Auction outcomes – competition concerns
Here Ofcom considers in turn each of the four dimensions of quality that it has identified. Ofcom considers the spectrum holdings that are likely to be the necessary minimum requirements for each of the four dimensions and how other or more spectrum might contribute to making a national wholesaler’s spectrum holdings sufficient to enable it to be credible and so exert an effective constraint on its rivals. In both cases Ofcom considers other ways of providing capability other than spectrum.
For a number of reasons this analysis is by nature uncertain. It is concerned with the future capability of technology, the complexity and wide variation of the real world situations in which networks will have to operate and consumer’s preferences and behaviour in the future are by definition unknown. Any decisions Ofcom makes in this regard involve the application of regulatory judgement. Even then it is possible to draw inferences from the available evidence to make such judgements about the future.
Capacity and high average data rates
The term ‘capacity’ in a mobile network can be defined as a network’s ability to supply a given traffic demand at a specified level of quality. Therefore capacity can impact both the number of customers that can be served and the quality of services that can be delivered to them. For a given number of customers, the greater the capacity, the higher the data rates those customers will receive. Alongside this analysis of capacity, Ofcom considers the average data rates also.
Ofcom expects that the growing demand for data service would continue. Hence it is very important for national wholesalers to be able to provide capacity especially in the longer term.
Hence the regulator considers that national wholesalers should have sufficient capacity relative to rivals to serve enough customers with sufficiently high data rates for them to be capable of becoming credible.
Ofcom’s provisional conclusion during the January 2012 Consultation was that there is material risk if a national wholesaler is not having enough capacity to be credible after the Auction if it held less than 10-15% of the total paired spectrum available after the Auction for the provision of mobile services.
There was no dispute in responses with regard to the view that average data rates are important to customers. Responses concentrated on the conclusion on the minimum share of spectrum to be credible. For example, Everything Everywhere opined that the share of spectrum was not relevant and at that time Ofcom did not provide enough evidence to justify its conclusion. Ofcom is concerned with the competition between rivals and as such the relative share of spectrum between competitors become relevant. Ofcom considers that capacity and average data speeds are important factors for competition and spectrum is a key input into capacity.
Methods of delivering capacity
Before considering the share of spectrum directly, Ofcom considers in general terms how capacity can be delivered. Three key factors determine capacity. They are 1) Spectrum – the type and quantity of spectrum allocated to a national wholesaler 2) Topology and network – the number of cells, the mixture of cell sizes and their locations 3) Technology – the cell spectrum efficiency that can be achieved by the given features of a technology.
When it comes to spectrum, there are the prevailing mobile bands already used by national wholesalers, at 900MHz and 1800MHs, and the spectrum in the Auction, at 800MHz and 2.6GHz. Also there are potential future releases including at 700MHz, 2.3 GHz and 3.5 GHz.
With regard to topology and networks, capacity can be increased by investing in macro cells, (including additional macro cells and other macro cell investment like increased sectorisation), deploying small cells and heterogeneous networks.
According to Ofcom in the future small cells may be particularly important for adding capacity. The cells with a smaller coverage area than conventional macro cells are called Small Cells. They are operated with lower antenna heights and typically lower power. These include Wi-Fi in unlicensed bands and femtocells. As far as some areas are concerned, small cells may be a more cost effective way of adding capacity as these have lower construction cost than macro cells. Heterogeneous networks (or hetnets) enable deployed networks using a mix of different cell types, frequencies, technologies (3G, 4G) and network architectures to be dynamically managed as a single network. This enables management of interference and power levels automatically, enables the network to respond to rapid changes in customer demand, and potentially for the network to make significant performance gains.
With regard to technologies, different technologies can, deliver different levels of capacity and data rates, with a given amount and type of spectrum. Hence the frequency of spectrum held can also have an indirect impact on capacity given that the timing of the technologies that can be deployed can depend on the frequency of spectrum held. By investing in the latest technologies, national wholesalers can add capacity. The best example for this is the refarming of 900MHz and 1800MHz spectrum currently used for 2G services to HSPA/LTE.