cellular tower

Two years ago Vodafone owned more mobile spectrum than any other carrier.

While it still owns the most spectrum, Vodafone’s lead is slipping. It may yet fall further.

We’re seeing a land rush as carriers prepare for the next generation of mobile data services and Spark is grabbing more territory than anyone else.

One feature of 5G mobile is the ability to aggregate spectrum in different bands. In simple terms, the more spectrum a carrier holds, the more wireless bandwidth they have at their disposal. More bandwidth can either mean faster data speeds or a higher number of simultaneous customers.

5G changes the picture

As Analysys Mason explains, 5G cellular will need new spectrum. At the moment much of the potential 5G spectrum is set aside for other uses. From a telco point of view, all existing spectrum investments could be used for 5G, that doesn’t mean they will be.

In the future the carrier with the most bandwidth will be able to dominate the market.

This explains why Spark has pushed hard to catch-up with Vodafone. Depending on how you look at the raw numbers, it may already have overtaken its rival.

Two years ago Len Starling, policy and planning manager at the Radio Spectrum Management division of the Ministry of Business, Innovation and Employment, explained on this site:

For clarity, the spectrum bands currently used for cellular in New Zealand are:

  • 850 MHz (Telecom only) – 3G
  • 900 MHz (2degrees & Vodafone only) – 2G and 3G
  • 1800 MHz (all operators) – 2G and 4G
  • 2100 MHz (all operators) – 3G

In the bands currently used for cellular, the operators hold:

  • Vodafone: 130.4 MHz
  • Telecom: 110 MHz
  • 2degrees: 99.6 MHz (some of which is owned by 2degrees’ shareholders, Trilogy Ltd and Hautaki Ltd) .

Starling went on to say:

Soon, the 700 MHz band will also be used for cellular. All three operators will own rights in this band.

The 700 MHz spectrum auction took place soon after the earlier story appeared. By the time it finished, the ratio between the three main carriers in the bands Starling names as used for cellular had changed. Spark (formerly Telecom) picked up 40 MHz, Vodafone took 30 MHz while 2degrees could only afford to buy 20 MHz.

The new holdings are:

  • Vodafone: 160.4 MHz
  • Spark: 150.0 MHz
  • 2degrees: 119.6 MHz

Spark now has almost as much existing cellular spectrum as Vodafone, while 2degrees slipped further behind.

With cellular frequencies, lower numbers are better

On the whole lower frequency spectrum is more valuable than higher frequency spectrum.

Lower frequency signals travel further. This means carriers need to install fewer towers to cover the same number of customers. Signals find it easier to penetrate buildings and pass obstacles at lower frequencies.

In round numbers, spectrum lower than 1 GHz is prime wireless real estate. Staying with round numbers, we can assume the small edge Vodafone has over Spark in terms of absolute spectrum in the bands currently used for cellular is balanced by Spark holding more of the better frequencies.

Some animals are more equal than others

In other words, at the moment, the two companies are about equal when looking at the existing cellular bands. Meanwhile, 2degrees is behind, but not out of touch.

Given the current structure of the cellular industry, 2degrees will need a different strategy to the two big carriers.

So far we’ve only looked at the spectrum that MBIE describes as “currently used for cellular”. That’s not all the spectrum available to carriers. As Analysys Mason points out, with 5G all spectrum potentially comes in to play.

Revisiting the 2013 numbers

This takes us back to late 2013 and Vector’s submission to the Commerce Commission in the run up to the 700 MHz spectrum auction.

In particular is the graph below, which shows the New Zealand UHF (ultra-high frequency) spectrum rights holdings in late 2013.

UHF Spectrum Right Holdings New Zealand

Some of the spectrum shown in this graph wasn’t used for cellular at the time. Some of it still isn’t.

Ratio is important

Yet in simple terms the graph shows that, in late 2013, Vodafone, Telecom — now Spark and 2degrees held spectrum in a ratio of roughly 3:2:1.

In the brave new world of 5G mobile, the absolute amount of usable cellular spectrum in what matters. This ratio defines the potential future power balance between carriers.

So long as we’re talking in round numbers, the 700 MHz spectrum auction left that ratio intact. There was a small shift in Spark’s favour, but not enough to shift the big picture.

Spark moves on Woosh

That changed last week when the Commerce Commission gave Spark permission to buy 70 MHz of spectrum from Craig Wireless that was previously held by Woosh.

In effect Spark now has almost as much UHF spectrum as Vodafone. The two have almost three times as much spectrum as 2degrees.

A back of an envelope calculation estimates today’s UHF spectrum share as:

  • Vodafone: 320 MHz
  • Spark: 315 MHz
  • 2degrees: 120 MHz

This is an estimate based on the Vector graph plus the extra 10 MHz Spark won in the second round of the 700 MHz auction and the 70 MHz Spark purchased from Craig Wireless.

