Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
In January 2012, Anatel opened the LTE-spectrum auction rules for public consideration. The rules included details on coverage obligations for winning operators, the use of equipment produced locally, and network sharing. In addition, in case no company shows an interest in the 450MHz spectrum, Anatel will combine 450MHz bands to 2.5GHz bands in the main 2.5GHz auction. Anatel aims to make the new technology available for the 2013 FIFA Confederations Cup and 2014 FIFA World Cup.
The public consideration period ended in March and the auction rules were made available in April. The market had big expectations that the regulator would amend some previous rules, but Anatel was not very flexible.
700MHz band is better, but not available
Mobile operators are also pressuring the government to award the 700MHz band because, in their view, this frequency is more suitable for LTE services. According to the operators, the 700MHz band offers superior quality for mobile services than the 2.5GHz band and would reduce significantly the network investment needed. However, the 700MHz band is currently used for analogue TV services and the switch-off is scheduled for 2016.
The 700MHz band is easier and more cost effective to deploy than the 2.5GHz band because it requires significantly fewer base stations, which are the most expensive component of the network. In addition, 700MHz is capable of providing a large coverage spectrum in all areas including urban, suburban, and rural. However, this band is not available and operators need to bid on the LTE spectrum given that it is poised to become the standard technology of the mobile industry. Additionally, they need more spectrum to attend the ever growing demand for data services.
Allocation of 450MHz band in the 2.5GHz band auction could be an inhibitor for operators
Mobile operators are already arguing that the 700MHz spectrum is more suitable for LTE services, but Anatel has not made it available yet. The allocation of 450MHz spectrum is making the LTE spectrum less attractive and main market players may eventually not participate in the LTE auction. The investment required to take telecom services into rural areas using 450MHz spectrum is not justified by the potential market. Also, mobile operators still have to deploy 3G networks in non-profitable regions.
In small cities, 3G will attend data demand
LTE coverage targets imposed by Anatel are very aggressive. For the 3G spectrum auction, Anatel already imposed several 3G network coverage targets in order to ensure that small cities would have access to mobile broadband services. The 3G network will be sufficient to meet demand in most of the country, thus making unnecessary heavy LTE investments in the short term in many areas.
It is important to provide mobile broadband services across the country, especially when there are no fixed-broadband offers. However, there is no need to have both 3G and LTE where the costs to implement LTE networks are not justified by local demand.
In small cities, HSPA or HSPA+ should provide high speeds for mobile broadband, up to 6Mbps, because data traffic is expected to be significantly lower there than in larger urban areas. Because of the low population density and users’ lower income, a sharp increase in data traffic is not expected in the medium term in small cities.
TIM needs more spectrum to continue growing
Although TIM Brasil has announced that it has not decided yet whether it will bid for LTE spectrum, it may pressure Anatel to change some auction rules as a negotiation tactic. TIM Brasil believes that it could avoid the high cost of investments in LTE licenses and infrastructure by using the fibre network of AES Atimus. However, considering the limited amount of spectrum available for 3G networks, TIM is unlikely to be able to provide speeds comparable to LTE, even using HSPA+.
LTE spectrum auction may be open to new players
A key question on the forthcoming LTE auction is whether a new player would bid for the LTE spectrum. Obtaining LTE spectrum represents a unique opportunity for GVT to enter the mobile market and becoming a strong competitor in the country with quad-plays offers. With no mobile legacy, by acquiring LTE spectrum GVT would be able to enter the market directly with the most advanced technology, avoid costs, and spend time managing different technology networks before migrating to LTE in the future.
Cable and satellite TV operator Sky is another potential new entrant in the profitable mobile market. In December 2011, Sky launched TDD-LTE services in 2.5GHz, in the country’s capital Brasilia. Currently, Sky offers only fixed wireless broadband services; it does not have a license to operate in the mobile market. However, it could acquire more spectrum in the tender, therefore making its entrance to the mobile market. In addition, Sky expressed interest in the LTE auction in Colombia and Chile.
LTE take-up might be weak in Brazil
LTE has been deployed only in a handful of countries and has yet to generate the economies of scale required to bring prices down. Services and handsets remain expensive worldwide. In the countries where LTE has already been implemented, LTE data plans are US$50-80, significantly higher than the US$14 Brazilian ARPU. Handsets are also a problem for an emerging market such as Brazil. In the short term, the country is likely to import LTE devices, and prices could double because of the high local import taxes.
It must also not be forgotten that the countries that have deployed LTE also have high levels of 3G penetration and show an increasing demand for data services. In contrast, in Brazil 3G has not taken off yet and still represents only 20% of the market.
Marceli Passoni is research analyst at Informa Telecoms & Media.
