China and Australia award 5G licences, Korea goes live

Regulators and operators have made significant strides towards 5G in three major markets in the past week – China, Australia and South Korea.

In China, the government has issued test licences to the three MNOs to start their deployment of 5G in the 3.5 GHz band. China has been more responsible than any other country for driving the C-band spectrum around 3.5 GHz as the first major global band for 5G. Even ahead of World Radio Conference 2019, which will officially decide on globally harmonized spectrum allocations for 5G, the head of steam behind 3.5 GHz (in various markets, anywhere between 3.4 GHz and 4.2 GHz) makes it unstoppable now.

Several regulators have already auctioned airwaves in at least part of the band – the UK, for instance – but China has been the driving force. The USA has a very different band plan and has introduced 3.5 GHz to its mobile spectrum portfolio initially for 4G (with its three-tiered CBRS scheme). T-Mobile USA and others have argued that the focus on LTE will leave the USA out of the global mainstream for 5G, and the decision, while supporting some more immediate new use cases, certainly leaves China as the guiding hand for C-band 5G. Some operators may acquire licences for the priority access tier of CBRS and choose to use this spectrum for 5G, but the USA will not be the biggest mover and shaker in 3.5 GHz – though the FCC has certainly taken the initiative in millimeter wave.

In China, the operators say they are not planning at-scale deployments until 2020 – or until, in China Mobile’s view, it has achieved better ROI for its huge 4G investment. However, they will carry out trials which will dwarf many commercial roll-outs elsewhere, and as in 4G, there is a blurred line between trial and full commercial services in China. When the three MNOs were building out LTE, they offered a full set of capabilities in many cities, a year or two before their licences were officially ruled commercial by the regulator.

This time, the three operators have received hefty chunks of mid-band spectrum to enable them to start building out 5G, fully commercial or not. But they are not all in the same band – as so often in the past, market leader China Mobile has been allocated airwaves in a different band from the other two, and with less opportunity for global harmonization. So China Telecom and China Unicom have each received 100 MHz of 3.5 GHz spectrum, while China Mobile has been given 260 MHz in the 2.6 GHz and 4.8 GHz bands. This may put the biggest player at some disadvantage in terms of device ecosystem – 2.6 GHz is mainly used for 4G in other parts of the world, while 4.8 GHz is currently a rarely-used band. This may be a regulatory attempt to even the imbalance between the dominant Mobile and its smaller rivals, but it is nothing compared to the disadvantage the market leader suffered in 3G, when it was forced to use the homegrown TD-SCDMA technology – the only MNO in the world to do so.

But the scale of China Mobile allowed it to rise above its problems then, as it will again in 5G. In that case, it responded by moving very quickly to 4G and driving a global ecosystem around the previously underused TDD flavor of LTE. Mobile has the same ability to create broad support, among vendors and fellow operators, in any bands where it deploys 5G.

The next set of licences to be awarded in China will be in the 700 MHz band, which will be well-suited to rural coverage and IoT applications. Analysts at Jefferies speculate that this may coincide with a much-rumored plan by the government to merge China Unicom and China Telecom to create a more powerful counterweight to Mobile, and introduce better economies of scale to the market, encouraging accelerated 5G progress.

However, the Huawei crisis and the stand-off with the USA will have its impact on domestic 5G plans, the analysts argued in a recent client note – not least by making 5G leadership even more important to the Chinese government as a badge of national pride. However, progress may also be hampered by the trade wars, and even the recent arrest of Huawei’s CFO, Meng Wanzhou (see separate item).

The analysts wrote:  “While the extradition case could go on for months, we believe the US has serious intentions to put Ms. Meng behind bars and sue Huawei as well as impose a US export ban on Huawei. If that happens, it will be a serious setback to China’s 5G timeline … China will be unlikely to want to build 5G without Huawei, and to get Huawei out of any potential US export ban, the US will likely ask for concessions in China’s tech subsidy and ‘Buy China’ policy in various industries including telecom.”

