coverage requirements have devalued the spectrum

The coverage obligations on spectrum licences for the 800MHz band have become more demanding. The German auction was notable for its coverage obligations at the time. Before expanding coverage to the lucrative urban areas, operators were required to cover 90% of prioritised rural zones (‘not-spots') in the country's smallest municipalities. However, these coverage obligations were not as strict as they might first have appeared. Only one operator had to cover 90% of the not-spots before all operators were allowed to deploy a service in the urban areas. Within 12 months of the first deployment, the coverage obligations had been fulfilled in 12 of 16 federal states.

Coverage obligations have since become more onerous on MNOs, driving down the attractiveness and price of 800MHz spectrum.

• in the French auction, there was a flat 98% population coverage obligation by 2024
• in the Swedish auction, one of the 800MHz licences contained a population coverage roll-out obligation of 90% population coverage with 100Mbps by 2020
• in Denmark, 800MHz licensees must cover 99.8% of households and business premises and also meet a requirement of 98% outdoor coverage (excluding forests). Speeds achieved must be at least 10Mbps by the end of 2014.

The value of 800MHz spectrum in Europe is declining as markets mature published by Analysys Mason in July 17, 2012. This report price starts from US $ 999.