5G: how the airwaves became an ‘electromagnetic cash cow’

Do governments want the best 5G networks or to rake in billions from spectrum sales?

How do you put a price on a telecoms spectrum licence? Chinese operators have picked them up for free — part of Beijing’s attempt to have a national rollout of 5G. Yet in parts of Europe recent auctions have been so expensive that at least one company has had to cut shareholder dividends. In the US — where President Donald Trump has declared that “the race to 5G is a race that America must win” — spectrum licences are being sold at historically low prices.

The answer to the question will determine not just the future of the technological resource — referred to as the “lifeblood of the mobile industry” — and the operators themselves, but will also have a major impact on the next stage in the development of the digital economy.

Carriers argue that 5G will offer a faster and more reliable service for everything from video streaming to advanced virtual reality experiences. Governments see the “race” to the new network technology as fundamental to ushering in a world of smart cities, autonomous cars and automated factories where faster, more responsive networks can handle huge amounts of data generated by new industries.

For the telecoms operators the licences are the “ticket to ride” — access to the infrastructure that will be critical to their future success, even existence. For governments they are no less important yet some cashstrapped administrations have been sending out mixed signals over how to strike a balance between raising billions from a sector already straining to reduce costs while stimulating investment in the rapid deployment of 5G services.

It means that two decades af

ter the 3G spectrum sales made headlines by racking up record sums — and almost bankrupting some players — a new spectrum price bonanza is evolving. Airwaves previously used for everything from academic satellites and analogue television broadcasts to wireless microphones used in theatres are being cleared and sold off to the telecoms industry for commercial use to meet the insatiable consumer demand for data.

Yet, says Jay Goldberg, a consultant with D2D Advisory, for all the hype operators are struggling to say whether they will make any profit from the new wireless technology. Much depends on the release of spectrum to deliver on the promise of 5G without bankrupting operators, as almost happened with 3G.

“The risk is that 5G requires big spectrum purchases which only start to be profitable in 10 years,” he says.

The race between nations — including China, South Korea, the US and UK — to be the first to launch 5G has given rise to a different debate over who will dominate the next generation of wireless telephony and reap the most economic benefit. The trade war between the US and China has lfeatured a battle over 5G and the role Chinese network equipment supplier Huawei plays in the global industry.

China granted its spectrum licences to the country’s telecoms networks in June rather than selling them off. The US then unveiled its biggest ever sale of spectrum in July boasting of a plan to auction off, by the end of the year, more airwaves than the country’s combined mobile industry currently employs. It has set the bidding for some of the very high frequency bandwidth at a value of one 10th of a cent per megahertz per capita making those airwaves some of the cheapest ever sold.

Other governments see spectrum — the airwaves used to carry mobile phone and other electromagnetic signals — as a cash cow. India’s telecoms regulator has just proposed selling blocks of spectrum for 5G at a price that is 40 per cent above what was charged in other Asian markets.

Auctions in Italy and Germany have raised huge sums. Vodafone was forced to cut its dividend for the first time in its history following the German sale, amid industry warnings that the more they spend on spectrum, the less they have to spend on building the network via new masts, servers and base stations.

It appeared to be a thinly veiled threat to European politicians, who want a rapid deployment of 5G but seem reluctant to cap spectrum prices. According to MTN Consulting, spectrum prices accounted for an average 11.4 per cent of the industry’s capital expenditure between 2011 and 2018.

This debate is occurring as a fresh round of auctions is set to take place, stretching from the UK to India, the US and France in coming months. They will act as a further guide to government priorities when it comes to 5G plans.

“Some countries see this as a way of taxing our industry instead of helping new technologies,” says Enrique Lloves, head of strategy for Telefónica, the Spanish telecoms group. “This money is not coming back to the industry and that is a concern for us, for the consumers and the economy.”

Others dispute that high spectrum costs have a knock-on effect for consumer prices.

“There is no evidence that higher spectrum costs have led to higher prices [for consumers],” says Paul Klemperer, the principal architect of Britain’s 3G sale in 2000. “If I inherit a house for free it does not mean that as a landlord I wouldn’t charge any rent.”