Spectrum revenues up to €20 billion in Western Europe: KPMG

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Spectrum auction revenues across Europe could be in the region of €20 billion between 2011 and 2015, according to KPMG’s Spectrum Monitor.

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
  • 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, said, “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.

One fierce critic of spectrum auctions is industry consultant Bengt Nordstrom, of Northstream. Nordstrom told Mobile Europe that the urge of governments to maximise short term financial returns from spectrum hampers economic progress in the long run.

Instead of awarding spectrum to the highest bidder, Nordstrom said that regulators should return to the "beauty contest", where the best qualifed, and technically competent, bidder wins the spectrum. In return, the regulator could place much stricter service, capacity, speed and coverage obligations upon the operators.

Nordstrom said, "The licensing of spectrum is uncoordinated and entirely focussed on making as much money as possible. That's extremely short sighted, as that is money that should be put into networks and services. By putting requirements onto the operators in terms of speed and coverage of their networks, governments would generate far more for the economy than just through spectrum auctions."

Nordstrom also said that the auction processes also guarantee that "we can never again have new entrants to the market because it is mission impossible. Hutchison spent billions of Euros and they have 10% of the market." He conceded that the debate about auctions is now over, however, and the industry is now set in the next ten year cycle of spectum allocation.

Rellier said, “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.”

KPMG said that 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

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.”