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Analysis of UK 4G spectrum auction

Dr. Yan Q Bian - Marketing expert
UKCC, Business Consulting Dept. February, 2013
www.huawei.com

HUAWEI TECHNOLOGIES CO., LTD.

Content
1. Background

2. Analysis for UK 4G spectrum auction 3. Conclusions

Background
Ofcom published a consultation on 4G spectrum auction in March 2011 . Total 250 MHz are in two separate bands at 800 MHz and 2.6 GHz, which equivalent to two-thirds of the frequencies currently used by tablet computers, smartphones and laptops. There were 7 participants bids for packages of spectrum:
EE, H3G UK, Niche Spectrum Ventures (a subsidiary of BT Group) , O2 UK, Vodafone , HKT UK (a subsidiary of PCCW), and MLL Telecom.

On 20-Feb-2013, Ofcom announced five winners of the 4G spectrum auction.

UKs 4G spectrum auction has raised less than government expected - 2.34bn rather than the 3.5bn forecast. 4G services from a range of operators expected within six months.

On Oct-2012, EE first launched a 4G service at existed 1800 MHz spectrum. Currently, the 4G-LTE network can provide average download speeds of 16Mbps, with peak speeds of 50Mbps
But EE has struggled to attract users, leading it to run a cut-price special offer in Jan-2013.

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Existing 2G/3G spectrum position in UK

The 900 MHz and 1800 MHz are licensed for both 2G and 3G, where the 2.1 GHz is licensed only for 3G service.

Comments:
EE should have a strong position on LTE, since they have no 900MHz spectrum and they already launched the 1st 4G-LTE network in UK by using their existed 1800MHz. At 1800 MHz, its possible for RAN sharing between VDF and O2.

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Principle of Ofcom consultation for 4G spectrum auction

E-UTRA band
B-20 FDD @ 800 MHz
1
791

Freq. arrangement
30MHz in 5MHz Blocks 30MHz in 5MHz Blocks

Deployment scenario
4 5 6
862

6
821

1
832

Ideal for rural coverage, and then from remote rural to dense urban

FDD Uplink

FDD Downlink

B-7 FDD and B-38 TDD @ 2.6GHz

70MHz in 5MHz Blocks

1 2

70MHz in 5MHz Blocks

14

13

50MHz TDD

13

14

Ideal for delivering higher speeds and provide services simultaneously to many users (e.g. hotspot)
2690

2570

2500

FDD Uplink

2620

FDD Downlink

2.6GHz and 800 MHz (total 250 MHz) to be auctioned as Combined Package.

Has a limitation for the amount of sub-1GHz spectrum (800 MHz and 900 MHz) that any one operator can hold.
EE could release 2x15MHz @ 1800 MHz which could be a part of auction.

One 800 MHz license holder to provide 98% population coverage, and 90% indoor coverage with minimum 2 Mbps throughput.
LTE (and WiMAx) at 900/1800 MHz and 2100 MHz is possible as soon as the technical conditions and feasibility have been satisfied.

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Impacts of 4G spectrum

Network quality

QoS & QoE

Business

Coverage

What proportion of the country enjoys coverage? How deep into buildings?

Capacity

The number of users that a network can support simultaneously.

Device potifolio Business scenario Service offer Customer churn Capex and RoI GTM strategy

Speed

The throughput in Mbps that consumers can enjoy service.

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Comparisons between FDD and TDD

LTE FDD (800M, 2.6G)
Spectrum cost
Expensive than TD-LTE, especially for band-20 (60MHz BW @ 800MHz). Symmetrical UL/DL traffic within a pair of spectrum. Lager coverage than TD-LTE. It is expected to be key to the economic delivery of 4G MBB services in less densely populated rural areas. Slightly better than TD-LTE. Less interference between neighboring eNBs. No need for rigorous synchronization.

TD-LTE (2.6G)

Less expensive (50MHz BW @ 2.6GHz). Has advantage when UL /DL traffic are not symmetrical. Suitable for M2M (e.g., point of sale, fleet management, health care monitoring etc.) . Smaller coverage compare to FDD. From a cost point of view, TD-LTE micro/picocell could be deployed in high traffic urban /suburban and indoor, as a complement to FDD macrocell. Slight worse than LTE FDD. More interferences between cells. Require accurate synchronization.

UL/DL traffic

Coverage

Spectral efficiency Interference Complexity

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Results of 4G spectrum auction

Amount of 4G spectrum in MHz, by operators
800 MHz 2.6 GHz (FDD) 2.6 GHz (TDD)

Spending on 4G spectrum (mill. in GBP)

25

40

70

20

20 Vodafone

10
EE

20 O2

30

10
H3G Niche Spectrum Ventures

Bubble size: Amount of spectrum

Comments:

VDF is relative aggressive as they spent the most (791m) on all frequency bands at 800MHz and 2.6GHz. Bidding on the 800MHz was less fierce. The largest operator EE (35% of market share) only came away with a minimum 2x5MHz. In contact, it has been shown greater interests on the 2.6GHz high frequency bands.

