Estimates of Spectrum auction revenues across Europe could be in the region of €20 billion between 2011 and 2015, according to KPMG’s Spectrum Monitor. While next year’s spectrum auction may fall short of the revenues raised in 2000 and 2001, it raises a number of complex and strategic issues for governments, regulators and operators alike.
KPMG’s latest research considers how Governments consider the question of how to allocate spectrum to maximise revenue for them and social welfare through allocation procedures guaranteeing a competitive market structure and coverage. It also looks at how operators are seeking to secure spectrum at the right price in order to cope with exploding data traffic and often stagnating revenues per users.
Set against a backdrop of the current economic downturn, this adds up to increased pressure on operators’ cash flows since the forthcoming round of auctions will not only require significant capital outlay for the spectrum but also for the subsequent roll-out of new mobile technologies such as Long Term Evolution (LTE).
KPMG’s Spectrum Monitor estimates that from 2011 to 2015:
- More spectrum will be auctioned in Europe over the next 3 to 4 years than has already been auctioned over the past decade;
- That the total value of proceeds generated through auctions of spectrum over the same period may be in the region of £20 billion in Western Europe alone. This is a significant investment for operators and of course does not include the additional capital expenditure that will be required to roll out new LTE networks;
- At least two-thirds of the auction proceeds are expected to come from the digital dividend transfer (the switch from analogue to digital TV) in Western Europe which will free up the valuable 700/800 MHz band.
Benoit Reillier, Director in KPMG’s Economics and Regulation practice, explains:
“Many Governments will be eyeing up spectrum auctions as a way to raise some sought after revenue. While it will not make a structural difference to the level of the deficit in many countries it will certainly go some way towards European governments’ garnering of more cash in the short to medium term.
“Mobile operators need to understand the policies and mechanisms put in place by their country’s government and regulator for the allocation of spectrum since the way the auctions are designed will have a critical impact on the prices they have to pay. The question of the affordability of spectrum is particularly critical given the current pressure on operators’ cash flows.”
In order to inform their business and regulatory strategy, operators will need to consider carefully a number of key factors including the following:
- the technology mix of their networks;
- the timing of roll out;
- the extent to which some infrastructure may be shared across operators to reduce costs;
- the substitutability of other technologies including fixed ones as well as the level, structure and dynamics of data traffic demand and pricing.
For the UK, the importance of a competitive and innovative telecommunications market is critical to the long term economic prosperity of the country. To achieve this regulators have proposed an auction design aimed at achieving a competitive market structure while also raising significant revenues for HM Treasury.
Benoit Reillier concludes:
“Today’s operators remain willing to pay substantial sums for radio spectrum. However, the outcome of what are increasingly complex spectrum allocations will, in my view, continue to remain uncertain for several months to come due to the myriad of issues that need to be negotiated.”
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