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Response to "Proposals For The Licensing Of Radio Spectrum At 28 GHz" - FirstMark Communication Services Europe Ltd |
Cliff Mason
Broadband Wireless Access Section
Radiocommunications Agency
11B/21D Wyndham House
189 Marsh Wall
London E14 9SX
e-mail: cliff.mason@ra.gsi.gov.uk
19 May 2000
SUBJECT: Response to BFWA Radio Spectrum Licensing Proposals - [BFWACG Document (00)19]
Dear Cliff,
Further to the consultation round initiated with the publication of BFWACG Document (00)19, FirstMark Communications ("FMC") sets forth its views in the present response.
At the outset, FMC wishes to restate in the strongest possible terms, its opposition to the position that industry and users are best served by an auction process in the allocation of licenses in the 28GHz frequency for Fixed Wireless Access. In this regard, FMC fully supports the many submissions of the Federation of the Electronics Industry (FEI), who have cogently set forth the case against an auction versus a competitive selection process on many occasions, in addition to the submissions of the overwhelming majority of other BFWACG participants who have expressed their opposition to the auction process. FMC therefore will not expend further effort at this time, in reiterating these arguments, as it has become manifestly apparent that the RA is neither willing--in a meaningful way--to acknowledge these opposing views, nor appropriately address the legitimate concerns of the majority of BFWACG participants. However, the RA should be aware that the credibility of the entire BFWACG proceeding is being called into question as a result of the failure to address such fundamental matters.
In the present response therefore, FMC confines its comments to drawing attention to the following issues raised in the context of the present proposals put forward in document BFWACG (00)19:
1. Lack of Integrated Spectrum Allocation Programme for BFWA
An optimal and competitively sustainable market entry business case for many new entrants is best served through deploying a network comprised of a combination of low and high frequency spectrum. The longer range and reduced base station density of the lower frequency bands complement the higher bands’ capacity for intensive urban applications, by permitting network deployment costs to scale to market take-up. Naturally, the efficiency of this scaling function constitutes a critical business success factor. Pragmatically, to plan a business based on such an optimised network, new market entrants require full visibility of the entire BFWA frequency allocation programme.
Despite repeated requests to this end, the disclosure of such an integrated view of the programme is still forthcoming from the RA. Instead, developments to date in the 28GHz allocation process have proceeded in a total and wholly unnecessary state of artificial isolation from the 3.4 and 10GHz band processes. Furthermore, all information regarding the 3.4 and 10GHz consultation processes has simply ‘disappeared’ from view since the RA Press Release of 10 March 2000, and verbal assurances by RA staff that these licenses will somehow still be awarded by December 2000 sound increasingly unlikely. The resulting level of uncertainty has tangible, material effects on industry, which the RA must take into consideration.
One fundamental effect of this information vacuum is that normal business planning activity by would-be service providers is ham-strung: business case development, consortia negotiations, technical planning, investment and financial arrangements are made overly complex, and frequently impossible. The knock-on effect of this uncertainty is an increased likelihood of lower valuations of spectrum, reduced investment, and lower auction proceeds to Treasury. Moreover, seen in the context where BFWA is already heavily in competition with other broadband delivery technologies (e.g., DSL and Fibre), a lack of transparency in the management of the overall BFWA spectrum allocation programme calls into question the RA’s stance of ‘technological neutrality’.
FMC submits it is a matter of the utmost urgency that the RA immediately rectify this lack of fundamental transparency by publishing the updated programme and key milestones for all BFWA spectrum to be allocated over the next twelve months. The absence of such fundamental planning inputs--which are wholly within the purview of the RA--is a handicap to all industry players, and its persistence can hardly be expected to produce spectrum allocation outcomes that are optimal for any industry stakeholder, whether service provider, manufacturer, or user. Given that the UK is now competitively at least a full year behind the rest of Europe in allocating BFWA spectrum--despite consultation promises nearly a year old--the policy goal of making the UK "the best place in the world for electronic trading" increasingly looks in jeopardy.
FMC believes the currently proposed packaging of the spectrum, in 3 blocks of 112MHz (duplex) per region, disadvantages new entrants, favours the dominant players, will discourage innovation, and is unlikely to confer the benefits of increased competition to UK broadband users.
