uk spectrum auction for third generation mobile communications march, 1999 n m rothschild & sons...
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UK Spectrum Auctionfor
Third Generation Mobile Communications
March, 1999
N M ROTHSCHILD & SONS
Strictly Private and Confidential
IMPORTANT NOTICE
This presentation has been prepared on behalf of the Radiocommunications Agency by NM Rothschild & Sons Limited (“Rothschilds”), as financial advisor in connection with the possible allocation of spectrum for third generation (“3G”) mobile communications by auction (the “Auction”).
The presentation (which is for information purposes only) is made available on the express understanding that it will only be used by the recipient for the sole purpose of assisting the recipient in deciding whether it wishes to proceed with a further investigation of possible participation in the Auction. The presentation is not intended to form the basis of any investment decision or other evaluation or any decision to participate in the Auction and should not be considered as a recommendation by the Secretary of State, the Radiocommunications Agency, Rothschilds or its other advisors to any recipient of the presentation to participate in the Auction. Each person to whom this presentation is made available must make its own independent assessment of the potential value of an allocation of 3G Spectrum after making such investigation as he may deem necessary in order to determine whether to participate in the Auction. All information contained in this presentation is subject to updating, modification and amendments.
While the information contained in the presentation is believed to be accurate, it has not been independently verified by Rothschilds and none of the Radiocommunications Agency, Rothschilds or any or any of its other advisors or any of their respective directors, partners, officers or employees make any representation or warranty (express or implied) nor accept any responsibility as to, or in relation to, the accuracy or completeness of the information contained in the presentation or any other written or oral information made available to any interested party or its advisors (and no one is authorised to do so on behalf of any of them) and any liability in respect of any such information or any inaccuracy therein, or omission therefrom, is hereby expressly disclaimed. In particular, but without prejudice to the generality of the foregoing, no representation or warranty is given as to the achievement or reasonableness of any future projections, estimates, prospects or returns contained in this presentation.
The presentation does not constitute an offer or invitation to participate in the Auction, nor does it constitute the basis of any contract which may be concluded in respect of any allocation of 3G Spectrum. Recipients are not to construe the content of this presentation, or any other communication by or on behalf of the Radiocommunications Agency, Rothschilds, or any of its other advisors, as legal, tax or other advice.
Accordingly, each recipient should consult its own professional advisors as to legal, tax and other matters concerning any potential participation in the Auction or any allocation of 3G Spectrum.
Page 3Rothschild CF1956EO
The UK Opportunity
What is third generation mobile (3G)?
Why the United Kingdom?
The UK Market
Q&A
Conclusion
Next Steps
Page 4Rothschild CF1956EO
Page 5Rothschild CF1956EO
The UK Opportunity
Around the turn of 1999/2000, the UK Government intends to auction five new licences for the development of third generation mobile services
One of the first opportunities in the world to secure spectrum specifically for third generation mobile
