Hammer time: telecom operators prepare for auction

With the upcoming auction for telecom licenses approaching and a new minister taking the communications helm, there are several issues to be resolved. Starting prices, dubbed too high by some actors, have still not been approved by the government while other operators are concerned about losing spectrum they already own.

For now, the authority has chosen not to disclose the proposals pitched by the operators just yet, stating that it will present its position and the final version of the documentation in a meeting of the Consultative Council, after the government adopts the license taxes.

But the operators have chosen to make some of their views public. “One element we discussed was temporary licenses. Instead of granting these for only 15 months, they should be prolonged,” Dorin Odiatiu, public affairs, partnerships and wholesale director at Orange, tells BR. From Orange’s experience on other markets, “We do not know of a similar case, in which spectrum that is already being used is auctioned for only 15 months. The auctions for spectrum should ensure predictability and equal conditions for competitors.”

Orange has proposed that only one auction be organized this year, for a period of 15 years. “If an operator loses the spectrum it owns today in the auction, it would have time to reconfigure its network by April 2014. We believe our solution offers benefits to all parties involved – the Romanian state, new entries on the market, current operators and, most of all, to customers,” says Odiatiu.

In reply, ANCOM says that the decision to share usage rights for frequencies in the spectrum of 900 MHz and 1800 MHz in two stages – 15 months and 15 years – came as a result of consultations in which Orange and Vodafone expressed concern regarding possible inequality in the auction process, if it had been organized for an equal 15 year period for all the frequencies that must be cleared over the coming period.

“At the end of last year, the two operators were concerned that organizing the auction like that would be to the advantage of the operator who has usage rights for these frequencies until April 2014. They argued that potential participants would be less interested in acquiring the respective spectrum than the spectrum that would be freed sooner,” says Marinescu. The “clock auction” procedure proposed by ANCOM will be an adaptation of the system used in countries such as Switzerland, Austria, the Netherlands and Denmark. The Authority promises that “no matter which model is used in Romania, the bidding will be transparent, equitable and fair.”

On this, Orange had a word to say, proposing a securized web application to administer the entire auction process.

One important point is that after the auction, operators will be in the position to offer 4G services in Romania. “Shortly after the licenses are available we will be ready to launch 4G services. Orange has already carried out some tests for 4G and we believe that the transition to this technology can be made in a relatively short time,” Odiatiu tells BR.

Similarly, Inaki Berroeta, CEO of Vodafone, previously said that if there is a proper distribution of the spectrum, if continuity of services and predictability of investments are guaranteed and costs are reasonable, the company “will invest in and launch 4G services this year.”

Elsewhere, RCS&RDS is also very interested in providing 4G services. “We will certainly want to acquire licenses for the lower frequencies of 800 MHz and 900 MHz. We will probably also bid for other licenses in the 1800 MHz and 2600 MHz ranges. Our goal is to supply 4G services to our clients,” said Valentin Popoviciu, business development director at RCS&RDS.

He complained that at this point his firm is not competing on an equal footing with other companies since it does not have access to the 900 MHz frequency, which impairs its activity.

Marinescu gives his assurances that the conditions of the auction “will allow the procurement, by one or both operators, Orange and Vodafone, of the entire quantity of spectrum they currently own, allowing at the same time an operator who does not have spectrum in the 900 MHz frequency, RCS&RDS or a newcomer, to obtain the spectrum it wants.”

“If all the spectrum put up for auction is sold, the Romanian state could cash in EUR 700 million,” Marinescu told the media. The winners must pay for the licenses by July 2013. Payment can no longer be made in installments.

However, the matter of the starting prices does not sit well with some operators. While Vodafone and Orange did not comment to BR on this issue, Cosmote and RCS&RDS have repeatedly expressed concern.

“We believe that every cent that operators must pay to acquire spectrum is at least one cent fewer that is available for investing in new networks and services,” argue Cosmote Romania officials.

“Taking into consideration the Romanian GDP and mobile telephony ARPU, the requested starting fees for spectrum licenses are significantly higher in comparison with the requested license spectrum fee during all the other similar recent auctions in other European countries,” said officials.

Cosmote Romania has already voiced this point of view to the authority.

Since this is an auction that is open to both existing players and new entrants, “the conditions should lay the groundwork for good prospects for all, including for the existing operators, which have invested billions in this country. All requirements have a direct and definitive impact on the business evolution of the operators; and we should all carefully analyze all aspects,” urges Cosmote.

Similarly, RCS&RDS has also been complaining about the starting prices, arguing that they are not in accordance with the conditions on the market.

“The starting prices are too high. ANCOM should encourage competition and leave prices at a lower level,” Popoviciu of RCS&RDS said previously. “Romania is the most competitive market in Europe, with an ARPU that is indeed small in comparison to other European countries. However, when you compare the ARPU you should also compare the purchasing power.” Also, licenses should be paid for in installments, not all at once, according to Popoviciu. However, ANCOM argues that prices were calculated “in such a way that they can reflect the circumstances on the Romanian market.”

“The proposed levels are justified objectively via the technical-economic characteristics of the radio frequencies for which licenses are granted. They allow the recovery of the costs of freeing the spectrum,” says Marinescu.

Prices are also comparable with the values from auctions in other EU states, he adds.

STARTING PRICES*

Licenses allocated for 15 years (2014-2029)

EUR 35 million per block of spectrum in 800 MHz

EUR 40 million per block of spectrum in 900 MHz

EUR 10 million per block of spectrum in 1800 MHz

EUR 4 million per duplex block of spectrum in 2600 MHz

EUR 3 million per simplex block of spectrum in 2600 MHz

Licenses allocated for 15 months

EUR 3.4 million per block of spectrum in 900 MHz

EUR 800,000 per block of spectrum in 1800 MHz

*Starting prices proposed by ANCOM must be approved by government decision

What is certain is that the auction is a crucial event on the telecom market for the next 15 years. “After the auction, we could witness the reconfiguration of the market following the appearance of some foreign operators or virtual mobile operators, but we cannot anticipate the results,” says Marinescu.

In all likelihood, the market will see a reconfiguration of the spectrum. Some operators may face losing part of what they currently own.

This does not daunt Marinescu, who says the final user has been taken into consideration. “Even if some operators have to migrate to other frequencies after the auction, users will still continue to benefit from mobile communications services,” he says.

In the case of the top two operators, this is about the parallel usage of the 900 MHz, 1800 MHz and 2100 MHz frequencies. “The superior frequencies are excellent in covering urban areas with a high density of users and a high volume of traffic. Moreover, in the case of the 900 MHz spectrum, in order to use it to increase 3G coverage, it was necessary that 5 MHz be freed for UMTS in a very short time from the total of 12,5 MHz. Practice has shown us that when there is a will, reorganization of the network can take just a few months, and users are not affected,” says Marinescu.

SPECTRUM ON SALE

* Granted for 15 years, starting April 6, 2014

42 duplex blocks of 5 MHz each: