Spectrum auctions are widely regarded as “best practice” in the assignment of wireless frequencies where demand exceed availability yet, as of 2013 among African countries, only Nigeria had successfully conducted a spectrum auction. This is perhaps not surprising as spectrum auctions are notoriously difficult to run well from the point of view of ensuring fair play and even more so from the point of view of ensuring the growth of competition. The last four years has seen a number of African countries embracing spectrum auctions while others have engaged in processes that appear more ad hoc and negotiated.
In late 2013 the Nigerian communication regulator (NCC) announced a spectrum auction for 30MHz of 2.3GHz spectrum. The auction attracted only two bidders and was won by a new entrant consortium called Bitflux. Bitflux paid just over the reserve price of 23 million USD for the spectrum license. At the time this was lauded as a success in bringing a new market entrant into the field of LTE services in Nigeria. By mid-2015 however pundits began to wonder why Bitflux had yet to offer services. In late 2016, the commencement of commercial rollout was announced but, as of early 2017, little evidence of widespread roll-out appears to exist. There is speculation that they have struggled to find investment to underwrite the roll-out of their network.
Later in 2014, the regulator attempted to launch an auction in 2.6GHz. This was withdrawn and re-attempted in 2015 but again withdrawn. Finally in March of 2016, the regulator announced an auction of spectrum in the 2.6GHz band. In total 14 lots of 2x5MHz spectrum (140MHz of spectrum in total) were put up for bid. By the end of the bidding process only one operator, MTN Nigeria, was willing to meet the reserve prices of 16 million USD per lot. MTN bid for 6 lots, paying a total of 96 million USD for 60MHz of spectrum. The remaining spectrum remains unsold.
In April of 2013, the Mozambiquan regulator announced the auction of five lots of 2x5MHz (a total of 50MHz) of 800MHz spectrum with a reserve price of 30 million USD per lot. The auction did not attract any bids and was widely perceived to have an excessively high reserve price. The auction was quietly withdrawn and no subsequent auction has been attempted by the regulator.
2.6GHz, 3.5GHz, 800MHz
This is a saga that is almost too painful to tell. Since 2010, the South African regulator has attempted to convene a spectrum auction three times. The first two attempts were in 2.6GHz and 3.5GHz and the most recent in 800MHz, 2.6.GHz, and 3.5GHz. Each time the auction has been withdrawn with the most recent one being cancelled in February of 2017. There are multiple causes of these serial auction failures. In part, it can be attributed to industry push-back sparked by the regulator’s embedding of Black Economic Empowerment objectives into the spectrum auction design. It can also be attributed to a lack of coherent vision from the Ministry of Communications which has seen seven different ministers since 2009 that has, in turn, led to disputes between the regulator and the ministry. The Ministry’s current vision of removing all exclusive-use spectrum in favour of a national wholesale network has attracted widespread criticism leaving the current policy and regulatory environment in turmoil. As of early 2017, no resolution is in sight.
In 2015, the Ghanaian regulator announced an auction of 800MHz spectrum, offering 2 lots of 2x10MHz spectrum ( a total of 40MHz) with a reserve price of 67.5 million USD per lot. While local companies were encouraged to participate, none of the three Ghanaian companies that registered for the auction were able to meet the reserve price. The only company to meet the reserve price for a single lot was Scancom (MTN) resulting in an effective monopoly for MTN in the 800MHz band. The regulator has announced plans to attempt to auction the remaining spectrum with intention of using auction proceeds to fund the roll-out of digital terrestrial broadcasting infrastructure.
Kenya is a very interesting story which did not involve a spectrum auction. The assignment of spectrum in the 800MHz band in Kenya began in 2014 with a request from the Kenyan government to the largest operator, Safaricom, to build a national police communications network. Safaricom initially agreed to pay 56.2 million USD and build the requested network in exchange for access to 2x15MHz of 800MHz spectrum. After complaints from Airtel and Telkom Kenya, the regulator compelled Safaricom to relinquish 2x5Mhz of spectrum so that each of the three incumbent mobile network operators would be assigned 2x10MHz of 800MHz spectrum each for a total of 60Mhz of spectrum. The three operators have agreed to each pay 25 million USD for the spectrum licenses. The cost of the national police network has now been disaggregated from the spectrum sale.
In late 2015, the Senegalese regulator announced an invitation to apply for LTE spectrum in the 700MHz, 800Mhz, and 1800MHz bands: specifically, 3 blocks of 2x30MHz in 800MHz, 4 blocks of 2x20MHz in 700MHz and 3 blocks of 2x30MHz spectrum in 1800MHz. The reserve price for a 20 year license was set at XOF 30 billion or approximately 50 million USD. The reaction from operators in December 2015 was to draft a collective letter to the regulator to express their concern over the high reserve price for the spectrum. Their effective boycott of the auction resulted in a stand-off between the regulator and operators. This was resolved in June of 2015 when the regulator restarted the licensing process having negotiated a deal with the former fixed-line incumbent operator, Sonatel, to pay XOF 32 billion or 53 million USD for 2x10MHz of spectrum in the 800Mhz band and 2x10Mhz in the 1800Mhz band. The 20 year license commits Sonatel to the provision 70% population coverage within five years and 90% coverage within ten years.