A springboard for third generation mobile opportunities across Europe and the world
A unique point of entry to the UK market for new operators to exploit fixed / mobile convergence
Access to mobile services and spectrum is becoming essential for software, IT and even broadcasting
New entrants actively encouraged
Page 6Rothschild CF1956EO
Government committed to attracting New Entrants to the UK Mobile Market
The UK Government attaches great importance to the further development of competition in the mobile telecommunications sector. It is therefore keen to encourage sustainable market entry. This is reflected in the objectives for the Auction, as announced to the House of Commons by Barbara Roche on May 18th, 1998:
“The Government’s overall aim is to secure, for the long-term benefit of UK consumers and the national economy, the timely and economically advantageous development and sustained provision of UMTS services in the UK. Subject to this overall aim, the Government’s objectives are to (i) utilise the available UMTS spectrum with optimum efficiency, (ii) promote effective and sustainable competition for the provision of UMTS services, and (iii) subject to the above objectives, design an auction which is best judged to realise the full economic value to consumers, industry and the taxpayer of the spectrum”
Page 7Rothschild CF1956EO
Roaming
In order to promote sustainable market entry the Government has decided to ensure that new entrants will be able to roam onto second generation networks for a period of time
The terms of roaming agreements are subject to consultation, but will:
give access on a retail minus cost base
last until the end of 2009
be backed by the Director General of Telecommunications
Five Licences
The Government is currently consulting industry on ways of offering five licences
A five licence auction will deliver the Government’s objectives for the efficient use of the spectrum and encouraging sustainable market entry
Taken together, roaming and the proposal for five licences provide a real opportunity for entry into this dynamic and profitable market
Page 8Rothschild CF1956EO
Telecoms
IT
Media
CapacityRequirements
CapacityRequirements
InternetGrowthInternetGrowth
Consumer"Info-tainment"
Consumer"Info-tainment"
MobileComputing
MobileComputing
Data Overtaking
Voice
Data Overtaking
VoiceFixed/MobileConvergenceFixed/MobileConvergence
MarketDemandMarket
Demand
Technological Change
Technological Change
SpectrumAvailabilitySpectrumAvailability
Voice Data
Mo
bil
eF
ixed
TACS
GSM/CDMA
Portable/Laptop
Third Generation
VALUE
POTS PANS VAS PC
Page 9Rothschild CF1956EO
Overview
What is third generation mobile (3G)?
3G represents the European implementation of the third generation of mobile telecommunications technologies
3G is the next step from “second generation” digital systems and extends the “data revolution” to the mobile environment
3G will extend newly emerging multimedia services into the mobile environment
3G is expected to form part of the family of third generation mobile systems operating in spectrum reserved on a global basis by the ITU
3G will permit the Virtual Home Environment (VHE) to become a reality, with just one personal identifier per subscriber, and access to 3G facilities available to subscribers over both mobile and fixed networks
Mobile
Digital
High speed
Universal
Convergence
Page 10Rothschild CF1956EO
0.04 0.21 0.220.56 0.70
1.3
2.8
8.3
0
1
2
3
4
5
6
7
8
9
UM
TS
low
mob
ility
(200
0 K
b/s)
UM
TS
lim
ited
mob
ility
(384
Kb/
s)
ED
GE
(36
4 K
b/s)
UM
TS
full
mob
ility
(144
Kb/
s)
GP
RS
(11
5Kb/
s)
ISD
N (
64 K
b/s)
PS
TN
(28
.8 K
b/s)
GS
M (
9.6
Kb/
s)
Tim
e of
tran
sfer
(s)
