GSMA on the Impact of Spectrum License Fees: Is It Really That Simple?
In its recently published research, the GSMA suggested that high spectrum prices are responsible for the low adoption of mobile communication, in particular mobile data usage, in developing countries, but we think that's too simple a linear connection and that there's more to slow uptake than high license fees.
Our sister publication, Telecoms.com, has taken a look at the recently published report by GSMA, called Spectrum Pricing in Developing Countries. We share Telecoms.com's view that some significant issues have been raised.
The most eye-catching conclusion of the report is: "On average, between 2010 and 2017, final spectrum prices in developing markets were more than three times those of developed countries once income levels are taken into account." (Executive Summary, p.4) It is worth noting that the report used purchasing power parity (PPP) and GDP per capita to adjust the nominal prices paid by operators to reach this conclusion.
According to the GSMA, the means by which governments charge high prices for spectrum access in the developing countries includes: "Setting high reserve prices or high final prices in administrative awards; features of the auction design; artificial scarcity of spectrum; and the lack of a spectrum roadmap." (p.12)
Several African nations have been identified in the report as having charged mobile operators high prices for spectrum, including Egypt, Tunisia, Niger and São Tomé and Príncipe. In addition, Nigeria and Mozambique are featured in the case studies to make the point that high spectrum prices either hampered 4G rollout (Nigeria) or resulted in aborted auctions, depriving a country of 4G service completely (Mozambique).
It is only natural that the GSMA, as an industry organization representing telecom operators, should defend the interest of its members and argue for lower spectrum costs. But we find some of its arguments flawed.
From the outset, the GSMA seems to fault any government that has an objective to maximise income from issuing radio frequency licenses. However, if we agree that electromagnetic spectrum is a public asset, then it will be the obligation of the government to maximise return when it is handed out for commercial use, especially if the bidders are multinational corporations coming from overseas, which often they are. If there is any debate, it should be on how any individual government should use the income, not the fact that it generates the income at all.
On its methodology: The use of PPP for short-term industry level analysis is controversial, and if the bidders are global companies (Vodafone, Airtel, Orange, MTN, to name but a few), conversion to PPP is even less relevant. But there is also a telecom-specific issue the report elects to ignore. For example, due to "time difference," the spectrum licenses auctioned in the period analysed were often (though not always) in the 900MHz or 1800MHz bands, which by default would make them more expensive than the 2.6GHz or 3.4GHz licenses auctioned during the same period in Europe. A more meaningful comparison would be with the auctions conducted at the turn of the century in Europe, for example the £22.5 billion (US$29.6 billion at current exchange rates) auction of 3G frequencies in the UK in the year 2000, the so-called "biggest auction ever."
In addition, the report's conclusions are inconclusive. For example, by the authors' own admission, high spectrum prices can "work in both directions," either driving ARPU up, or driving it down (p.23).
In summary, we laud the GSMA's efforts to undertake a project that analyses governments' roles in determining or influencing spectrum prices. We would also recognise a negative correlation between spectrum prices and mobile service adoption, if we could agree with the report's method to readjust the prices with proxies. However, we cannot establish a causation between the two variables, and more likely there is not one, because too many other factors have not been controlled when the research is conducted.
— Wei Shi, Site Editor, Connecting Africa