In mid-2016, the Egyptian regulator announced the availability of 40MHz of spectrum to existing operators at price of approximately 50 million USD per MHz. Operators protested the high price as well as the relatively small allocation of spectrum as well as the requirement that 50% of the license fee be paid in USD. Only Telecom Egypt accepted the terms set by the regulator agreeing to pay 7.08 billion Egyptian pounds (797 million USD) for 5MHz in 900MHz and 2x5MHz in 1800MHz. The regulator held firm with the other operators and ultimately came to agreement with all four operators, with Orange and Etisalat each receiving 10MHz of spectrum and Vodafone 5MHz. Total revenue from the spectrum sale exceeds 1.9 billion USD.
If the purpose of spectrum auctions is to make wireless spectrum available in an equitable manner that promotes competition, I think it is fair to say that they have not worked terribly well in Africa in the last five years. The 2.6GHz auction in Nigeria and the 800MHz spectrum auction in Ghana resulted in the sole successful bidder in both cases being network giant, MTN. This was clearly not the optimal outcome in terms of increasing competition. Even a seemingly positive case such as the 2.3GHz auction in Nigeria requires closer analysis. The auction was won by Bitflux, a new market entrant, ostensibly at a relatively low cost per MHz for the spectrum acquired, compared to other auctions in the region. Three years on, Bitflux does not appear to have rolled out substantial infrastructure. It may be that the financial burden of spectrum auctions is only bearable by incumbent operators with greater resources. The GSMA have urged caution in the use of set-asides and other mechanisms to encourage participation of new market entrants in spectrum auctions because the high rate of failure of such strategies. Kenya’s somewhat chaotic path to the assignment of 800MHz spectrum seems to have resulted in an outcome that has worked out well for the incumbent operators. Other countries seem to have had less optimal outcomes. South Africa’s ongoing attempts to integrate its transformation agenda with spectrum has resulted in a roadblock which does not have any obvious resolution at this point. The auction failure in Mozambique in 2013 due to the high reserve price for a small amount of spectrum has ensured that 800MHz spectrum will like fallow for at least five years. The economic cost of that failure is arguably higher than the original expected revenue from the auction. In Egypt, the hard line taken by the Egyptian regulator may be an economic windfall for the Egyptian treasury but time will tell whether it results in more affordable access in the country. The lack of willing participation of operators in spectrum auctions suggests that spectrum auction reserve prices need more careful evaluation.
The focus on the assignment of long term, exclusive-use licensed spectrum also ignores other critical metrics of spectrum efficiency such as cell size. Reduction in cell size can result in significantly greater increases in spectrum efficiency than simple assignment of new spectrum frequencies. Once seen as a limitation of WiFi, its small cell size of approx. 100m makes for extremely efficient use of a very limited frequency, allowing for its re-use over multiple cells in a given area. Similarly, new generation, low-cost GSM technologies typically operate at much lower power output and cover smaller cell areas than traditional mobile networks. Yet the efficiencies represented by these more granular approaches to access typically do not receive the strategic attention that monolithic licensing approaches do. The large amounts of money associated with spectrum assignments may be part of the problem, attracting the attention of governments and network operators alike. Civil society groups are often challenged both financially and technically to engage in national strategic debates on spectrum although there are signs that this is beginning to change as spectrum is increased recognised as a critical roadblock to affordable access.
From a technological infrastructure perspective we are seeing a shift to more pervasive availability of affordable backhaul infrastructure both through the spread of fibre infrastructure as well as new generation satellite technology. Combined with dramatically less expensive wireless access technology, there is an opportunity for a more granular and dynamic approach to spectrum management as a complement to traditional long term license strategies. It is possible to envision a set of regulations that enable local access providers through the use of a combination of unlicensed, dynamic and traditional spectrum licensing aimed at increasing access in unserved regions.
Long term, exclusive spectrum licenses continue to play a critical role in increasing affordable access to communication. The large amounts of money associated with spectrum auctions and licensing has focused a great deal of public attention on them. Observation of recent spectrum assignments in Sub-Saharan Africa reveals that spectrum auctions are often not successful in their aims of increasing competition. However, the flaw may not be with the auctions themselves but with the reserve prices set by regulators. Other economic priorities may tempt decision-makers to focus on an immediate and lucrative financial windfall from a spectrum instead of the longer term (and more diffuse) economic benefits that increased affordable access can bring.
How can this problem be addressed? It is evident that there is no one-size-fits-all answer but here are some general principles that might be embraced based on the above:
- Convince policy-makers and regulators that the long term economic benefits of making spectrum available affordably and immediately are dramatically greater than any short-term windfalls from spectrum auctions. Keep spectrum fees modest.
- Skip the auction and assign roughly 3/4 of popular spectrum bands to existing operators. This obviously needs to be adjusted based on the amount of spectrum available in a given band and the number of operators. Each operator needs to get enough spectrum to deliver effective broadband services.
- Enforce a use-it-or-share-it policy, whereby licensed spectrum that is not in use by the primary spectrum holder is made available. This could be through spectrum leasing and/or secondary use policies.
- Keep a quarter of the band for innovation. This could be a national wholesale network, dynamic spectrum assignment, industry self-regulation within a band or something else. The current spectrum management paradigm is too static to keep pace with technological change. Regulators need to make space in order to innovate what comes next in spectrum management practice.