Wireless Blog by Unwired Insight
Dr Mark Heath and Dr Alastair Brydon from telecom consultancy Unwired Insight have authored over 40 major research reports in the telecom industry. In this blog, they provide insight and analysis on the latest developments in wireless services and technologies, including LTE and 4G, spectrum, traffic levels and mobile devices.
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UK spectrum auction will shape mobile industry for many years to come
The forthcoming auction of 800MHz and 2.6GHz spectrum, and the associated licence conditions, will have a profound impact on the mobile industry in the UK. In its latest consultation and proposals, Ofcom highlights that the auction is “likely to be the last significant opportunity to obtain prime mobile spectrum for many years” and that the distribution of spectrum after the auction “is therefore likely to shape the competitiveness of the mobile sector for at least the next decade”.
It is crucial that the auction process leads to the cultivation of top quality coverage, high speed data and service innovation. The last major auction of mobile spectrum in the UK, held in 2000, failed to provide these and it could be argued that the UK networks have done little more than tread water for the last ten years. As we have commented previously, 3G coverage is, even now, much worse than 2G coverage.
Ofcom is of the view that the UK needs at least four “credible national wholesalers”, by which it means four network operators with spectrum portfolios that are strong enough to offer competitive services nationally, with regard to capacity, quality of coverage, peak data rates (immediately after the auction) and availability of LTE (immediately after the auction).
Ofcom is of the view that this level of competition is essential to achieve low prices, high quality coverage and innovation of services. However, experience of 3G shows that, while competition can help to reduce prices, it does not necessarily enhance coverage (particularly in rural areas) or increase innovation. It is striking how similar all of the UK operators are, in terms of their pricing and services, and I have lost count of the number of overseas visitors who have expressed their surprise at the limited coverage and quality of the UK networks, compared with other markets.
So how do we ensure that these important points are addressed this time, given that competition alone is not enough? Ofcom is still evaluating the options, but it is good to see that at least some aspects are being addressed. In his recent post, Mark Heath has already talked about the positive introduction of demanding coverage targets, for at least one of the licences. However, another important issue is the cultivation of new ideas and service innovation. One of the problems with relying on the established industry players is that they will tend to do things the way they have always done them.
Ofcom already anticipates that three of the “credible national wholesalers” will be Everything Everywhere, Telefónica O2 and Vodafone. It is good that Ofcom intends to reserve spectrum to ensure that a fourth player (either H3G or a new entrant) has a strong enough portfolio to compete with these long-established players. However, personally I would like to see some new blood in the industry, to inject some new ideas and different approaches.
Over ten years ago, during the preparation for the 3G spectrum auction, I worked closely with the SpectrumCo consortium, led by Virgin. The consortium worked with telecom experts and a wide variety of major retail brands to develop a number of radical new ideas, including:
- a wholesale operator with a number of strongly branded MVNOs
- ambitious roll out plans to provide high-quality coverage as soon as possible
- an exciting vision for the future of terminals and the mobile Internet.
As it turned out, the high cost of the licences deterred many new entrants, including SpectrumCo, during the bidding process, so we ended up with the existing players plus H3G, all of which paid huge sums. H3G focused primarily on pricing innovation (e.g. bigger bundles) rather than innovation in services or business model.
In retrospect, the technology of the day may not have been ready for some of the exciting ideas and service concepts promoted by Virgin and its partners. However, ten years on, the pieces of the jigsaw are coming into place and the availability of high speed data and advanced smartphones could now make these visionary ideas a reality. Early 3G technology was unable to deliver high data rates, but LTE is fully able to do so, especially when bolstered by microcells, femtocells, WiFi and smart antennas. Also, we anticipate that exciting new mobile devices, such as the forthcoming iPad 3 and iPhone 5, will support LTE. Furthermore, although there is a substantial amount of new spectrum on offer, the economic environment is such that the cost of the licences may be substantially lower than 3G.
Hopefully this exciting opportunity will encourage new players to enter the UK mobile market, either on their own or perhaps in partnership with H3G. It would be good to see some of the ideas of ten years ago finally come to fruition.
UK LTE coverage to be better than 2G by 2017
As we near the UK’s long-awaited auction of 800MHz and 2.6GHz spectrum for next-generation mobile services, there is very good news for UK consumers in terms of expected coverage of LTE services. Ofcom has published its latest proposals for the award of 800MHz and 2.6GHz spectrum, and it is clear that it has moved a considerable distance from its early proposals for a minimum coverage requirement for LTE operators.
We had feared that Ofcom was going to make the same mistake it made with UMTS licence auctioning back in the year 2000. Ofcom and the UK government were so preoccupied with maximising the financial return from the auction and increasing the number of mobile network operators that they failed to consider the profitability of mobile network operators or the impact of inadequate minimum coverage levels for 3G services.
As a result, there has been significant underinvestment in 3G networks, which we have reported on previously. While it has been well over ten years since the UK UMTS auction was concluded on 27th April 2000, the UK’s 3G networks still do not deliver coverage comparable to 2G networks. Sadly, the UK has ended up with several 3G networks, each offering relatively poor quality of service and coverage compared with many leading markets. In contrast to the end users of mobile services, for many years Ofcom seemed disinterested in 3G coverage, preferring to focus on the pricing benefits from having a significant number of mobile network operators. Perhaps due to increasing dissatisfaction from mobile users, increased lobbying from bodies such as the Countryside Alliance and the interest in 3G coverage from media organisations such as the BBC, we have witnessed changing attitudes. For example, in July 2009, Ofcom pledged to “further consumer protection for mobile users” by publishing 3G mobile coverage maps for the first time.
