France leads the way on EU spectrum reform

Tuesday 16 January 2018 | 16:45 CET | Market Commentary
The agreement in France to improve rural 4G services shows a new way forward in the mobile industry in managing the cost of network investments and spectrum. In exchange for investing some EUR 3 billion in improving network coverage over the next three years, the French mobile operators will not have to face an auction to renew their 2G and 3G spectrum licences. Spectrum auctions are one of the biggest uncertainties for mobile operators in terms of investment cost, and the French deal shows how this uncertainty can be eliminated while also accelerating improved services to end-users.

The French government has agreed to forego an auction of the 900, 1,800 and 2,100 MHz licences coming up for renewal in 2021-22. Instead, the regulator Arcep will work out conditions for extending the licences with the same annual fees, while incorporating the new coverage requirements in the licence obligations. The operators are expected to each add at least 5,000 new mobile sites to cover ‘white zones’ and extend 4G to the entire population within the next three years. Arcep will measure their progress and can impose sanctions if the coverage targets are not met.  

Frequencies forever?

The EC has proposed as part of the new Electronic Communications Code a step in the French direction, by reducing the frequency of auctions. In the hope of supporting a quicker roll-out of 5G than the EU saw with LTE, the code proposes a minimum duration of 25 years for mobile spectrum licences across the EU. That compares to around 10-15 years on most existing 2G and 3G licences. The idea is that with more time to earn a return, operators are less reluctant to start spending on network roll-out. The comparison is often made with the US, where spectrum licences have no fixed duration – a factor that is thought to have accelerated the roll-out of 4G in the US compared to the EU.

5G future

As the French regional development minister pointed out in announcing the mobile agreement, "telephony and digital services are not a luxury, but an essential good". With mobile services now a ubiquitous part of daily life, coverage cannot be sacrificed to the uncertainty of auctions that may take billions away from operators’ ability to invest. The very wide range of new frequencies expected to be used for 5G also reduces the scarcity imperative to maximize state returns on spectrum licences.

Unfortunately, even a gradual change like longer licences has faced near total opposition from EU member states, despite widespread support from the mobile industry. The right to grant licences is seen as a key element of national sovereignty, and few governments want to give up the ability to tailor the system to national needs. The UK is a notable exception, having already implemented unlimited licences.

For the rest of the EU, the French deal shows how a new approach can lead to significant benefits for consumers and businesses, while also saving the state money. The coordinated approach in France, negotiated by industry, government and the regulator, is much more forward-thinking than proposals such as that under discussion in Germany, to spend the proceeds of a major spectrum auction on upgrading fixed broadband networks. Why take the money away from operators via an auction only to redistribute it to them later through subsidies, leading to delayed investments?

It is time for other EU countries to let go of their attachment to windfall auctions and look at more flexible ways to ensure operators have the spectrum and investment capacity needed to ensure no one is without access to the latest generation of mobile broadband. The EU states will start talks again in early February with the European Parliament on finalising the new Communications Code, and the pace of 5G roll-out in the EU will depend to a large extent on what they agree on reforming the spectrum licensing process.

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