Saturday, October 27, 2018

5G Can Improve Rural Connectivity if Spectrum is Free

It is far from clear how well 5G networks might help improve or supply quality internet access in rural, mountainous and thinly-populated parts of the United States. Almost by definition, such areas do not support sustained business models for fixed networks, and require subsidies.

That is why hundreds of independent wireless internet service providers now are the way many people in rural areas get internet access services. Those firms also tend to rely on use of unlicensed spectrum to make the business model work.

The same sort of economics work for Wi-Fi. Low entry cost, as spectrum is available at no cost, is key.


One might argue that should continue to be the case in the 5G era: networks will have to be wireless, and will require unlicensed spectrum access.

It probably matters less whether the unlicensed spectrum is gotten using shared or dedicated mechanisms (Citizens Broadband Radio Service, which is shared; or new unlicensed spectrum in the millimeter wave bands). The point is that tough business models require no-cost access to spectrum.

Whether 5G networks can make a big difference in providing good rural coverage hinges on access to no-cost and low-cost spectrum.

Over the past few years, some have worried about the cost of 5G spectrum, although spectrum prices are dropping, generally speaking, in part because there is a huge increase in supply, and because mobile operators must now more carefully weigh the cost of new spectrum against expected financial return.  

Also, firm strategies now vary. Some firms believe use of unlicensed spectrum will be more important. Others substitute small cells for additional spectrum. Some need additional spectrum more urgently than others, based on present holdings.

Recent auctions of 3.5-GHz spectrum have no clear pattern, especially since the various auctions featured different amounts of total spectrum and different license allotments (bigger or smaller amounts of spectrum per license), and there always are local market drivers (some contestants have greater needs for spectrum).

The point is that supply and demand issues affect price, as always. Finland offered the most 3.5-GHz spectrum, at 390 MHz. Spain and Italy each sold 200 MHz. U.K. regulators auctioned 150 MHz.

Finland’s prices wound up at 0.04 euros per megaHertz pop (a MHz POP represents one megahertz of bandwidth passing one person in the coverage area).  Spectrum sold for 9.07 euros per MHz POP in Spain, but a whopping 0.51 euros per MHz POP in Italy. U.K. spectrum sold for 0.17 euros per MHz POP.

On the other hand, at least one Australian official worries that a recent big merger between TPG and Vodafone will reduce demand and lead to lower prices.


One might simply argue that supply and demand will  work. Whatever the limits on new spectrum at 3.5 GHz, regulators simply must make more spectrum available in other bands. More supply takes care of pricing pressures. Releasing more unlicensed spectrum, spectrum sharing, spectrum aggregation and additional spectrum in the millimeter wave bands all will help ensure there is plenty of 5G spectrum and that prices will not be onerous.

Supply in the 3.5-GHz auctions will be something of an issue, in most countries, as there is not lots of spectrum available there.


French regulator Arcep’s chief Sebastien Soriano announced it will be challenging to keep prices low for a 2019 spectrum auction, especially when supply cannot keep up with demand, but said it wants to find a way to do so.

Traditional government views of spectrum auctions as easy ways to raise government revenues also are issues. Policymakers have to balance the need to make lots of spectrum available with the desire to raise revenues.

As you would expect, firms that have paid high prices justify their actions by arguing the new spectrum will help reduce costs per gigabyte, as well as supporting all the new end user demands for capacity.

High spectrum prices, though, have been big problems for mobile operators. Recall the high prices paid for 3G spectrum in many countries, which nearly bankrupted several firms in Europe, the high prices paid in India and in some other countries.

More supply will help keep prices within reasonable ranges.

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