Ofcom’s latest proposals, published on 12th January 2012, give hope that Ofcom has now learnt from its past mistakes.
Ofcom has reported that it received many responses to its previous consultation, urging it to go further in defining minimum coverage requirements and in particular to impose a higher population target. Indeed, the House of Commons Culture, Media and Sport Select Committee recommended to Ofcom that it should impose a coverage obligation of 98% on one or more of the 800MHz licences to be auctioned.
We are pleased to see that Ofcom is now proposing to go even further than this recommendation. Ofcom’s preferred option is to define a stringent minimum coverage requirement for one of the 800MHz licences, which would ensure that at least one LTE service would be available to the vast majority of mobile users by the end of 2017.
Ofcom’s proposal is to require one operator to deliver coverage comparable to the 2G mobile voice coverage delivered by today’s 2G mobile networks (in combination) plus the extended mobile voice coverage that will be achieved as a result of the recently-announced Government GBP150 million investment in mobile infrastructure to improve mobile coverage in rural areas. At last, the UK would have a more advanced network than 2G networks that actually offers superior coverage than 2G networks.
By defining a much more stringent requirement for one licence compared to the others, Ofcom would introduce intriguing dynamics into the auction. Potential bidders will now have to decide whether they want to offer such an extensive LTE network and determine how much they are prepared to pay to acquire such a licence compared with licences with significantly less stringent coverage requirements. They will also need to define an appropriate cost-effective network architecture, which will look very different to today’s 3G networks. While the stringent coverage requirements may have a significant impact on network costs for the one operator, they may bestow a powerful competitive advantage, in being able to offer (and promote) unrivalled nationwide coverage. It will be interesting to see how this affects the roll out plans of other operators. With 3G, no operator has seized the opportunity to deliver superior coverage to 2G networks, so all operators have undertaken relatively modest roll-outs, to remain competitive with their counterparts. If we were to see a clear nationwide coverage leader, this could increase the motivation for other operators not to fall behind. For example, would operators such as Vodafone, O2 or Everything Everywhere be content with offering inferior LTE coverage? We will see in due course.
Even with Ofcom’s latest announcements, UK mobile users, currently constrained by low usage allowances and relatively poor coverage, will have a long time to wait. First, the UK spectrum auction is unlikely to take place until the first half of 2013. Then, they would have to wait until the end of 2017 for the coverage target to be achieved by a single operator. Nevertheless, the future UK mobile landscape is now looking somewhat brighter than it was, at least in terms of LTE coverage.
We will continue to track developments closely. Our next blog will look at the impact of the spectrum auction on the structure of the industry and the extent to which we will see partnerships and new entrants.
About the author:
Mark Heath is co-founder of telecom strategy and telecommunication consultancy company Unwired Insight. He provides regular in-depth analysis on LTE and 4G, and has co-authored over 40 research reports on the biggest issues in the telecom industry.
Three UK highlights pent-up demand for mobile data
Contrary to the view from some analysts, recent results from Three UK show that there is little prospect of halting the tide of mobile data.
Since the heady days of early all-you-can-eat mobile data tariffs, in the last couple of years we have reported on a trend of UK mobile network operators limiting mobile data usage by increasing prices, introducing restrictive data caps and applying high charges for out-of-bundle usage. The motivation for this was to protect the limited capacity of their networks, as they realised the potential for mobile data services to consume this voraciously.
However, with a smaller number of customers than its competitors, a relatively large spectrum allocation and the early deployment of advanced 3G technology such as HSPA and HSPA+, Three UK has been able to buck the trend. Over the past year, it has re-introduced all-you-can-eat data plans for both contract and pay-as-you-go smartphone users:
- in December 2010 it introduced all-you-can-eat data to The One Plan contract, offering large bundles of voice minutes, text and all-you-can-eat data, at prices from GBP25 per month
- in March 2011 it introduced its All In One pay-as-you-go bundles, priced at GBP15 (with 300 voice minutes, 3000 texts and all-you-can-eat data) and GBP25 (with 500 voice minutes, 3000 texts and all-you-can-eat data) for a 30-day period
- in October 2011 it enabled all new and existing contract smartphone users to benefit from all-you-can-eat data for an additional cost of GBP3 per month on their contracts.
Three highlights the importance of giving “peace of mind” and “eliminating data fear”, to encourage its customers to make the most of the data capabilities of their smartphones. It clearly recognises the attraction of unlimited use of smartphone services and apps, and it is exploiting its advantage in data capacity to make the most of this. In September 2011, Three reported that The One Plan was its most popular contract tariff and its all-you-can-eat data bundle was its most popular pay as you go option.
The consequences of this approach are apparent in the mobile data usage figures for the New Year period at the end of 2011/start of 2012. This week Three UK reported that its smartphone users consumed a combined total of 154 terrabytes of data on New Year’s Eve and New Year’s Day, compared with just 28 terrabytes the year before – an increase of 450%. It expects smartphones to become even more significant over the coming months, with ownership approaching 100% of its customer base during 2012.
Three’s experience demonstrates the pent-up demand that exists for mobile data, and this will become ever stronger as the benefits of smartphones and their apps become apparent to users and developers. It will be increasingly difficult for operators in a market to resist this demand if they have competitors like Three offering all-you-can-eat data. While it may not be palatable for their investors, substantial investment in new technologies such as LTE and LTE Advanced will be the only option to satisfy demand and remain competitive.
