Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.
The week of June 10 was one of the most eagerly awaited in the history of Latin America’s telecommunications industry. The Brazilian 4G spectrum auction, which occurred on June 12-13, started a new era in competition, granting the 2.5 GHz frequency bands to the four main carriers. The frequency bid guarantees the government’s initial objectives: early 4G coverage for the FIFA Confederation Cup and in 2014, coverage for the FIFA World Cup cities.
The spectrum situation before the license bid was depicted in the article, 4G in the 2014 FIFA World Cup, the first of this series. The competitive distance between “the big four” and smaller carriers has increased tremendously. Besides winning the 2.5 GHz band, Vivo, Claro, Tim and Oi also got the “hot potato,” the 450 MHz band for rural coverage. With this public sale, the Brazilian government earned U.S.$1.44 billion.
For the 2.5 GHz band, the Brazilian spectrum is divided into six frequency bands, as shown in the table below:
The Brazilian 4G auction was marked by the government’s goal of offering rural broadband on the 450 MHz band, as stated in the Decree 7,512 in 2011. In order to reach this objective, the first license to be sold was the 7 MHz band between 451 MHz and 458 MHz for mobile station transmission and from 461MHz to 468 MHz for nodal station transmission for national coverage, according to the corresponding regulation approved by Anatel’s Resolution 558 in 2010.
If this license was sold, the auction should proceed to the sole 2.5 GHz band bid, considering the frequency bands presented in the table above. If the nationwide 450 MHz band license was not sold, the national coverage to be provided with this spectrum band should be split into four other licenses, associated with the 2.5 GHz band licenses. Only four 2.5 GHz nationwide frequency ranges would be traded: X and W (Frequency Division Duplex—FDD, 20 + 20 MHz), V1 and V2 (FDD, 10 + 10 MHz).
Apart from the countrywide licenses, several regional permissions were also offered on the frequency bands P (FDD, 10 + 10 MHz), U (Time Division Duplex—DD, 35MHz) and U+T (TDD, 50MHz) combined, which would be sold only if the current occupants, Pay TV-Multipoint Multimedia Distribution Service (MMDS), resigned to their right of use for this band.
Another characteristic of this auction is that any service in the 450 MHz band could be licensed, such as fixed telephony, mobile cellular (voice or data) or broadband. This can be seen as an enormous evolution, considering that until the 3G public sale, the only service that could be offered was the cellular communication service, named by Brazilian Legislation, Mobile Personal Service—SMP. Unfortunately, this rule was not fully adhered to for the 2.5 GHz band. The bands X, W, V1 and V2 can handle only the SMP and the U, U+T and P bands can handle SMP and fixed broadband services (the so-called Multimedia Communication Services—SCM by national regulations).
Each carrier had to choose between FDD or TDD coverage. It’s significant to note the frequency caps in each phase of the auction: 40MHz (FDD 20+20 MHz) in the first day and 60 MHz (FDD 10+10) on the second day considering only the remaining frequency blocks. For TDD the frequency cap is 60MHz in all phases.
Who won and who lost
If all the frequency blocks were bought, the Brazilian government would have received U.S.$2.02 billion, but this situation did not occur. The medium and small companies were driven away from the competition due to the prohibitive prices of the blocks or their warranties. Many regional blocks remained untraded. The main winners were:
Claro—America Movil Group—acquired the 20+20MHz FDD X band plus 19 regional 10+10 FDD P band for U.S.$487.26 million. The company also acquired the 450 MHz band for the states of Acre, Rondônia, Roraima, Amazonas, Pará, Amapá, Maranhão, Tocantins, Bahia and in the São Paulo State, two metropolitan regions: São Paulo and São José dos Campos.
Vivo—Telefónica Group—bought the 20+20MHz FDD W band for U.S.$517.42 million. Vivo also acquired the 450 MHz band for the states of Piaui, Ceará, Rio Grande do Norte, Paraíba, Pernambuco, Alagoas, Sergipe, Minas Gerais and São Paulo, except the regions granted to Claro.
TIM—Telecom Italia Group—purchased the 10+10MHz FDD V1 band plus six regional 10+10 FDD P bands for U.S.$188.44 million. TIM also acquired the 450 MHz band for the states of Rio de Janeiro, Espírito Santo, Paraná and Santa Catarina.
Oi—Brazilian and Portuguese Group—secured the 10+10MHz FDD V1 band plus 11 regional 10+10 FDD P bands for U.S.$197.0 million. Oi also acquired the 450 MHz band for the states of Mato Grosso, Mato Grosso do Sul, Rio Grande do Sul and Distrito Federal.
Sky—controlled by the DirecTV group—paid U.S.$ 44.63 million to purchase the U TDD band in twelve regional blocks and intends to offer fixed broadband to its subscribers.
Sunrise Telecommunications—owned by mega investor George Soros—obtained two TDD frequency blocks in São Paulo State for U.S.$9.41 million.
The medium and small groups, such as Nextel, CTBC Sercomtel and Optimus mobile service providers, are in a difficult competitive situation without 4G spectrum, but there are several unsold P band (FDD, 10+10MHz) frequency blocks, some of which depend on the resignation of the current Pay TV MMDS carrier. These groups are relying on the next public bid to provide 4G coverage for the FIFA World Cup.
Another disappointment was net1 who gave up bidding for 450 MHz because of the extremely high guarantee price of U.S.$902.35 million.
Coverage goals for 2014 World Cup
To conclude, it’s important to mention that the Brazilian government has set up some coverage goals for the 4G frequency bid winners. By April 30, 2013 all the city headquarters of the Confederations Cup shall have 4G mobile communication services up and running on the FDD frequency blocks. By December 31, 2013, all the headquarters and sub-headquarters of the FIFA World Cup are obligated to offer 4G services on both FDD and TDD modes. In this way, the current spectrum limitations for high speed 4G data rates are completely lifted.
According to the 4G schedule, all the Brazilian municipalities with more than 100,000 inhabitants will have 4G coverage by December 31, 2016.
Maria Luiza Kunert is a Brazilian telecommunications executive with almost 20 years experience in the wireless market. Kunert has a degree in electronic engineering and has worked for network infrastructure vendors such as Ericsson and NEC as well as for service providers such as Vivo. Since 2009, she has worked as regulation adviser for Anatel, the Brazilian telecommunications government agency.
Note: This article does not express Anatel’ s official opinion, represent any views of the members of the board of directors nor constitute any previous judgment of any ongoing process.