5G Update July 2018 – auctions caps, potential vendor bans and more…
Regulatory announcements regarding 5G will affect competition dynamics as the first 5G services are closer to launch.
Internationally, there is excitement but also caution as the potential high price of providing 5G services will mean expected benefits such as unlimited mobile plans prove to be difficult to justify economically.
Spectrum auction limits announced for the upcoming 3.6 GHz auction ensures competition in the industry. This decision favours the smaller players and reduces the possibility of market dominance by Telstra and Optus.
Calls to block telco vendors ZTE and Huawei from bidding on Australian 5G network rollouts may impact 5G launch timeframes for Optus and Vodafone to the benefit of Telstra.
The New Zealand Commerce Commission has announced that it will retain the power to regulate domestic mobile roaming in order to ensure and maintain competition in the market for the arrival of 5G
Verizon is on track to launch the world’s first 5G commercial service in the second half of 2018, powered by its own proprietary standards.
Telcos in Korea and Taiwan have warned that the high cost of spectrum may mean that unlimited 5G mobile plans may not be economically feasible, and that price wars between telcos would hurt long term deployment.
5G regulations taking shape
As we edge closer to the first commercial 5G deployments, regulations surrounding spectrum and competition are forming, giving us a better view on how industry dynamics will play out and each telco’s relative positioning in the early stages of the 5G era.
Australia and New Zealand 5G developments
Spectrum auction limits
With spectrum being the primary resource for providing wireless service, the government and the ACMA announced in July 2018 spectrum limits for telcos in the upcoming auction in October. A total of 125 MHz of spectrum will be available for auction in the 3400-3700 MHz band, with no more than 60 MHz for metropolitan areas and 80 MHz in regional areas to be allocated to each telco (including existing spectrum holdings they may have). This is partly in line with the ACCC’s recommendation, as the 80 MHz regional limit is higher than the 60 MHz regional limit recommended by the ACCC. The government has argued that less competition and population density in regional areas means telcos can be allowed more spectrum to supply regional customers with the same qauality of service as metro customers.
This competition limit has implications for each telco as well across the entire industry. Optus already has extensive spectrum in the 3.6 GHz band in metro areas, and therefore may focus its bidding to regional spectrum in this auction. NBN also has abundant spectrum in the 3.6 GHz regional band and would only be able to acquire a small portion of the 125 MHz on offer. Thus, the main competitive dynamic for the upcoming auction would be between industry leader Telstra and Vodafone and TPG. With likely a much larger budget than the other two, Telstra will possibly acquire the maximum spectrum it is allowed, but potentially less than what it would have if limits were not imposed. However, given the Government did not agree with the ACCC’s recommendation to set a limit of 45 MHz for Sydney and Melbourne, this is still a relatively good potential outcome for Telstra. While TPG has yet to comment, Vodafone has welcomed this announcement as it promotes competition, but has also voiced requests for NBN to release more of its 3.6 GHz spectrum to further create balance in spectrum assets for each telco.
The implications these limits have on telco strategies are intriguing. The spectrum around 3.6 GHz is ideal for fixed wireless services, which will be the first 5G commercial services to be launched next year. By having the largest spectrum holdings in this band, and with this scenario more than likely to continue, Optus is well placed to potentially win the first 5G battle in the fixed wireless market in metro areas.
Figure 1. Current spectrum holdings across Australian telcos
SOURCE: Venture Insights, ACMA
This announcement and the results of the auction also sets a precedence for further, perhaps more stringent, limits for mmWave auctions from 2019 onwards, as mmWaves will be a most critical resource for all telcos and their 5G aspirations, especially for high data applications. We note here that Telstra has called for the mmWave auction to be fast tracked whereas both Optus and NBN are more cautious due to coexistence issues with satellite frequencies, which both Optus and NBN own.
