Evaluation of risk faced by 3 categories of National wholesalers

Saturday, February 18th 2012

The present spectrum holding situation at the national level is 1) the fourth national wholesaler namely H3G or a new entrant with the least or no existing spectrum, 2) Everything Everywhere the firm which holds the highest amount of existing spectrum but not having any quantity of sub 1 GHz spectrum and 3) Vodafone and Telefonica holding both spectrum and sub 1 GHz spectrum equally.

Ofcom has already identified four dimensions of capacity, 1) available capacity and average data rates 2) capability to carry good quality coverage, 3) capability to distribute highest peak data rates, 4) and ability to deliver LTE services, that are important to the credibility of a national wholesaler.

Though there are four dimensions, there are interactions between these, especially good quality coverage and the other three. For example by using 2.6 GHz spectrum, it is possible to provide LTE service soon but it is not possible to provide good quality coverage by using LTE.

Ofcom is assessing the strengths and weaknesses of the national wholesalers taking in to account the spectrum portfolios.

Everything Everywhere is the largest holder of the existing spectrum. 24% of the total paired spectrum and 33% of 2.1 GHz spectrum which is a significant share of the total spectrum is held by Everything Everywhere. The firm possesses a large amount of 1800 MHz which enables it to have an early route to LTE along with the ability to deploy a 2 X 20 MHz LTE carrier. When compared to the spectrum used for HSPA, the potential advantages of LTE will give Everything Everywhere a further boost in its capacity. Everything Everywhere has another advantage of having a large site base, say 18000 sites. In the course of time other wholesalers may also have site numbers that could match this.

As regards the weakness of the spectrum portfolio held by Everything Everywhere is that it has no sub 1 GHz spectrum for delivering a consistent high quality service in areas that are considered to be harder to reach or deep inside buildings. In short Everything Everywhere has strengths and weaknesses with regard to its existing spectrum portfolio. Despite its weaknesses, with its holdings of 1800 MHz and 2.1 GHz spectrum it can deliver sufficient quality of coverage to be a credible national wholesaler. The company has potential advantages like early route to LTE, large share of spectrum, ability to deploy a 2 X 20 MHz LTE carrier and its possession of a large number of sites. Hence Ofcom thinks that its existing holdings give it a chance to be a credible national wholesaler in the future even if it fails to acquire any additional spectrum in the auction.

Telefonica: In the existing spectrum portfolio, Telefonica hold about 25 % of sub 1 GHz spectrum post auction. The company’s possession of 900 MHz spectrum is its strength. This helps the company to deliver consistent coverage even in locations considered as hardest to serve, particularly in the longer term. Ofcom consider the fast growing stock of UMTS900 handsets. This may give 900 MHz spectrum an advantage until the LTE handsets replace it. Ofcom thinks that in due course Telefonica would refarm 900 MHz spectrum for LTE.

To speak of the weakness of Telefonica, its overall share of spectrum is only 12%, and that is its main weakness. Ofcom fears that in the longer term this insufficiency of spectrum may be a threat to the company when it comes to the question of credibility. Another weakness is that for an early route to LTE or for high peak data rates with early LTE, 900 MHz and 2.1 GHz spectrum are not suitable. Now it is time to decide whether LTE is better than HSPA or vice versa. If LTE is better then 900 MHz has to move to LTE at the earliest. Ofcom realize that this change over depends on international demand for LTE 900 not the demand in the UK alone.

Ofcom is also aware that currently standards do not allow 2 X 15 MHz to be deployed with LTE at 900 MHz. The standards may be changed but there is some risk that standards may not allow high peak speeds to be delivered with 900 MHz spectrum. In short Ofcom consider that Telefonica’s existing spectrum portfolio is having strengths and weaknesses. Hence Ofcom is of the view that the Telefonica’s present holding of spectrum is sufficient for it to be considered ‘credible’ at present, till the competition between HSPA900 and LTE exists. The risk of not being credible will be there in future if LTE 900 equipment is not available after the auction or if it did not acquire any spectrum during the auction.

Vodafone: Vodafone is also having the same amount of spectrum as that of Telefonica. Over and above that Vodafone acquired 2 X 5 MHz more 2.1 GHz spectrum in the 2000 auction. The total percentage of spectrum holding of Vodafone is 14 %.Even though the spectrum holding of Vodafone is a little larger than Telefonica, Ofcom thinks that the assessment made in the Telefonica case is applicable to Vodafone as well.


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