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Telenor 850 MHz Spectrum: The Road Ahead

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Telenor 850 MHz Spectrum: The Road Ahead

The 850 Mhz spectrum auction was until recently quite a hot topic and finally the drop scene took place as Telenor came out as the only player that applied for the Spectrum. In accordance with PTA’s Information Memorandum (IM) and as per the scheme of things, it automatically won the 10 MHz in 850 MHz spectrum.

Telenor 850 MHz Spectrum: The Road Ahead

In one of our earlier analysis available on our website titled “Telenor Verses Surprise” much before the application submission deadline for the spectrum, we had anticipated that no other operator may come forward except Telenor and if there would be one, it will be a big surprise. Why only Telenor applied for 850MHz spectrum and no one else came? The answer to this fundamental question is the increasing predictability of market situation and relative position of each operator. The result should come very natural to all those who understand a little about the Pakistan telecom industry.

850 MHz auction result should come very natural to all those who understand a little about the Pakistan telecom industry.

Although, some of our colleagues in the industry and also in media may have taken one player participation negatively in the auction but the industry has finally realized the important element of policy and regulatory predictability which is great achievement in itself. Knowing what is likely to happen with least number of surprises especially in the policy and regulatory environment is an important factor for every business especially if one has to make sudsantial investment. This reduces the risk of losing investment and provides path for growth and stability. The government probably needs a pat on the back for not putting the industry in a flux as has been done by our neighbors in India.

Mobile industry in Pakistan has finally realized the important element of policy and regulatory predictability which is great achievement in itself

There are many logical and obvious reasons why Mobilink, Ufone or Zong did not apply as participants for the spectrum being auctioned. Let’s first evaluate each case before we move to the bigger question of what is the 850 MHz spectrum eco-system all about and the options that are available to Telenor going forward with what they have bought; Mobilink as after its successful merger with Warid Telecom only a few days back, is undergoing through a major transformational phase. One of the primary reason for merger with Warid is its spectrum whoch will enable Mobilink to use the much needed 4G spectrum play.

Availability of additional spectrum from ther merger has enabled Mobilink to save spectrum fee that it can otherwise invest in network and other development activities

The availability of additional Spectrum from the merger would enable Mobilink to save upon the auction fee of USD 395 Million (base price set for 850 MHz) that it can otherwise invest in network and other development activities. The second reason of course is that together Mobilink-Warid will have now have more mobile subscribers whixh will maintain Mobilink’s market leadership position. Their appetite for more spectrum will certainly come around in a couple of years.

Zong also didn’t apply for the auction as it has already enough spectrum assets that cab help the operator for the immediate future (at least a couple of years) to increase its subscriber base and ultimately its network. Zong is more likely to go for some acquisition which could possibly be a struggling operator to primarily increasing its market share.

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Unfortunately, Ufone, which has also shown interest in both 3G and 4G spectrum in previous auction but was not qualified on technical grounds did not came forward to participate in this auction. It could have been the most likely surprise party to have come forward though. Ufone did not apply for the spectrum most probably because the company has embarked upon re-organization and is trying to merge operations with the parent PTCL group. The operator also recently re-framed its spectrum using 900 MHz band for easing up its QoS issues at least for the short time. Ufone’s declining financial situation could have been the deciding factor to stay out of the recent auction til they put their house in order.

The above are few obvious reasons why no other player has come forward for the auction and only Telenor Pakistan applied for 850 MHz spectrum as it is the only mobile service provider that is in need of more spectrum in order to improve its network from all aspects.

As far as the subscriber base of Mobile Broadband (MBB) is concerned which is the reason why mobile operators need spectrum in the first place, Telenor has around 8 million subscribers whereas Mobilink has 8.7 million, Zong has around 6 million and Ufone being the fourth on this list has 5 million MBB subscribers.

Zong has enough spectrum assets for the time and has expressed interest for some acquisition to primarily increase its market share

In the last 3G/4G auction Telenor ended up witg only 5 MHz for its MBB strategy as compared to Zong’s 20 MHz and Mobilink 10 MHz that greatly endangered its chances to have or maintain any position to commensurate with market growth. Therefore, they desperately needed more spectrum and that too quickly.

