Telecoms in a quandary over spectrum
Expense leaves little for infrastructure
Telecommunications companies across Africa are in a predicament when it comes to spectrum, as are national regulators.
Governments have a scarce resource that telecom groups need, and one of the ways they divvy it up is through auction, but most groups do not have the funds to buy the spectrum at the reserve price, which can run into millions of dollars.
For instance, the Nigerian Communications Commission will auction spectrum to expand 4G LTE coverage and encourage competition in the data sector. It wants the new frequencies to help push mobile broadband penetration from 21%, where it was in February, to 30% by the end of 2018.
With spectrum auctions, states have three approaches for the reserve price of blocks — a low price to allow smaller operators to bid and leave them with funding; a medium price that generates funds for the state while leaving operators with funding and a high price to maximise the government fiscus.
But last year, when Nigeria tried to auction spectrum, MTN Nigeria was the only bidder. The group bought a portion of the spectrum for $9.6-million while other operators such as Globacom and Airtel said they were unhappy with the auction conditions and the high reserve price.
A BMI Research report indicates that established operators in Nigeria have limited resources to bid for spectrum and then roll out broadband services.
Andrew Kitson, head of ICT research at BMI, said spectrum was a scarce resource and governments wanted the highest price they could get, either through auctions or by going to preferred players. Spectrum was essential for operators to expand their business in a sustainable manner, he said. The more spectrum an operator had, the better the chance of long-term survival and diversification in terms of services.
Kitson said there were ways of dealing with limited spectrum, particularly in larger markets where there were multiple players — companies worked together by sharing frequencies or jointly investing in infrastructure. “Ultimately, a lack of spectrum is a real brake on operators’ opportunity to expand, and without that they are hamstrung.”
Price tag of millions
In another case of dominant players benefitting, the Ghanaian regulator announced in 2015 a spectrum auction with a price tag of $67.5-million per lot. While local companies were encouraged to participate, none of the three Ghanaian companies that registered for the auction was able to meet the reserve price. The only firm to meet the price for a single lot was Scancom, owned by MTN.
Kitson said price depended on the return operators would make from their markets. He said markets with high average revenue per user, such as South Africa and Nigeria, made the premium on spectrum worthwhile, but in a country like Mozambique, the price needed to be reduced accordingly.
“Big players like MTN and Airtel, they have the money and if they are willing to pay for it, why shouldn’t a government say ‘I’m going to take the highest price, I can pump the money into the economy’?”
In an ideal world, Kitson said, governments would set aside spectrum for new entrants to the market and provide some regulatory support during the time they were being established. That approach had worked well in the EU.
Players excluded
Dobek Pater, a telecoms analyst at Africa Analysis, said the prices at auction sometimes excluded smaller players. But, on the other hand, governments needed to ensure the spectrum was used to continue deploying telecommunications infrastructure in the country. Large operators who can afford higher prices also have the resources to build a network after acquiring the spectrum.
In a market such as Kenya, the dominant player benefited from additional spectrum. Safaricom was the dominant player with close to 70% market share.
Pater said the way the auctions are structured often perpetuate the position of dominant players in many markets.
“So if everyone wins a block of spectrum because it is accessible from a price perspective . . . Safaricom would still be able to spend the most money on building an infrastructure using the spectrum, and it would be able to perpetuate its dominance in the market in all likelihood.”
However, at least the smaller players would have the space to develop in the market, he said.
The middle road is to make some money for the government but ensure that the operators still have the funds to build a network. This is the path that ICASA, the South African market regulator, wanted to take.
Big crunch
MTN South Africa CEO Godfrey Motsa said that if you looked at the situation at the moment, the more customers you had, the more spectrum you needed.
MTN South Africa has about 32 million customers and Vodacom 40 million.
Motsa said his competitor should be facing a big crunch with the need for more spectrum, but that was not the case thanks to a deal Vodacom had clinched with Rain (formerly known as Wireless Business Solutions).
Motsa said that for the size of its customer base, MTN was the most starved of spectrum. “We are officially in the spectrum crunch, so all we are doing at the moment is to keep on densifying the network, especially in urban areas, and then also re-farming the spectrum.”
Change in legislation
The Electronic Communications Amendment Bill, which was approved by the cabinet last month, has been criticised by Vodacom and MTN for failing to deal with their need for access to new spectrum. The bill would change the legislation governing South Africa’s ICT sector and create a wholesale open-access network, a single network everyone would use.
Motsa said the problem in South Africa and across the continent was the education required by policymakers and telecoms groups.
Spectrum was being viewed as a gold mine, but having spectrum without the capital to build the requisite infrastructure was not worth anything, he said.
We are officially in the spectrum crunch Godfrey Motsa MTN South Africa CEO