KMI's application for spectrum was rejected

South Korea’s telecoms regulator KCC has kicked would-be operator Korea Mobile Internet’s (KMI) licence application into touch for a second time following the latter’s failure to achieve the minimum requirements to secure the licence.

KMI was bidding to become South Korea’s fourth mobile operator but failed to impress with its business plan, which the regulator said was long on optimism but short on details.

Plans to attract at least ten million subscribers were found to be “missing details” while KMI’s belief that negotiations with other carriers on the sharing of base stations and interconnections would go smoothly was deemed positively rosy.

The Korea Herald reported that, in addition to its failure on the licensing front, KMI’s application for mobile broadband spectrum was also rejected. The KMI consortium had applied for a licence to operate on WiBRO and was planning to offer services at 20-30 per cent less than market stalwarts SK Telecom, KT and LG Uplus. This is the second time that KMI’s bid has been rejected – the first was in November 2010. Whether it decides to go for third time lucky remains to be seen.

The 4G licensing awards are set to take place by 4Q11 via an auction process

UK telecoms regulator, Ofcom, has set out the timeline for the award of 800MHz and 2600MHz spectrum in the UK, which has been set aside for 4G technologies, most likely LTE.

Speaking at the FT World Telecoms conference in London, CEO of Ofcom, Ed Richards, has said that the award of spectrum in these bands is “now extremely important for the country,” with awards set to take place by 4Q11 via an auction process. The actual awards of licenses in these bands will come in 2Q12.

A consultation document which will detail the auction process is expected to be finalised by end February 2011.

The awards of spectrum in the 800MHZ and 2600MHz band have also been the biggest since 3G spectrum awards previously in the country and, Richards said, “a significant step forward” for the UK. Ofcom says it is also considering establishing roll out obligations and spectrum caps for UK operators wishing to roll out services in the 800MHZ and 2600MHz band.

Chairman and CEO of Telefónica Europe, Matthew Key, also speaking at the FT World Telecoms conference in London on Monday, has also expressed concerns that the timetable to award LTE spectrum in these bands is taking “simply too long”. The timeline to award spectrum in these bands means that the UK lags behind its European counterparts by two or three years.

India’s 3G licensing auction finally over

After what seems like years of waiting for it to start, and weeks of bidding, India’s 3G licensing auction has finally come to a close, with the biggest winner being the government. India raked in more than $14.6bn from the process, as operators fought to get the most desired chunks of spectrum.

The auction lasted 34 days in all, and took place over 183 rounds. Vodafone, Bharti and Reliance were the big spenders, securing licenses in Mumbai and Delhi, while Tata, Idea, Aircel and STel focused on more rural areas.

State owned operators BSNL and MTNL were already allocated 3G spectrum in 2009, giving them a substantial head start over 3G rivals. So all in all, the auction has turned into a nice little money spinner for the government.

In an announcement, Vodafone said it secured 2x5MHz of 3G spectrum in nine circles for a total price of £1.74bn, covering more than 50 per cent of the urban population and more than 50 per cent of India GDP.

Vittorio Colao, chief executive of Vodafone, said: “This has been a very competitive auction for limited amounts of spectrum. Vodafone has secured a strategic footprint covering a large proportion of our existing and future revenues, particularly in the metropolitan areas.”

Graham Friend, managing director of Coleago Consulting, which advised one of the winning carriers (they’re not saying which), had this to say: “The resulting US$ / MHz / Pop (the standard benchmark) for Mumbai, for example, makes the prices paid in the UK and German 3G auctions look relatively good value. If the prices were adjusted for the relative differences in GDP per capita the Indian prices would be off the scale.”

But Friend continued: “Unlike the UK, the Indian operators will be able to deploy their networks more cheaply and achieve greater performance by jumping to 3.5G in the form of HSPA. The spectrum will be used immediately to relieve congestion on the 2G voice networks and India will quickly emerge as the centre of innovation for low cost smart phones, applications and new mobile business models. The auction winners will not have to wait 10 years before they can start earning a return. Indian 3G prices for Mumbai, Delhli and Kolkata were certainly high and above expectations but they were not anywhere near as exuberant as those of the UK or Germany.”

The catalyst is new license awards, which are set to radically change the competitive dynamics in some markets, and for different reasons than they did in the past.

Whereas 3G-spectrum auctions changed the competitive landscape by bringing in new entrants and thus expanding the number of players, 4G-spectrum auctions are likely to see a contraction in the number of networks built, and in some instances the number of operators, especially in developed markets.

And in markets that don’t see a decrease in the number of players, many will see fewer 4G networks built as a result of close cooperation between operators.