This makes Telenor as the most desiring candidate since it has both the requirement and appetite for getting more chunk of spectrum in order to increase its data subscribers while improving its overall ranking as well. So in this situation, the 850 MHz spectrum holds great importance for Telenor to get a stronger position in the market.

The auction of 3G/4G spectrum in 2014 led the mobile industry to move in the right direction. It has proved its potential by enabling the masses with high-end gadgets especially smartphones and making available the technologies to use specific features.

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Ufone is tied in merging operations with the parent PTCL group and also recently re-framed its spectrum using 900 MHz band for easing up its QoS issues

GSMA intelligence report acknowledged Pakistan mobile broadband market growth to overtake most regional markets that have shown good results. This, together with the individual market share and the spectrum they hold, presents challenges and opportunities for all players especially for Telenor which seems to have ambitious plans and therefore it is important to understand both the 850 MHz Eco System and the challenges for Telenor that are discussed in the following sections.

850 MHz Eco System

In general, lower-frequency signals reach further and are better at penetrating rain or buildings. These lower radio frequencies, as a rule, can serve a large area with one base station.

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The capacity of a wireless connection for data or voice calls is dependent on the amount of spectrum it uses. Importantly, deploying a network that uses higher-frequency capacity bands requires more base stations to cover the same area, and considerably more investment. It is for this reason that 850 MHz spectrum presents technically a very lucrative proposition than 1800 MHz or 2100 MHz. However, there are those factors as well in the eco system that one needs to take into consideration.

These are around 40 countries where 850 MHz spectrum deployments have been made for 3G and 4G. Most deployments are in the Americas.

graph-2These markets predominantly used to be CDMA which got converted to either to 3G or 4G as the eco system evolved, while, the 850 MHz spectrum have been used for both 3G and 4G and presently the ratio is more in favour of 3G but the future deployments are increasingly made in  4G as the technology is getting more traction.

Industry reports especially the one from Global Suppliers Association (GSA) provides authentic data recently observed that while the LTE has been deployed commercially I 480 networks globally the number of LTE networks in 850 MHz is only 11 and these has been predominantly deployed in band b5 (although b18 and b19 also exist) and we expect that it shall be the case for Pakistan LTE 850 deployment as well if Telenor opts to go for LTE deployment in this spectrum.

Telenor meager 5 MHz compared to other large spectrum allocation greatly endangered its MBB market position growth potential-needing more spectrum and that too quickly.

The most important point, as far as infrastructure availability is concerned since there are only limited commercial networks, is that if there have been deployments, the infrastructure equipment is available that should provide sufficient comfort level for operators to make use of the latest and the greatest no matter how are smaller thses deployments are. However, it could be incrementally higher as compared to that available for main LTE bands of 1800 MHz, 2100 MHz or 2600 MHz. The issue of a smaller deployment is more critical on the end user or device side rather than infrastructure in this case.

table-3Presently, the devices are manufactured mostly to cater all or as much spectrum requirement as possible. By browsing through GSM Arena, one can see a good amount of mobile phones that can support for band 850 in both 3G and LTE. The GSA puts the number of LTE FDD devices that support band 5 around 1,163. While, the Average Selling Price (ASP) for multi-band devices maybe a little higher but it still does present a viable business case as the price for such smartphones have drpeed drastically over the last few years and ore importantly this just has made an incremental difference.

Keeping in view the Pakistani market, local OEMs like Q-Mobile could be a good contenders besides Telenor Pakistan itself for bringing low cost devices in the 850 MHz band but in any case almost all international brands like i-Phone, Samsung, HTC, Huawei, OPPO etc, already have a good portion of devices supporting LTE 850. The case of 3G could be quite better both in terms of infrastructure and devices but it would largely depend on Telenor individual strategy on how they see the Pakistani market evolve and how they can best utilize options available on them.

850 MHz spectrum provides technically more benefits as compared with higher bands to reach further and better at penetrating rain or buildings.

