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.
This is a key interim finding from a study being conducted by World Wide Worx into the prospects for 4G and 5G in South Africa, based on interviews with major mobile network operators and Internet Service Providers in South Africa.
In the first phase of the study, in depth interviews were conducted with the major mobile operators, included Vodacom, MTN, Telkom, and Cell C, along with Seacom, which provides much of the international “backhaul” that provides operators with data capacity. They provided a detailed overview of their strategies, priorities and outlook, providing a picture of a complex emerging landscape.
However, they were unanimous on one issue: that a high price for bidding on spectrum will have direct impact on quality of service. The regulator, Independent Communications Authority of South Africa (Icasa), is set to issue an Invitation to Apply (ITA) for spectrum that is appropriate for high-speed mobile broadband, referred to as “high-demand spectrum”.
The spectrum is due to be issued in three main bands, namely 700-800 MHz, referred to as low-frequency bands, and high frequency spectrum across the 2.3GHz-2.6GHz and 3.5GHz bands. Collectively, these are referred to as “high-demand spectrum”, and the mid-frequency bands are generally regarded as appropriate for 4G services.
Icasa had told Parliament’s Portfolio Committee on Communications in June that the ITA would be issued by the end of that month. However, at the beginning of July it announced that, “given the complexity of the process, there are additional considerations the authority must apply itself to”. It did not specify the considerations.
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 Telecommunications and Postal Services Minister 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 an insight into the likely floor price for bidding for auction: set at a R3-billion minimum.
Both the delay and the likely pricing is regarded by the major operators as “failure factors” in the efficient and cost-effective roll-out of 5G. Some pointed to the current emergency spectrum in lower 700-800 MHz 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 roll-out of 3G networks by Vodacom and MTN. Cell C was allocated spectrum in 2011. Since then, operators have had to “refarm” 3G spectrum to facilitate the roll-out of 4G to consumers. As a result, 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.”
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.
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.”
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.
“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 roll-out of 5G, and a high upfront cost means that even regional newcomers will be kept out of the auction.”
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. While the operators do not expect the temporary spectrum to be withdrawn before new spectrum is issued, the regulatory slowdown has left question marks over the process needed for its continued use.
“The 700-800 MhZ 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.”
The emergency spectrum that was issued in what is known as TV white spaces – the spaces between TV channels that will be available when all broadcasting is digital – is all but unusable due to a combination of noise from analogue signal, and these bands not being freed up across South Africa.
“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.”
Telkom further warned that the emergency spectrum issued had only been suitable for “entry-level” purposes. For full 5G services to be rolled out, as envisaged in international definitions set by the 3rd Generation Partnership Project (3GPP), a global alliance which develops telecommunications standards and Specifications, Icasa would need to allocate large “contiguous blocks” of spectrum. In some spectrum bands, such as the 700-800MHz and 2300 MHz, such blocks are simply not available.
Until the regulator acts decisively on both digital migration of TV, originally set for 2015, and cost-effective spectrum allocation, the first phase of the study concludes, consumers will continue to experience expensive data and poor coverage, compared to countries where spectrum has been issued efficiently and cost-effectively.