In the US, for example, T-Mobile is talking to cable companies and WiMAX provider Clearwire about a possible joint venture to enhance its spectrum position. T-Mobile USA is the smallest of the large nationwide US operators – it controlled just 11.63 per cent of the market at end-2009, according to Informa Telecoms & Media research – and lacks the scale of its big rivals.

Unlike bigger rivals AT&T and Verizon, T-Mobile USA does not have 700MHz licenses for building an LTE network, and it is not counting on the FCC’s national broadband plan to fulfill its spectrum needs.

Germany offers a similar story of small players banding together to offer 4G to better compete with large rivals. Many expect that the country’s two small players, Telefonica-owned O2 and KPN-owned E-Plus, will either merge or combine their network assets into a joint venture because they don’t have the resources to build their own LTE networks.

But whether or not they merge, the market won’t see any new entrants come into play. T-Mobile, Vodafone, O2 and E-Plus are the only four applicants in the country’s forthcoming auction of licenses in the 800MHz, 1800MHz, 2000MHz and 2600MHz bands.

Other crowded markets where small players battle against much larger rivals are also almost certain to see consolidation around spectrum awards for LTE. The UK is one of these markets, where 3G new entrant 3 is likely to be acquired by Vodafone or, less likely, Telefonica.

In countries where LTE spectrum has already been awarded, there has been scant interest from new entrants, and governments have reaped meager amounts from awarding new licenses. Finland saw no new entrants after it awarded LTE licenses; Norway (Craig Wireless) and Sweden (Intel) saw one each.

And pointing the way forward for operators in other countries, Telenor and Tele2 have struck a deal to construct a joint LTE network in Sweden, with plans to launch services based on the technology toward the end of 2010.

Although it makes sense financially for operators to combine their efforts to roll out LTE networks, from a competitive standpoint sharing core networks remains an untested proposition. It remains unclear how much differentiation operators can pursue at the service level when they have little room for differentiation at the network level. Moreover, no matter the level of cooperation, network-sharing agreements are notoriously complex and could foreclose on future strategic options, such as M&A. It also remains unclear what effect having fewer competitors offering services will have on the price end-users pay for mobile services.

Regardless of the potentially negative consequences of having fewer LTE networks being built, smaller players in highly competitive markets will be swallowed up by stronger rivals because they are unable to bid on their own for new spectrum. This promises to create an entirely new dynamic in markets where consolidation around LTE spectrum awards takes place.

Indian 3G spectrum auction to take place April 9, 2010

The long delayed auction of 3G spectrum in India has been given a new date – April 9, 2010.

According to information released by the Indian government on Thursday, invitations to apply to participate in the auction will be issued on February 25, with the actual auction to take place around six weeks later.

Commenting on the announcement, T R Dua, director general of the Cellular Operators Association of India (COAI) said that the GSM industry had been “eagerly awaiting” the 3G auctions and said that the operator community is all geared up to provide high speed internet and a wide range of multimedia services to consumers as well as boosting social initiatives such as m-health and mobile education.

“3G will give a major impetus to the growth and penetration of mobile broadband services in the country and the mobile industry is keen to deliver on its promise to make affordable broadband services available to the consumers in the shortest possible time frame,” Dua said.

Telekom Austria wins 3G licence in Belarus for Velcom

Telekom Austria said Wednesday that its majority owned Belarusian mobile subsidiary, Velcom, has been granted a countrywide UMTS license for a price of €9.5m.

The respective spectrum was already allocated to Velcom at the end of 2009, and the 3G licence is valid until 2017. The mobile operator, which is 70 per cent owned by Telekom Austria and 30 per cent by Cypriot firm Samauwi Brothers, said the roll out of the UMTS network is in progress with up to ten base stations being upgraded every day.

The Austria carrier expanded its operations into Belarus in 2007, paying €730m for the stake. The operator also has a put option agreement, which would allow it to buy the remaining 30 per cent stake in the fourth quarter of 2010 for approximately €320m.

The carrier markets its mobile services under the brand names “Velcom” for postpaid services and “Privet” for prepaid services and is the number two operator in Belarus with a market share of approximately 42 per cent and more than 4.1 million customers at the end of December 2009.

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Since only about ten million of the country’s 40 million fixed lines are capable of delivering broadband services, there is little doubt that wireless services –meaning WiMAX rather than 3G in India – will play a major role in the broadband market, probably a dominant one.

Nonetheless, there are limitations to what WiMAX – or any wireless service – can deliver, especially in highly populated urban areas, meaning that there are still substantial opportunities available for India’s fixed-broadband operators.

Given the abysmal job that state-owned BSNL and MTNL have done in deploying fixed-line broadband services over the past decade despite their virtual monopoly in the fixed-line-broadband market, it is reasonable to assume that neither operator will be leading a transformation in the market any time soon.

That leaves only the nation’s cable MSOs and the big three private operators, Bharti, Reliance and Tata Communications, to possibly salvage something from the fixed-line-broadband market. The question is: How can they do it?

