One of the very first lessons taught to telecommunications students is that radio frequency spectrum is a scarce resource. This limitation forces governments and other market players to seek alternatives aimed at maximizing its efficient use with the purpose of promoting wider coverage and increasing the adoption of new services.
The paramount importance of this input has led organizations such as the International Telecommunications Union to make recommendations on how much spectrum bandwidth should ideally be allocated in a given market to ensure the healthy development of its mobile service sector. The one target that has yet to be met by markets worldwide is 1,300 megahertz at frequencies lower than 3 GHz by 2015. The same amount holds for 2020.
However, the degree to which this target has been met so far is asymmetric among the different regions in the world. While in developed countries the amount of spectrum allocated to mobile services is more than 50% of that figure, the situation in Latin America is far less promising.
According to estimations from Signals Telecom Consulting, by the first quarter of 2015 only one Latin American market has allocated more than 40% of the spectrum recommended by the ITU, two markets had allocated more than 30%, nine markets had allocated over 20%, and seven other markets stood between 10% and 19% of the ITU recommendation.
Unfortunately, low levels of RF spectrum allocation is not the only issue facing the Latin American mobile service sector. Another is the concentration of large bandwidth blocks by concessionaires that are underutilizing it or simply fail to offer any service on large portions of their geographical areas of concession.
For example, it could be argued that close to 19% of the RF spectrum allocated to mobile service in Chile is being underutilized. This share is larger in Ecuador at 38%, while in Mexico there are some 30-megahertz of spectrum in the 1900 MHz band that were allocated at the end of the last century, but were never used for commercial mobile service.
This reality makes it imperative to adopt measures that promote the healthy development of the mobile service sector. The most obvious is the allocation of new RF spectrum bands that can be used immediately and the creation of a secondary RF spectrum market to enable the lawful exchange of this asset among its different concessionaires.
According to the Organisation for Economic Cooperation and Development, establishing a secondary spectrum market has been an efficient way of enhancing the asset’s resources among the different service providers in the market. Some of the markets quoted by the OECD as enabling a secondary market for RF spectrum trading include Australia, Canada, the United States, Guatemala and New Zealand.
Likewise, as part of the Digital Agenda in its Europe 2020 Strategy, the European Commission has established that inflexible RF spectrum markets tend to perpetuate the incumbent operators’ subscriber shares and prevent users from accessing the amount of spectrum they need. For this reason, the approval of Decision No. 243/2012 establishes that the trading of RF spectrum in a secondary market should be guaranteed in the 28 member states of the European Union. The EU decision is in line with the papers published by scholars from Carnegie Mellon University in the U.S. and the University of Toronto in Canada. In both cases, the conclusions indicate that establishing a secondary exchange and/or trading market for spectrum enhances the efficient use of this resource.
Simply stated, in the purview of a legal framework that enables the existence of a secondary market for the trading of RF spectrum, operators may sell a portion of their unused spectrum provided the original concession obligations are maintained. All of the above should be done in consideration of the fact that the regulatory authorities will have the final say in either approving or dismissing the transaction.
In addition to the markets mentioned by the OECD and the EU member states, in Latin America this kind of transaction has already been seen in Mexico in 2004, when the mobile Mexican subsidiary of América Móvil (Telcel) purchased 8.4-megahertz of spectrum in the 1.9 GHz frequency band from Unefón.
Likewise, in September 2014 the telecommunications regulatory authorities in Chile sent a bill to the National Congress to create a secondary RF spectrum market. The importance of maximizing the use of a scarce resource has not gone unnoticed in a market seeking to regain its leadership position in terms of new technology adoption. Chile had first gained such leadership with its early launches of GSM and UMTS. It then fell behind with LTE, where it was the sixth South American market to launch the technology following Bolivia, Brazil, Colombia, Paraguay and Uruguay.
The authorities overseeing the healthy competition of the telecommunications industry in the region should receive more information regarding the advantages of including all necessary provisions in local regulations to enable the existence of a secondary RF spectrum market in a region where many of the frequencies are in no position to be allocated for immediate use.
One of the best examples to illustrate the above is the Peruvian market, where government authorities have halted an RF spectrum transaction between mobile operators that would have a positive impact by boosting innovation and promoting additional new services for users. Moreover, the Private Investment Promotion Agency in Peru has announced the target of allocating three RF spectrum blocks (15 megahertz + 15 megahertz) during 2015. However, this frequency has not been completely cleared. Therefore, its use relative to the provision of LTE could encounter difficulties in the short-term.
In view of this fact, the local subsidiary of América Móvil (Claro) purchased 10-megahertz of spectrum in the 1.7/2.1 GHz band from the local operation of Telefónica (Movistar). However, the entity which decides on RF spectrum concessions in this South American country, namely the Ministry of Transport and Communications, has not authorized the transaction although the outcome would be for Claro to reach only 70 megahertz of RF spectrum bandwidth – 20 megahertz fewer than Telefónica and 27 megahertz fewer than Entel.
The MTC’s decision has the effect of limiting the expansion of the operator’s LTE network depriving many consumers from a new commercial alternative with this technology, thus reducing the market’s competitive pressure.
To avoid similar situations in other markets in the region, it is imperative for the regulatory entities in Latin America to start discussing the issue of a secondary RF spectrum market in international forums. It would be useful to hear the experiences of other markets from representatives of the different regulatory entities that have already adopted this measure.
The conclusion would be straightforward: Promote the use of an enhanced RF spectrum that would speed up the deployment of new technologies and to impose conditions that guarantee a further balance in the holding of RF spectrum. All of the above translates very simply into benefits to the consumer.
Jose Felipe Otero Muñoz is the director of Latin America and the Caribbean for 4G Americas. He is responsible for promoting the successful development of the 3GPP family of technologies (including LTE) throughout the region and communicating the latest advancements in these technologies to key stakeholders, including mobile operators, vendors, regulators, telecommunications organizations, media and analysts.
Editor’s Note: The RCR Wireless News Reality Check section is where C-level executives and advisory firms from across the mobile industry share unique insights and experiences.