VDF: 65 MHz in total, 2x20 MHz (FDD) and 25 MHz (TDD) EE: 70 MHz in total, 2x35 MHz (FDD) BT: 50 MHz in total, 2x15MHz (FDD) and 1x20MHz (TDD) Huawei Confidential Page 8

Responses from Operators

By Guy Laurence, VDF UK chief executive
Weve secured the low frequency mobile phone spectrum that will support the launch of our ultra-fast 4G service later this year. It will enable us to deliver services where people really want it, especially indoors. This is great news for our customers. The next generation of mobile internet services will bring real benefits to both consumers and businesses.

By Olaf Swantee, EE chief executive

EE is extremely pleased with the outcome of the spectrum auction. Coupled with our existing 1800MHz 4G network, it consolidates our position as the most advanced, largest and most capable 4G operator in the UK. The acquisition of low and high frequency spectrum allows us to boost our superfast data services and coverage indoors and outdoors, in cities and the countryside. This result means that we are perfectly placed to meet future data capacity demands further enhancing the superfast 4G services we already offer the UKs consumers and businesses. We look forward to continuing the rollout of the nations fastest mobile internet services.

By Ronan Dunne, O2 CEO

Today, Telefnica has made a significant investment in next-generation 4G technology for the UK. While 4G will indeed allow for faster data speeds and a more seamless mobile experience, it is our intention to go beyond what has already been offered in the market and give our customers a unique and exclusive range of digital experiences, marking a new generation for the mobile industry.

By Ian Livingston, BT CEO

We are pleased to have secured this spectrum. We have said that we do not intend to build a national mobile network. Instead, this spectrum will complement our existing strategy of delivering a range of services using fixed and wireless broadband. We want our customers to enjoy the best possible connections wherever they are and this spectrum, together with our investment in fibre broadband, will help us achieve that.

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 UK 4G spectrum at 800 MHz

Downlink

Analysis on UKs 4G spectrum auction results (1): 800 MHz

Comments:

Full availability: Northern Ireland End2012, Wales Oct -2013, England End-2013, Scotland Oct-2014

It is well known that 800MHz has advantages for rural coverage and indoor penetrating, so fetching higher prices compare to 2.6GHz.

VDF and O2 each bought 2x10MHz as much as they were allowed to. But O2 only won the coverage obligation slot - a minimum download speed of 2Mbps should be available for indoor reception to 98% of UK population by end2017.

Uplink

Price comparison for 800 MHz

UKs 800MHz price is very close to a straight average value ( 0.51), although lower than that paid in Italy, Germany and France. The lower price may reflect to:

A difficult market condition.

EU average price: 0.44 (0.51) per MHz per pop.

700MHz harmonization across EU after 2015, which will increase the supply of low frequency.

Key: DE = Germany, DK = Denmark, ES = Spain, FR = France, HR = Croatia, IT = Italy, PT = Portugal, SE = Sweden, UK = UK. Source: Analysys Mason, Huawei analysis

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Analysis on UKs 4G spectrum auction results (2): 2.6 GHz UKs 4G spectrum at 2.6 GHz Price comparison for 2.6 GHz
0.07 ( 0.08) per MHz per pop for FDD 0.04 ( 0.04) per MHz per pop for TDD

Low power freq. blocks can be used for small cell deployment; TDD blocks can be also used for wireless backhauls.

Comments:
UKs 2.6GHz price is slightly above EUs average price. The relatively high prices reflect greater interests among VDF, EE and BT.
EE acquired surprisingly large amount of 2.6GHz and aim to meet future data capacity demand. As allowed by Ofcom, EE can also consider trading and sharing their spectrum. VDF balanced their 4G spectrum on all three bands to cover different LTE scenarios. It should be noted that BT doesnt plan a national network on the 2.6GHz and will instead use it to supplement existing wirel ess and fixed line broadband networks. This may bring up their interest on wholesale business model based on small-sell and TD-LTE.

O2 did not acquire any 2.6GHz slot. It seems they may more rely on WiFi for delivering digital experiences to consumers, as

O2 WiFi is already second largest WiFi network in UK (> 3000 hotspots at Sep2012) bigger than BT OpenZone and growing at 300K subs. a month.

Source: Analysys Mason, Huawei analysis

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Conclusion
In general, money raised by UKs 4G spectrum auction appears a little low (2.3 billions), but not totally out of line with relevant benchmarks as average price paid in EU. Vodafone are relative aggregative on 4G spectrum spending for 800 MHz and 2.6 GHz (in bouth paired and unpaired bands). EE put significant investment on the 2.6 GHz FDD band, but only acquired a minimum amount for the 800 MHz spectrum. BT not intend to deploy national mobile network using their 2.6 GHz spectrum, even they won both LTE-FDD (2x20 MHz) and TD-LTE (1x25) bands. H3G (only with the minimum 2x5 MHz @ 800MHz) and O2 (only 2x10 MHz @ 800 MHz with coverage obligation at lower cost) do not have strong interest in the LTE spectrum spending.

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Thank you
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Copyright 2011 Huawei Technologies Co., Ltd. All Rights Reserved. The information in this document may contain predictive statements including, without limitation, statements regarding the future financial and operating results, future product portfolio, new technology, etc. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied in the predictive statements. Therefore, such information is provided for reference purpose only and constitutes neither an offer nor an acceptance. Huawei may change the information at any time without notice.

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