Long Email or Attachment (10K) 40,000-Character Text File (40K) 5-Minute Music File (60K)
40-Page Presentation with Graphics (2M) 4-Minute Video Clip (4M)
5 minutes
Source : UMTS Forum; Rothschild analysis
448 42111 139
250
560
1680
0
200
400
600
800
1000
1200
1400
1600
1800
UM
TS
low
mob
ility
(200
0 K
b/s)
UM
TS
lim
ited
mob
ility
(384
Kb/
s)
ED
GE
(36
4 K
b/s)
UM
TS
full
mob
ility
(144
Kb/
s)
GP
RS
(11
5Kb/
s)
ISD
N (
64 K
b/s)
PS
TN
(28
.8 K
b/s)
GS
M (
9.6
Kb/
s)
Tim
e of
tran
sfer
(s)
16 83 88222 278
500
1110
3330
0
500
1000
1500
2000
2500
3000
3500
UM
TS
low
mob
ility
(200
0 K
b/s)
UM
TS
lim
ited
mob
ility
(384
Kb/
s)
ED
GE
(36
4 K
b/s)
UM
TS
full
mob
ility
(144
Kb/
s)
GP
RS
(11
5Kb/
s)
ISD
N (
64 K
b/s)
PS
TN
(28
.8 K
b/s)
GS
M (
9.6
Kb/
s)
Tim
e of
tran
sfer
(s)
0.16 0.83 0.882.82.2
33.3
11.1
5.0
0
5
10
15
20
25
30
35
UM
TS
low
mob
ility
(200
0 K
b/s)
UM
TS
lim
ited
mob
ility
(384
Kb/
s)
ED
GE
(36
4 K
b/s)
UM
TS
full
mob
ility
(144
Kb/
s)
GP
RS
(11
5Kb/
s)
ISD
N (
64 K
b/s)
PS
TN
(28
.8 K
b/s)
GS
M (
9.6
Kb/
s)
Tim
e of
tran
sfer
(s)
0.24 1.25 1.324.23.3
7.5
16.7
50
0
10
20
30
40
50
60
UM
TS
low
mob
ility
(200
0 K
b/s)
UM
TS
lim
ited
mob
ility
(384
Kb/
s)
ED
GE
(36
4 K
b/s)
UM
TS
full
mob
ility
(144
Kb/
s)
GP
RS
(11
5Kb/
s)
ISD
N (
64 K
b/s)
PS
TN
(28
.8 K
b/s)
GS
M (
9.6
Kb/
s)
Tim
e of
tran
sfer
(s)
10 minutes
1/2 hour
20 minutes
Page 11Rothschild CF1956EO
Potential 3G services
3G will support high speed, interactive services for mobile phones, mobile terminals and laptops:fast Internet and corporate intranet accessenhanced quality voice, fax and emailbroadcasting and audio on demandon-line banking and shoppingreal time high quality video conferencinga virtual office on one line - with simultaneous voice and data services: make
calls, receive faxes and remain on office network simultaneously
3G is also likely to be an enabling technology with many “embedded” applications:portable entertainment facilities - “on-line” CD players and TV monitorsin-car real time navigational systemstelemetry functions“machine to machine” communications
Working prototypes have already been developed by manufacturers and field trials are underway
Page 12Rothschild CF1956EO
1880 1900 1980 2010 2025 2110 2170 2200
DECT T-3G MSS FS SSS T-3G MSS
1900 1920 1980 2010 2025 2110 2200
Un-paired
Un-paired
Up link Down link
MSS = Mobile Satellite ServiceT-3G = Terrestrial Third Generation Mobile ServicesFS = Fixed ServiceSSS = Space Science Service
Paired
T-3G
Page 13Rothschild CF1956EO
Spectrum Allocation
155 MHz made available; cleared by 2002
2x60 MHz paired, 35 MHz unpaired, both in 2GHz bands (in accordance with International Telecommunications Union)
The UK Licences
Working hypothesis is for 5 licences
either: three, each of 2x10 MHz paired, and two, each of 2x15 MHz paired
or: four, each of 2x10 MHz paired, and one, of 2x20 MHz paired
In each case, the smaller licences would also be allocated 5 MHz of unpaired spectrum
In each case, (one of) the larger licence(s) would be reserved for a new entrant
Spectrum Packaging
Page 14Rothschild CF1956EO
Austria
Belgium
Denmark
Finland
France
Germany
Greece
IrelandItaly
Netherlands
Norway
Portugal
Spain
SwedenSwitzerland
UK
0%
20%
40%
60%
80%
100%
120%
0% 10% 20% 30% 40% 50% 60%
Mobile Penetration (1st February 1999)
Gro
wth
ove
r la
st 1
2 m
onth
s
Scandinavia:
High substitution of mobile for fixed
Europe:
Lower penetration and substitution less advanced
Source: FT Mobile Communications, Rothschild analysis
0%
10%
20%
30%
40%
50%
60%
70%
Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99
Mob
ile
Pen
etra
tion
(%
)
Spain Sweden
UK Finland
France Germany
Italy
Historic Subscriber Growth Current Mobile Market
Page 15Rothschild CF1956EO
Why the United Kingdom?