Technically speaking, the trends are moving towards better downloads and quicker speeds. 3G may be a good solution at present but the flexibility for LTE cannot be ignored and investing in LTE 850 MHz could pay dividend in the long run.

850 MHz: Options and Way Forward for Telenor

The amount of Spectrum offered in the auction is 10 MHz each for Uplink and Downlink in 850 MHz. in the last auction, it was 7.68 MHz but this time PTA has offered complete 10 MHz more in line with industry standards that deserves some appreciation. Previously, it was reserved exclusively for new players and since none came it remained unsold and all the bidders acquired spectrum offered in 1800 MHz and 2100 MHz.

In a way this benefited the existing players since a few years back the 850 MHz had more developmental and infrastructural challenges. Since Telenor has managed to secure 10 MHz of the 850 MHz spectrum, it has a few options to deploy its services in 3G, 4G or combination of both. Let’s look at some of the options that are available.

Option 1: 3G Only

As explained earlier, Telenor currently has only 5 MHz for 3G but being one of the largets MBB operator in the market that is growing aggressively, it has probably reached its Data offering limit and the addition of 10 MHz will certainly ease up its network from choking. If Telenor uses 850 MHz spectrum for 3G, we can expect better quality of service to its existing customers which will help in increasing its market share as well.

Availability of commercial networks in 850 MHz provides sufficient comfort level for local operators to make use of the latest and the greatest technology no matter how small are these deployments.

The Eco-System is more mature, deployment complexity would be minimal and the investment in infrastructure could be the least among all options.However, ignoring to deploy 4G LTE could deprive Telenor from going towards with more advance technology that promises much more in term of Quality of Service to its subscribers and is a more forward looking approach.

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LTE deployment in 850 MHz by Telenor will raise the bar for all operators especially in the suburban areas where it can use this to its advantage as no other operator will be able to compete

Importantly it may deprive the company from the much needed marketing shout since Zong is also rebranding its 4G brand and its closest competition Mobilink is also weighing its options from the newly acquired asset of Warid  to position itself for 4G LTE play.

Option 2: 4G LTE Only

In terms of infrastructure, with the use of entire 10 MHz of 850 MHz for LTE deployment will raise the bar for all operators especially in the suburban areas where Telenor can use it to its advantage as no other operator will be able to compete. This will certainly provide much better MBB service than 3G technology that may cost higher initially but will have profound cost savings in the long run as a future proof deployment. Most importantly, it will mitigate the impact of 4G LTE marketing shout that ong and probably Mobilink/Warid may use in the near future to their advantage. The deployment complexity in this case will be minimum but Telenor will have to work really hard on ensuring that it makes available 4G device portfolio at an affordable price by working with the open market forces.

Option 3: Spectrum Split for both 3G & 4G

Another option that Telenor could go for is splitting the 10 MHz of 850 MHz in two 5 MHz chunks and using one for 3G while other for 4G.

Local OEMs like Q-Mobile could be a good besides Telenor for bringing low cost devices in the 850 MHz band but almost all international brands already have a good portion of devices supporting LTE 850.

The advantage is that while Telenor will be able to ease up its rising congestion on its 3G network, it will also have spectrum for offering 4G LTE services. This also will provide TElenor to mitigate the marketing impact of the shout created or will be created by competition from Zong & Mobilink/Warid.

This may have some deployment complexity as carrier aggregation may not be as simple as in the first two options and the data throughputs are certainly going to be lower. Importantly, the economies of scale from cost standpoint for devices and equipment may also be negatively impacted.

Ignoring to deploy 4G LTE could deprive TElenor of more advance technology that promises much more in term of quality of service

There could be other possible scenarios including re-framing of the entire Spectrum but the important development is that almost all operators in Pakistan except one now have various viable options available for development. For Telenor getting this spectrum also means a lot in terms of morale booster as they ended up at the bottom getting the least spectrum in the 2014 auction and this time they found no one to compete with rhem. Let’s keep our fingers crossed for turn of events in the future as now TElenor has acquired new spectrum, Mobilink is building up new strategy after the merger with Warid and MoITT/PTA are working on a plan of auction for left over 1800 MHz spectrum chunk.

Writer: Aimal Ali Khan