ICASA's July 2016 Invitation to Apply ('ITA') details how they intend to allocate 270MHz of valuable spectrum in the 'high demand' bands of 700MHz, 800MHz and 2600MHz. Five Lots, labelled A through E, are identified.

Summary ITA spectrum assignments

(Derived from ICASA ITA)

In 2015, ICASA published an Information Memorandum ('IM') where they set out their approach to allocating spectrum. At that stage six Lots were identified (A through F) and those in the 2016 ITA are similar but not exactly the same as previously stated. In this article we discuss the changes from the IM to the ITA, and review the relative merits of the Lots.

Lot A

Lot A, as currently structured, is 'to be awarded through a separate process' leaving Lots B, C, D and E available for the auction. In the IM, Lot A was for 2x20MHz of 700MHz spectrum only and was similarly to be awarded through a separate process, and importantly its role for 'Wholesale Open Access' was stated. The ITA is otherwise silent on the purpose of Lot A with no information provided on what this separate process will be, when and how this will take place, and critically what the spectrum will be used for. The allocation has dropped to 2x15MHz and the 2600MHz frequencies of the former Lot F have been subsumed into Lot A in the 2016 ITA - arguably increasing the scope and value of Lot A, but at the same time adding more uncertainty as to its intended use.

Lots C and D

As can be seen from the table above, Lots B, C and D have the same total spectrum at 60MHz each, while Lot E has only 40MHz. From first inspection, Lot C and D are very similar with their allocations in the 800MHz and 2600MHz bands, and none in the 700MHz band. These are unchanged from 2015 and hence provided no surprises to the potential bidders. These are certainly very attractive to the incumbent operators but just how different are Lots B and E?

Lot B

As set out in 2015, Lot B was nearly equivalent allocation to Lots C and D. However, in the ITA there is a notable change with Lot B's sub-1GHz spectrum now split across the 700MHz and 800MHz bands. It is not stated or known why ICASA introduced this change, but in doing so the ITA plan for 800MHz aligns better with Europe than it did previously.

The splitting of Lot B's sub-1GHz spectrum gives it the narrowest allocations in the process at only 5+5MHz of paired spectrum in each band. This has bearing on the channel bandwidths used and operators may find these to be too narrow and restrictive to offer high speed services - particularly with the 15Mbps requirements specified in the ITA. Operators prefer contiguous bandwidth - speed decreases with less contiguous bandwidth although techniques such as Carrier Aggregation pool different information streams to (somewhat) offset this.

This splitting does make life for the operator in Lot B somewhat more challenging than for those with Lot C and Lot D. There are several small differences. For example, the operator would have to use multiband antennas and dual radios to operate in both bands. Use of multiband antennas is becoming common place as tower space gets increasingly limited. The operator may choose to deploy 700MHz in one area, and 800MHz in others, and both only in selected areas as demand grows (and technology advances). There may be a small premium due to increased weight and size plus surface area to accommodate another lower frequency band in the unit. There are other knock-on effects too. For example, the operator would also have to have a slightly higher spares inventory with incremental logistics costs.

On the plus side, Lot B has the lowest frequencies in the 800MHz range, lowest in the 2600MHz range and second lowest in the 700MHz range. Lower frequency spectrum propagates further so arguably Lot B is marginally more advantageous to the operator. More customers can be served, with lower capital and operating costs. This is however only in theory, and reality will be that there will be advantages in some areas, and disadvantages in others.

Lot E

Lot E has the benefit of a mid-sized allocation (10MHz + 10MHz) in the 700MHz band but the drawback of the smallest allocation in the 2.6GHz band. This could be used to complement the existing spectrum holdings of any of our MNOs but with some limitations in terms of the services that they will be able to offer. The 700MHz block is again common to that used in Europe, and the 2600MHz block very similar to that of C and D.

Commentary

The model of operators holding spectrum assets in both the 700MHz and 800MHz bands is not unusual. Orange France and Vodafone Germany are two good examples. The EU has proposed legislation to force EU countries to make sure the 700 MHz band of spectrum is made exclusively available for mobile services by the middle of 2020 [1] and it is quite likely that there will be more operators straddling these bands. One significant different however is that in those countries the 800MHz band was auctioned off some years back (in 2011), and the 700MHz auctioned in 2015 so effectively two-step process. This gap allowed the operators to strategize and refinance after the first round.

There were many other differences too. Also, as seen in the French auction, companies do see value in 5+5MHz of 700MHz spectrum

Given the emerging market in Europe and elsewhere, it can be taken for granted that equipment vendors (base stations and handsets / devices) will be working on multiband devices covering the 700, 800, 900, 1800, 2600 and other bands to be ready for market towards the end of the decade. It remains to be seen how big the premium will be, if any, to support two or three sub-1GHz frequencies in a single device.

Conclusion

The amount of spectrum a Bidder can bid for is limited with being allowed to bid for only a single choice of Lots B, C, D and E within any given round of the auction. Lots B, C and D each provide 60MHz of sub-1GHz and 2.6GHz spectrum while Lot E only provides 40MHz. One can argue that on the basis of simplicity alone, with their contiguous spectrum Lot C and Lot D tie for first place. Lot B could be seen as being less desirable as its sub-1GHz spectrum is split across two bands, however it is far from being a distant third place. Lot E may come fourth both in terms of total MHz and the distribution thereof, but it still has value. As was evident in the auctions in Europe, some operators will pay a premium for where they see the more value - largely as a function of their current spectrum holdings, market share, aspirations and depth of pockets. Overall, ICASA has done a credible job of splitting the available spectrum more-or-less evenly. As was likely ICASA's intent the maxim of 'what you gain on the swings you lose on the roundabouts' applies.

Let the games begin!

References

• [1] Source: The Register UK, EU could force countries to allocate 700 MHz band to mobile by mid-2020, 8 February 2016