The UK should form a blueprint for rolling out networks across Europe - For new entrants it will be a ‘bridgehead’ into Europe
The UK Government actively encourages a competitive market and is looking at sensible measures to remove barriers to entry
The spectrum auction will be open to all - incumbents and new entrants - on a fair basis
The working hypothesis is that national roaming at “retail minus” prices is to be available until the end of 2009
BT and Cellnet will not be permitted to bid separately; there will also be special rules for associated bidders
Rollout obligations are likely to be set at a realistic level (aimed at 80% population or about 10% geographical coverage at 144kbps by 31 December 2007)
Page 16Rothschild CF1956EO
Q & A
When will 3G be introduced?
Trials have already commenced, with operators expected to roll out networks in 2002, hence the need for licensing certainty next year. Widespread availability is anticipated around 2005
When will additional spectrum for 3G become available?
The UK will only allocate additional spectrum for terrestrial 3G when it is designated by international (and preferably global) agreement.
If any new spectrum were to made available for 3G, it would have to be allocated in a fair and transparent manner, bearing in mind the minimum spectrum required by any operator
Will refarming (spectrum re-use) be permitted?
There is no current intention to refarm existing cellular spectrum unless this is in line with international agreements. 3G technology will only be licensed for use in spectrum designated in Europe for 3G, which does not at present include spectrum held by the existing cellular operators
Page 17Rothschild CF1956EO
What are the Government’s objectives for the auction?
“To secure, for the long-term benefit of UK consumers and the national economy, the timely and economically advantageous development and sustained provision of UMTS services in the UK. Subject to this overall aim, the Government’s objectives are to (i) utilise the available UMTS spectrum with optimum efficiency, (ii) promote effective and sustainable competition for the provision of UMTS services, and (iii) subject to the overall objectives, design an auction which is best judged to realise the full economic value to consumers, industry and the taxpayer of the spectrum.” (Source: Mrs. Barbara Roche, Minister of State, DTI, 18/05/1998)
Precisely how many licences will there be?
The working hypothesis being discussed is that five licences will be auctioned
Two sizes of licences will be available; the exact proposals are still under consultation. In any case:
one “large” licence will be reserved for a new entrant
each of the “smaller” licences will also be allocated 5 MHz of unpaired spectrum
How long will the licences last?
The Government is proposing a licence duration of 20 years
Page 18Rothschild CF1956EO
How will the auction take place?
There will be a pre-qualification process which is intended to require a significant deposit (currently assumed to be £50m), disclosure of associated bidders but no technical test. This would be followed by a competitive auction, based on price. The auction rules will be prescribed by Regulations issued under a Statutory Instrument further to the Wireless Telegraphy Act 1998
Can licences be traded?
The Wireless Telegraphy Act does not permit secondary trading. In any event, there will be ‘use it or lose it’ roll-out obligations attached to licences to ensure that networks are built. The Government is, however, currently consulting on future tradability of WT Act licences
Can we bid as part of a consortium?
Yes
Can I bid as part of more than one consortium?
Almost certainly not. Material shareholdings in more than one consortium would risk collusion and conflicts of interest. There will therefore be rules in the auction to deal with associated bidders; further details are available in the UACG papers on the web site
Page 19Rothschild CF1956EO
Conclusion
The government is committed to introducing further competition into the UK mobile market and is expected to provide:
a reserved new entrant licence; and
mandatory roaming onto existing 2G networks
Outstanding opportunity in one of the most vibrant telecoms markets
The UK Auction process makes Third Generation services a reality
Your participation now will enable you to shape your opportunity
Page 20Rothschild CF1956EO
Next Steps
Further information on the opportunity can be found through:
Multimedia Communications on the Move
Dedicated Auction Web-site: www.open.gov.uk/radiocom/sp_auct/index.htm
Rothschilds (Gerry Spring or James Vaux): +44 171 280 5000([email protected] / [email protected])
Radiocommunications Agency (Jeremy Clayton) +44 171 211 0133([email protected])
Membership of the Auction Consultative Group