FMC holds this view for the following reasons:
1. Scale entry barrier: The current packaging means that small or medium-sized new entrants, or those with a unique regional focus, will not to be able to find financial support for the level of investment required to efficiently utilise a block as large as 112MHz within an economic payback period. In FMC’s experience however, ‘horizontal penetration’ of the market, with initially less bandwidth, is the natural precursor to more intensive ‘vertical penetration’, where higher bandwidth acquisition can be justified—particularly under conditions of competition with alternative delivery technologies such as ADSL. Whilst FMC appreciates that the RA is attempting to be forward-looking in providing large blocks of spectrum, this one-size-fits-all approach ignores the dynamic conditions of market entry, and establishes an artifical hurdle for new entrants, whose business cases are particularly sensitive to the need for network deployment costs to scale with market penetration.
2. Innovation barrier: Conversely, from a spectrum efficiency point of view, many new entrants, using innovative FWA systems (with enhanced modulation techniques, data compression, and overhead reduction), are capable of efficiently using smaller blocks of spectrum more intensively, to achieve earlier profitability—but only if these smaller blocks are on offer. Innovative UK-based manufacturers of BFWA equipment are also penalised when scale considerations artificially remove their products from the range of potential solutions to service providers. From a service provider innovation perspective, FMC believes that that an auction of identical blocks of spectrum is likely to produce winning bidders that share identical market and product focus, and will therefore fail to produce competitive benefits that broaden the market. This is particularly likely to be the case in the event of high auction prices, as the "safe option" for service providers who must recoup extra levels of investment not mandated for entry into any other major European market.
3. No License Reservation for New Entrants: Unlike the recent 3rd Generation Mobile auction, the RA do not currently envision ‚reserving’ one or more 28GHz licenses per region for new entrants. The offered RA explanation of "legal definition difficulty" is unconvincing, given the ease with which a license was reserved for new entrants in the 3rd Generation Mobile auction. A position on reserving one or more licenses per region for new entrants should be reconsidered in favour of more, not less competition—particularly if the packaging of the spectrum is to remain in the larger 112MHz one-size-fits-all allocations.
4. The Swiss Experience: Evidence from the recent regional BFWA auctions in Switzerland strongly indicates that smaller bandwidth providers place a higher valuation on spectrum offered in smaller packages than on larger ones. Specifically, and on a per-MHz unit basis, allocations of 56MHz attracted prices on average 34% higher than that the 112MHz blocks, and the 28MHz auctions valued the spectrum 89% higher than the 112MHz blocks. These data suggest that sustainable and competitive entry comes in a variety of sizes, and that the UK’s one-time opportunity for an accurate market valuation will be missed if bandwidth size alternatives are not offered.
FMC contends that many of the benefits of increased competition will be lost if smaller scale new entrants are de facto excluded from entry due to arbitrary spectrum packaging constraints. As a positive alternative, FMC suggests the RA consider allocating the per region spectrum in blocks of the following sizes, in order to facilitate a more inclusive and accurate market valuation of the available spectrum:
Through the Technical Committee of the BFWACG it has recently been revealed that an additional 56MHz (duplex) allocation has been made available from the former allocation to the Fixed Satellite Service (FSS). FMC would like to see this spectrum added to the 28GHz auction process, potentially as a candidate for ‘reservation’ for new entrants:
The FSS community have released this allocation for use in the BFWA allocation, although some technical formalities may need to be expedited to obtain formal ratification by the European Radio Commission. We note that in the 2 May 2000 BFWACG meeting, a member pointed out that the RA was de jure entitled to proceed to authorise re-allocation without ERC approval, and FMC submits the RA should pursue possibilities on this course of action.
FMC believes addition of this 56MHz of spectrum to the forthcoming auction is a "win" for all players, and every effort should be undertaken to add this spectrum to the forthcoming allocation process, particularly in view of the ‘packaging’ considerations discussed in section "2" above.
All of which is respectfully submitted this 19th day of May, 2000.
Bryce S. Allen
Vice President - Business Development
FirstMark Communications Services Europe Ltd.
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