Can’t go it alone

The first thing to note is that by themselves, neither the MSOs nor the big three private operators can hope to make a truly significant impact in the fixed-line broadband market. There needs to be some collaboration between the two groups.

The MSOs have a lot of subscribers – India has more than 70 million cable subscriptions – but are hampered by the fact that they control so few of their last-mile subscriptions.

Most MSOs control only about a fifth of their subscriptions’ last miles – the largest, Digicable, controls only 100,000 out of a 7.5 million-strong subs base – with the rest controlled only via franchise deals with independent local cable operators (LCOs).

The unwieldy structure of the industry makes it hard for MSOs to deploy cable-modem services on a significant scale.

This is because although they are steadily upgrading their own directly owned networks to offer cable-modem services, they are reluctant to fund the upgrades of their franchisees’ networks, because they have no guaranteed return on their investment.

As a result, it looks likely that MSOs will simply concentrate on upgrading their directly owned networks in the most commercially attractive areas to offer cable-modem services, which will mean that such services will be available to at most 20% of cable TV homes.

This still equates to a potential cable-modem market of about 14 million homes – which would give the MSOs a target market of a similar size to that available to BSNL/MTNL on their fixed-line networks.

But there are two problems with this scenario.

First, although the MSOs are backed by some extremely wealthy parties, they don’t have access to the rivers of cash available to the operators and are therefore forced to adopt a moderate approach to network upgrades to keep their capex manageable.

Second, the MSOs still see themselves as being primarily in the TV business rather than the telecoms business and are still not anywhere as content in broadband as they are in their traditional TV sector.

This is where the private operators come into the picture.

The operators have the cash

The likes of Bharti, Reliance and Tata have plenty of cash available but are severely restricted in where they can offer their fixed-line broadband services because of the Department of Telecommunications (DOT)’s refusal to end BSNL/MTNL’s monopoly on their last-mile DSL networks.

The private operators are already tied up in expensive rollouts of their mobile networks – especially with their 3G-network rollouts looming from 1Q10 onward – so will need any expansion in the fixed-line-broadband market to be as cost-effective as possible.

Since rolling out new fixed-line broadband networks on a mass-scale is not going to happen, and the DOT is not going to end the BSNL/MTNL last-mile monopoly any time soon, the cable market must be where the private operators’ fixed-line-broadband future lies.

Deploying WiMAX does give the private operators a major hook in the broadband market, but it really provides them only with a means of accessing the ISP market rather than the pay TV market via IPTV or even the fixed-line-voice market.

Therefore, it seems that the only way for the big three private operators to have a sustainable future in the broadband market is to find a way to work with the huge market power of the country’s cable operators. But working out a way to combine the market power of the MSOs with their own financial resources and greater knowledge of the telecoms market will by no means be easy.

For example, there would be little value for them in acquiring Digicable, which has a minuscule last-mile-subscription count, but they might seriously look at Hathway, which has more than 300,000 cable-modem subscribers and controls more last-mile subs than any other MSO.

But the likes of Hathway, backed by the Raheja family and Star, would not come cheap, so the operators might instead choose to bypass the MSOs themselves and go for a strategy of acquiring the best available LCOs and patching together the best network they can.

This plan would also be fraught with difficulties, given that there are about 60,000 LCOs in the market and that separating the wheat from the chaff and upgrading networks in the right areas would be a challenging proposition.

Perhaps the best option would be for the private operators to form joint ventures with the MSOs, whereby they help fund network upgrades that enable MSOs to extend their cable-modem services in return for the ability to offer their services on the upgraded networks.

This would require the MSOs and private operators to broker revenue-sharing deals – which might prove to be a stumbling block – but would enable them to focus on their core pay TV services and enable the private operators to concentrate on their strength in offering broadband services.

Finding an answer to this puzzle will certainly not be easy, but it is a task that will need to be tackled by the big three private operators if they are to secure themselves a seat at the fixed-broadband table.

Nawras wins fixed line licence in Oman

Second placed Omani mobile operator Nawras has been issued a fixed line licence, the company said on Tuesday.

Nawras, which is majority owned by Qatar Telecom, is now licensed to provide fixed, data and international telecommunication services in Oman, and can use its network infrastructure to offer WiMAX and HSDPA services, the company said. The licence is valid for 25 years.

Since its launch in 2005 as the second operator in Oman, Nawras has won over 1.6 million GSM customers and claims to have achieved a market share of more than 45 per cent by the end of the first quarter of 2009.

Nawras’ extension into fixed line and consumer broadband services complements the Qtel group’s strategy to grow its operations across dedicated business lines, as part of its objective to become one of the world’s top 20 telecoms companies by 2020, Qtel said.