There may be more or overlooked spectrum not included in that last list but unless the overlooked blocks are large, the important point here is that Spark has shifted the 3:2:1 ratio to something closer to 3:3:1.

Disclosure: Bill Bennett has worked as a consultant for Spark Digital.

4.5G at Mobile World Congress 2016Fourth-generation cellular technology, better known as 4G, is still relatively young in New Zealand.

It is less than two years since 2degrees began rolling out its 4G network. Spark, then Telecom, and Vodafone started earlier, but the bulk of their networks are not much older.

We’re lucky. There are parts of the world that have yet to upgrade to 4G.

Next step cellular

Yet at this year’s Mobile World Congress in Barcelona, the companies making network equipment were busy talking about the next step. 5G was at the top of the agenda for many exhibitors and attendees.

There’s no fixed definition of what 5G means at the moment. Different companies are pushing their own versions in the hope of getting a march on their rivals before an industry-wide standard is agreed.

All companies talk of fast wireless speeds. The early descriptions of 5G talked of 1 Gbps. At MWC the figure most often used was a peak throughput of 10 Gbps. That’s a staggering number, faster than our national fibre network can manage at the moment[1].

Latency

The other important number is the low latency expected for 5G. Everyone agrees it will be less than 1 ms.

Nobody seemed to mention the potential spectrum bottleneck. Carriers will need a lot of bandwidth to manage the promised speeds. It will be possible to aggregate spectrum from different bands.

One complication is that carriers will need to run 5G networks alongside 4G ones. That will stretch the available spectrum even thinner.

Headroom

Without more information it is hard to be exact, but it looks as if Vodafone and Spark have enough headroom to move to 5G. There could be a question mark over whether 2degrees has enough for a full implementation.

The carriers have other matters to worry about. For the most part New Zealand’s 4G networks are only two years old. It will take the phone companies at least five years to recover the investment they made installing 4G.

They won’t be in a hurry to start another round of investment before the 4G bills are all paid.

Huawei pushes 4.5G

This is where things could get confusing. At MWC, Huawei, an equipment maker, ran an event looking at 4.5G.

That’s Huawei’s name for an interim technology, in effect, a software upgrade to the 4G network. It will deliver improved network performance, maybe 5G like speeds. But it won’t include all the benefits. For that carriers will need to build new networks from scratch.

Huawei says when it arrives, the new technology won’t be known as 4.5G. Most likely it will be a variation on LTE-Advanced Pro as far as the telecommunications industry is concerned.

Gigabit peaks

According to Huawei, 4.5G will deliver much faster peak network speeds than today. At the conference 1 Gbps was mentioned often. We’ll see an equal bump in latency too. Also on the agenda is the ability to handle six times as many simultaneous connections.

It gets complicated because, if history is a guide, some carriers and vendors will brand their 4.5G networks as 5G. This is what happened during the last transition when some of the early 4G networks were, in fact, HSPA+.

At MWC some equipment companies said they will release 5G hardware in 2017. That’s pushing things. Few carriers will be ready to upgrade and the early birds may move before there’s an accepted, universal understanding of what 5G means.


  1. That’s not the whole truth. It is possible to get faster fibre speeds if you spend $500 or so for a P2P connection. Thanks to Full Flavour for pointing this out:https://twitter.com/myfullflavour/status/712066933810728960 ↩

gigabit mobile

Gigabit mobile speed is a key promise from the equipment makers preparing 5G network hardware. It will take until at least 2020 before anyone builds a 5G network in New Zealand, yet there’s a good chance we’ll see gigabit speeds before then.

Last month Comms Day reported on an Optus-Huawei 4.5G trial which hit a peak speed of 1.23Gbps over the air in live network conditions. The newsletter reports the test has a theoretical maximum speed of 1.43Gbps.

Earlier Telstra worked with Ericsson to get speeds of 1Gbps on its commercial network.

The key to fast speeds lies in aggregating spectrum from different bands. Telstra pulled more than 100 MHz of spectrum from five different bands.

New Zealand’s two biggest carriers, Spark and Vodafone, have the spectrum to do the same here.

Of course the Australian trials are just that, trials. They use non-commercial handsets and purpose-built test sites. While you’d be lucky to get similar speeds in practice, the theoretical high speeds are useful pointers showing where mobile technology is going.

Optus told Comms Day the 4.5G network could be operational later in 2016, but that handsets to exploit the high speeds will not appear until the end of this year or early in 2017.