Their conclusion was: “The likely purpose is to cut the scale of Huawei and ZTE (assuming Huawei will already lose substantial business outside of China) and China’s supply chain. This could raise the cost of China’s effort to build 5G, and may make merging CT and CU even more sensible/urgent than before.”

Of course, Australia is one of the countries which has already barred Huawei and ZTE from its 5G networks, causing consternation for its operators, especially VHA (Vodafone Hutchison) which is a Huawei-only shop in 4G.

The telcos have gone ahead and acquired 5G spectrum despite this disruption to their procurement plans and choices. They have paid a total of about A$853m ($613m) for 3.6 GHz spectrum.

The auction attracted bids from the three existing MNOs and one new entrant, the UK’s DenseAir (Australia did have a new MNO, TPG, but it is in the process of being acquired by Vodafone).

DenseAir is an affiliate of mobile network equipment maker Airspan, and was set up to buy spectrum around the world, in which to build neutral host, small cell networks, to support MNOs and other service providers on a wholesale basis. The aim is to address enterprise, indoor and IoT markets which are often neglected by the mainstream operators with their focus on wide area, outdoor and consumer use cases. DenseAir already has spectrum in several other countries, including Ireland, Belgium and Portugal.

The Australian regulator, ACMA, said the spending worked out at about A$0.29 ($0.21) per MHz/POP, which makes this auction one of the most expensive so far. Auctions of mid-band spectrum earlier this year raised as little as $0.05 per MHz/POP in Spain and just $0.04 in Finland. The UK’s $1.44bn 3.4 GHz auction worked out at $0.15 per MHz/POP.

But inflation in prices is evident as commercial 5G gets closer – in October, Italian MNOs spent nearly $5bn, and almost $0.41 per MHz/POP, on mid-band airwaves.

ACMA said its auction had been designed to “maximize efficiency, competitive outcomes and the full utility of this spectrum for 5G”. Licences will last until 2030, but will not be able to be activated until 2020.

The regulator also decided to auction spectrum on a regional basis, with only Telstra and Mobile JV – a bidding joint venture between betrothed TPG and Vodafone – winning nationwide licences, as well as additional lots for the country’s biggest cities.

Vodafone and TPG spent more than A$263m ($189m) on licences but Vodafone CEO Iñaki Berroeta complained about the small amount of spectrum made available, which he said had pushed up prices.

“While we are pleased to have secured spectrum licences in every available area, robust competition for artificially limited supply saw the companies participating in the auction pay some of the highest per MHz per pop prices for 5G spectrum in the world so far,” he said. “It’s clear there is high demand for 5G spectrum, and more suitable spectrum needs to be made available by government.”

Telstra spent A$386m ($277m) and Optus about A$185m ($133m). The latter acquired only regional licences and no additional spectrum for major cities.

Dense Air spent about A$18.5m ($13.3m) on licences in the cities of Adelaide, Brisbane, Canberra, Melbourne, Sydney and Perth.

In South Korea, where some of the world’s first 5G commercial trials took place to support the Winter Olympics this year, the regulator had said all three MNOs would launch fully live services on the same day in the spring. However, the operators have now leapt ahead and switched on their first commercial 5G networks ahead of schedule.

The reason behind the government’s decision to have a simultaneous, multi-operator launch was to reduce the need for marketing costs and accelerate progress on actual network build-out.

So SK Telecom, KT and LG U+ are all now official 5G providers, with a network that covers large parts of 13 cities, even before there are commercial smartphones available. They are focusing heavily on the industrial uses of 5G, which will drive far greater growth than another consumer device. SK Telecom, for instance, said that Myunghwa Industry, a car parts supplier, is already using the 5G network for process improvements at its factory, with artificial intelligence analysing results from on-site cameras in near-real time, over low latency 5G links supported by a network slice.

SK Telecom and KT also marked the end of an era when they shut down their mobile broadband services based on the WiBro technology. This was Korea’s homegrown variant on the WiMAX standard, which was briefly a contender to be a 4G alternative to LTE. Now the two operators will transition WiBro subscribers to LTE, and refarm the 2.3 GHz spectrum for 4G or 5G if they are allowed to keep the licences (which expire in March 2019).