Vodacom, MTN want lower spectrum prices to cover rural areas

South African telecommunications companies are calling for lower spectrum auction prices.

This is according to the interim results of a study by local research firm World Wide Worx into the prospects for 4G and 5G in SA, based on interviews with major mobile network operators and Internet service providers in the country.

The study comes as SA’s mobile operators are waiting for telecommunications regulator the Independent Communications Authority of South Africa (ICASA) to publish the invitation to apply (ITA) for the wholesale open access network and International Mobile Telecommunications (IMT) spectrum.

The ITA for IMT spectrum, commonly known as high-demand spectrum, is for licences in the 700MHz, 800MHz, 2.3GHz, 2.6GHz and 3.5GHz bands, which the regulator plans to auction by December 2020.

The release of spectrum through an auction has been high on government’s agenda as a way to add funds to the fiscus, to benefit the South African economy.

Furthermore, mobile operators have been clamouring for access to new spectrum for over a decade, as they need it to provide faster and more widespread high-speed data services.

ICASA asserts that the licensing of high-demand spectrum remains critical in facilitating the deployment of digital infrastructure for consumers and the business sector in their realisation of the digital economy, and participation towards the fourth industrial revolution.

According to the World Wide Worx report, emergency temporary spectrum and the promise of permanent spectrum by the end of the year may have given a glimmer of hope to mobile network operators wanting to roll out next-generation 5G services, but spectrum pricing may well prove to be a barrier to the future.

It notes that ICASA originally issued an ITA for high-demand spectrum in 2016, but withdrew it after being sued by then minister of telecommunications and postal services Siyabonga Cwele.

He accused ICASA of issuing the ITA “prematurely and precipitously without the existence of the requisite regulatory steps that must precede them”, according to a submission to court.

In 2018, ICASA agreed to withdraw the ITA. However, the ITA had provided insight into the likely floor price for bidding for auction – set at a R3 billion minimum, says the report.

It adds that both the delay and the likely pricing are regarded by the major operators as “failure factors” in the efficient and cost-effective rollout of 5G.

The study says some pointed to the current emergency spectrum in lower 700-800MHz spectrum bands as “dirty spectrum”, as it was degraded by interference.

Significant blocks of high-demand spectrum have not been issued to the major network operators by ICASA since 2005, when it allowed use of the 2.1GHz band for the rollout of 3G networks by Vodacom and MTN.

Cell C was allocated spectrum in 2011. Since then, says World Wide Worx, operators have had to “refarm” 3G spectrum to facilitate the rollout of 4G to consumers.

As a result, it notes, investment that could have been made in providing affordable access to customers was diverted to servicing technical issues.

“When we look at other countries with lower consumer data prices, there is a direct correlation between lower spectrum auction prices and greater network investment,” says Arthur Goldstuck, managing director of World Wide Worx and principal analyst on the 5G research project.

“At the same time, delays in making high-demand spectrum available will probably hurt poverty-stricken areas most, because those who are willing to pay for coverage will naturally see more infrastructure investment in their areas, compared to those who can’t afford data.”

World Wide Worx says both Vodacom and MTN confirmed that lower spectrum prices would incentivise greater coverage of rural areas, noting that less money spent on spectrum translates to more money they can spend on infrastructure for serving consumers.

It says the GSM Association (GSMA), an industry organisation that represents the interests of mobile network operators worldwide, has warned that governments and regulators should avoid inflating 5G spectrum prices “as this risks limiting network investment and driving up the cost of services”.

The GSM Association (GSMA), an industry organisation that represents the interests of mobile network operators worldwide, has warned that governments and regulators should avoid inflating 5G spectrum prices “as this risks limiting network investment and driving up the cost of services”.

The GSMA said in a recent 5G policy paper: “Governments and regulators should assign 5G spectrum to support their digital connectivity goals rather than as a means of maximising state revenues. Effective spectrum pricing policies are vital to support better quality and more affordable 5G services. High spectrum prices are linked to more expensive, slower mobile broadband services with worse coverage.”

Goldstuck points out that one option, not yet offered by ICASA, is for instalment pricing, allowing operators to pay off the auction fee. This would also make the auction more viable for smaller players, he says.

“The promise of new entrants to the market will be still-born if we don’t see creative approaches to pricing,” says Goldstuck. “Only the major operators have the existing infrastructure and capex budgets to allow for a national rollout of 5G, and a high upfront cost means that even regional newcomers will be kept out of the auction.”

Goldstuck adds that operators say much of the emergency spectrum has proved to be less helpful than originally expected, due to interference from TV broadcast services that have yet to migrate from analogue to digital.

“The 700-800MHz emergency spectrum can only be used for experimentation and innovation for now,” MTN told the researchers. “Unfortunately, we couldn't use this emergency spectrum in the areas we expected and wanted to release in because of high levels of interference from analogue.”

“One of the biggest challenges is around the usability of the emergency spectrum band we were issued,” says Vodacom. “We would like to see a complete migration path to getting analogue out of and digital into those bands.”

The report says Telkom further warned the emergency spectrum issued had only been suitable for “entry-level” purposes.