It has often been said that spectrum is a scarce resource. This idea has driven spectrum allocation policy for commercial services, including mobile telecommunications, for many years. A lack of spectrum is a barrier to entry for radio access network operators, because it is not possible to deliver a working service without it. However, spectrum is not the only necessity for new entrants. There are others, including interconnect, which are essential for a viable business case.
At Analysys Mason, we thought it was time to look at spectrum as a variable in the development of the mobile industry. At the Analysys Mason Expert Panel session held in London in early May, we examined the relevance of some of the drivers of spectrum allocation policy. We discussed the relationship between spectrum policy and the ability of the mobile market to innovate commercially. Some interesting findings resulted from the discussion, one of which is explored here.
Many developed markets are reaching saturation (in terms of penetration), and the real challenge for service providers is to increase value from customers. In many markets, voice revenue is levelling off or starting to decline. MNOs are responding to this by investing in wireless data services in order to increase ARPU and returns delivered to investors.
Wireless data services require spectrum, and in many countries there is sufficient spectrum available to move along on the road-map to LTE and fast mobile data. Scarcity is not the major issue. A bigger issue for service providers is the rate at which new services can generate revenue. This depends on technology and systems, but it also depends on the development of a commercial proposition (including content) that customers will pay for. The success of mass-market data services also depends on access to market-ready devices, the creation of commercial data interconnect facilities and the efficient handling of the fast-increasing volumes of data.
The volume of mobile data traffic is increasing at rates that would have sounded familiar in the Internet world a few years ago, requiring higher capacity backhaul between the edge of the mobile network and the core. This was not as big an issue for the development of 2G voice systems as it is for mobile data players today. For 3G data services and beyond, the balance between the cost of backhaul facilities and revenue for data carried is not as profitable, which has led to work on backhaul sharing initiatives among other things.
To return to the question of spectrum policy, there is a strong correlation between spectrum being available to meet market needs and the ability of the market to innovate. In most cases, spectrum will be available. Therefore, the real commercial (or innovation) question to be asked is about the price of spectrum given the changing nature of mobile operators’ investment requirements for backhaul and other aspects of the mobile business case that will consume free cashflow.
The Analysys Mason Expert Panel brings together leading industry figures from around the world to consider the major strategic issues facing our clients today. The panel, which meets twice a year, works with our senior team develop collective insight into issues of greatest concern to clients, maintaining Analysys Mason's thought leadership within the sector.