At this year’s Mobile World Congress, Huawei president of products and solutions Ryan Ding said his company is already working with 60 international telcos on 4.5G networks. I asked about New Zealand and got a diplomatic non-committal answer, but in earlier discussions with Huawei was told we are likely to be among the first countries to get gigabit mobile.

spectrum

Len Starling, policy and planning manager at the Radio Spectrum Management division of the Ministry of Business, Innovation and Employment, responds to How much spectrum do NZ mobile carriers have?

Firstly, you’re correct that the disparity between the spectrum holdings shown in Vector’s graph (which you published) and the numbers that MBIE previously provided is because Vector’s graph includes a lot of spectrum that is not used for cellular services.

Vodafone owns rights to spectrum in several bands that are not used for cellular services.

For clarity, the spectrum bands currently used for cellular in New Zealand are:

  • 850 MHz (Telecom only) – 3G
  • 900 MHz (2degrees & Vodafone only) – 2G and 3G
  • 1800 MHz (all operators) – 2G and 4G
  • 2100 MHz (all operators) – 3G

In the bands currently used for cellular, the operators hold:

  • Vodafone: 130.4 MHz
  • Telecom: 110 MHz
  • 2degrees: 99.6 MHz (some of which is owned by 2degrees’ shareholders, Trilogy Ltd and Hautaki Ltd) .

Soon, the 700 MHz band will also be used for cellular. All three operators will own rights in this band.

The 2.5/2.6 GHz band can be used for cellular (equipment is available internationally) but is not currently being used for cellular services in New Zealand. This band is particularly good for high population density areas such as Singapore and Hong Kong, not so good in low density places like New Zealand.  In New Zealand no-one has implemented yet.  These rights return to the Crown in 2016 (at the latest) if implementation doesn’t occur.

Secondly, while you are correct that the government would not prevent Vodafone (or any other network operator) from using any of its management rights for cellular services, in practice all New Zealand mobile networks are limited by international standards.

This is because cellular handsets are sourced from the international market. It is unlikely that major handset manufacturers would be interested in manufacturing bespoke handsets just for New Zealand given our small size. Therefore the holdings at 2.0, 2.2 and 3.4 GHz are not practical for cellular services.

Finally, there is not yet any international consensus on what frequencies 5G cellular services will use. While it seems likely that ‘5G’ will eventually be standardised at the international level, there is not yet any agreement on what exactly what 5G will be (apart from general statements like 5G will be faster and/or more efficient than 4G). Most of Vodafone’s unused holdings expire at various times over the next 5-8 years.  It should not be assumed that Vodafone will automatically be allowed to renew those holdings.  The government routinely reviews spectrum holdings five years before expiry and decides whether to make a renewal offer.  For example, the government recently reviewed Vodafone’s LMDS holdings and decided not to offer renewal so those rights will return to the Crown in 2018.

In summary, while there may be room for debate about exactly what should be counted, it is not correct to assume that current total UHF spectrum holdings provide a guide to future capacity of an operator to provide cellular services.

Media reports suggest 2degrees is in the race to buy Orcon.

If 2degrees couldn’t find the $22 million to buy the third chunk of 700 MHz spectrum, it can’t afford Orcon.

In hindsight, the government’s 700 MHz spectrum auction was a great deal. The reserve price for each paired block of spectrum was set at $22 million. Thanks to the rules that meant each of the three carriers could each buy three blocks at the reserve price.

Vodafone and Telecom NZ picked up their full allocation, 2degrees purchased two blocks leaving one on the tablet. This was later sold to Telecom NZ for $83 million.

Which means 2degrees couldn’t find $22 million ito buy an asset the market prices at $83 million. That’s a return in less than six months of around 270 percent.

Compare this missed opportunity with buying Orcon. The formerly state-owned ISP and phone company is in trouble. It lacks scale in a market where scale matters.

Orcon is essentially bankrupt. Regardless of the price, Orcon needs a serious cash injection to get back in the game. I don’t have access to the numbers, but I suspect it needs considerably more than $22 million.

For what?

Certainly not a quick return of 270 percent.

ISP margins are not high, shareholders are happy if they can manage a 10 percent return on capital.

Fixed line or double down on mobile?

The conventional thinking says 2degrees needs a broadband and fixed-line business so it can offer complete telecommunications packages to, allegedly, lucrative business customers. It’s about 2degrees being competitive.

That’s not a stupid idea, but nor is it straightforward. Those bundles work for Vodafone and Telecom NZ partly because they give opportunities for cross-subsidy and partly because they allow a centralised, single bill. 2degrees would need to find those cross-subsidies and splash out on a new billion system. None of this is cheap.

We could wake tomorrow and find 2degrees has acquired Orcon. No doubt there will be calming words from the management about ‘synergies’, cost-savings and unlocking value.

But I’m not convinced. If 2degrees can’t find $22 million to buy $83 million of spectrum, an appreciating asset, it doesn’t make sense to buy into Orcon’s financial black hole.