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Reality Check: Why Latin American mobile growth relies on spectrum license renewals

Editor’s Note: Welcome to our weekly Reality Check column where C-level executives and advisory firms from across the mobile industry share unique insights and experiences.

Mobile is booming in Latin America. The region now accounts for 10% of the global mobile market in terms of revenues and is the second fastest growing region globally. With 500 million mobile broadband connections predicted by 2017, Latin America is moving to a new phase of development, characterized by increasing market maturity and by slowing revenue and subscriber growth.

The mobile industry is already a cornerstone of the economy in Latin America, generating over 3.7% of the region’s gross domestic product in 2012. Significant growth potential remains, with future growth likely to be driven by new services and applications and by the accelerating take up of mobile broadband.

However, if the potential of the mobile industry to drive socio-economic development in the region is to be fully realized, there must be a clear and consistent approach to renewing licenses for mobile spectrum.

License renewals are becoming an ever-increasing concern in Latin America. Over the next five years, a number of the original 2G spectrum licences issued in the 1990s are due to expire, including in Bolivia, Chile, Costa Rica, the Dominican Republic, Panama and Uruguay. The situation is most urgent in Colombia, where mobile operators Claro and Movistar will see their licences expire on March 31, with the terms and conditions for renewal still not clear.

Certainty with regards to renewal processes and the continuity of spectrum use licences is critical to maintain the current pace of investment in the sector, foster industry growth, benefit consumers and achieve national ICT goals. However, in Latin America there is no homogeneous, defined line of action regarding license renewal conditions.

An uncertain regulatory framework means mobile operators are unable to assume they will have the ability to renew their licence when it expires. The impact of uncertainty arising from license renewal processes on investment levels of incumbent mobile operators was examined in a recent study by BlueNote Management Consulting for the GSMA, entitled “Licence renewal in Latin America.” The report indicates that such uncertainty can drive mobile operators to reduce their capital expenditure by as much as 67%, which in turn could significantly delay the deployment of new mobile services. Availability of information or even informal industry insights about the renewal could reduce the potential investment loss to only 35%. Securing funds for investment is difficult in the current economic environment even for established players and is exacerbated by doubt regarding licence renewals.

Losing access rights to mobile spectrum has a far reaching impact. For consumers, it can lead to potential price increases and reduced quality of mobile services, or even a loss of service altogether. The shock waves would also be felt in the public sector, compromising the ability of governments to achieve their national ICT goals and creating an unstable market structure with potential competition issues.

Governments and regulators need to implement a clear and timely process for the renewal of spectrum licences that will maintain mobile service for consumers. Critical to this is agreeing license renewals at least three to four years before license expiry to eliminate uncertainty and ensure ongoing investment.

The GSMA is calling on governments to reduce uncertainty around spectrum re-licensing by addressing six key areas.

–Spectrum valuation: The cost of renewing spectrum usage rights should be based on achieving the best outcome for society, maximizing the economic and social benefits of the mobile industry rather than short-term revenue for government. Price estimates for licence renewal must take account of changing market conditions, including increased market saturation, commoditization of basic services and the resulting pressure on margins and industry profitability.

–Renewal method: Governments and regulators should define clear objectives and a transparent process well ahead of license expiry and include an early indication of the likelihood of renewal or reassignment of the allocated spectrum.

–Conditions: Any new conditions imposed upon mobile operators as part of the renewal process, such as quality of service and coverage, should be feasible and carefully reviewed so all stakeholders understand the level of obligations.

–Payment: The method used for setting license payments and fees needs to be based on objective criteria such as the frequency, bandwidth and potential commercial use of the spectrum under consideration.

–Spectrum caps: Any limitations placed on spectrum holdings should be updated according to any increased demand and the availability of other spectrum bands.

–License duration: Spectrum licenses should be a minimum of 15 to 20 years to give investors sufficient time to plan their long-term investments and business strategies. Shorter license terms can discourage new investment and stall the launch of new and innovative services.

Attracting both national and foreign investment in the mobile industry in Latin America hinges on transparent and predictable regulatory regimes working closely with mobile operators to reduce uncertainty around license renewals. The future growth of the region’s mobile economy depends on it.

Sebastián Cabello is the director of GSMA regional office in Latin America, responsible for representing and leading GSMA activities in the region. Cabello has been working at the GSMA since 2006 on mobile broadband and spectrum issues in developing countries, based in Latin America. He is often consulted by government agencies and mobile operators on telecom public policy and is currently member of the National Committee of Spectrum of Colombia. Prior to joining the GSMA, Cabello worked as a consultant, in private and public international organizations including TechPolis, the Ministry of Foreign Affairs of Argentina and the Organization of American States (OAS). He holds a Master’s degree in International Affairs from the University of California, San Diego (UCSD) and a Licenciado degree in Economics from Universidad Nacional del Sur (Argentina).In 2003, he was honored with a Fulbright Grant.


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