Carrier competition impact from potential vendor bans
In his recent speech to Parliament on 29 May 2018, the federal member for Melbourne Ports, Hon Michael Danby, called for the Australian government to block ZTE and Huawei from bidding on Australia’s ‘new central communications 5G network’. The speech also referenced the barring of Huawei from bidding on the NBN infrastructure in 2012. At that time, The Attorney General’s department described the NBN as the backbone of Australia’s information infrastructure and that the ban was consistent with security Australia’s critical infrastructure.
Since Danby’s speech in May, we have seen a range of media reports on this topic as well as detailed briefings from Huawei Australia – including a presentation by Huawei Australia’s Chairman, John Lord at the National Press Club on the 27 June 2018.
Whilst no decision has been made by the Australian Government, these ongoing public discussions risk impacting the launch timeframes of Optus and Vodafone’s 5G networks in 2019. Both operators have deployed Huawei 4G network infrastructure and would therefore be considering its ongoing migration to 5G. In particular, Optus CEO Allen Lew recently indicated a launch date for its Fixed Wireless Broadband service of January 2019 and that a vendor decision was “imminent”.
Working backwards from a potential launch date of January 2019, the mobile operators really need to be locking down their 5G supplier(s) now in order to finalise their 5G network planning and launch schedules.
Venture Insights expects the launch and initial rollout of 5G in Australia to be highly competitive - with each Mobile Network Operator (MNO) not wanting one of the other MNOs to get ahead - as there is the potential to gain market share of business and consumer early 5G adopters and be seen as a market innovator. Clearly, this risk exists whether there is a 5G vendor ban or not, but the risk is now heightened (given the recent comments in the media) for those MNO's considering either ZTE and Huawei.
As such, calls to ban Chinese 5G vendors may already be having an impact on some operator launch timeframes and potentially giving an advantage to those players who choose to go with other vendors.
Even if no outright ban is made, there is still the potential to include supply chain security mechanisms - as we have seen in the UK with the creation of the Huawei Cyber Security Evaluation Centre. However, what is not clear is whether the establishment of these supply chain security mechanisms will introduce delays and who incurs the costs of these security centres. This is adding supply chain complexity to MNOs in a highly competitive environment.
Of course, for those MNOs such as Telstra - who are unlikely to purchase 5G infrastructure from ZTE and Huawei - any delays in their competitor’s procurement process could provide a launch advantage with the associated first to market press and positioning that would follow.
New Zealand domestic mobile roaming to continue
The New Zealand Commerce Commission has announced that it will retain the power to regulate domestic mobile roaming in order to ensure and maintain competition in the market for the arrival of 5G. This means telcos with at least 100 cell cites covering more than 10% of the population (Vodafone, Spark and 2degrees) must provide wholesale services to MVNOs. This allows a lower barrier to entry for new entrants, and promotes more fair spectrum auctioning and allocation.
International 5G developments
AT&T and Verizon 5G fixed wireless
Verizon has announced that it is “full steam ahead” in its plans to launch fixed wireless 5G in the second half of 2018, likely to be the first commercial 5G service in the world. According to reports, Verizon has devoted significant efforts to ensuring its network is ready for 5G as soon as customer equipment is available in the market. However, it has state that the service to be launched this year will be their own proprietary standard, and could support unlimited data plans.
Combined with a premium connectivity service, Verizon is also focused on providing OTT subscription video offers in order to appeal those users who are mostly likely to benefit from a premium 5G service.
Unlimited mobile plans
The arrival of 5G will inevitably introduce higher capacity data plans. However, there are concerns regarding the economic feasilbity of providing unlimited data and mobile plans at affordable prices given the high costs of acquiring 5G spectrum. Recently, carriers in Korea and Taiwan and their respective spectrum commissions have warned that the continuing price wars will make offering unlimited data plans difficult to sustain as the cost of 5G spectrum is expected to be high. This issue is compounded by regulation in regions such as Taiwan which prohibit telcoms from acquiring content providers, hindering innovation and new revenue streams.
Venture Insights 5G Report Series
This reports forms part of an ongoing series of 5G related reports to track the preparation and launch of 5G networks and services within Australia and New Zealand, as well as global milestones and progress. Our previous reports include: