Telcos facing a large bill for the rollout of 5G network technology are worried that acquiring new spectrum licenses could add to the cost burden. During last week's Mobile World Congress, Timotheus Höttges, the CEO of Germany's Deutsche Telekom, implored regulators to make 5G spectrum available at "reasonable rates."
The European worry is understandable. During the 3G auctions of 2000, German operators paid a staggering $46.2 billion for spectrum licenses, with players in the UK coughing up about $35.4 billion. While spending was far more restrained in the 4G auctions that happened years later, German service providers paid €4.4 billion ($4.6 billion) for licenses in 2010 and another €5.1 billion ($5.4 billion) in 2015. Deutsche Telekom AG (NYSE: DT)'s spectrum bill of €1.79 billion ($1.9 billion) that year was equal to about one fifth of its annual earnings (before interest, tax, depreciation and amortization) in Germany. (See Vodafone Big Spender in $5.8B German Auction.)
But any fears about an exorbitant 5G spectrum bill may be overblown. According to Amit Nagpal, a partner at spectrum advisory group Aetha Consulting, operators are unlikely to spend as much on 5G licenses as they did on 4G spectrum, and will certainly not rack up the same kind of fees they did to participate in the 3G market years ago.
For a start, there is a relative abundance of the higher frequency spectrum that will be used to support 5G in more densely populated areas, which should drive down the price per MHz of these frequencies. "I expect the unit cost of this to be a lot lower than we've seen for bands such as 800MHz and 2.6GHz," says Nagpal.
The lower frequency bands, conversely, contain much smaller amounts of spectrum but remain better for providing wide-area coverage (purely because signals travel further in these ranges than in higher frequencies). That means telcos will continue to attach greater value to these frequencies than to higher spectrum bands, says Nagpal. But he also doubts that spending on any of the sub-3.5GHz bands will be lavish.
"There is a fair amount of spectrum at 3.5GHz and below that can be used for 5G -- including by refarming spectrum used for 2G, 3G and eventually 4G services -- and so I don't see any one particular band raising massive amounts of money," he says. "An operator can always use some of their existing 800MHz and 900MHz spectrum as a backup, for example, in the event they don't win any 700MHz spectrum."
One possibility, however, is that certain "pioneer" 5G spectrum bands -- including the 3.5GHz band in Europe and the 28GHz band elsewhere -- attract higher valuations than would ordinarily be expected. "There may be a small premium for 5G pioneer bands since the first 5G handsets will initially be designed to work in a limited set of bands," says Nagpal. "However, I expect this won't last for long and that within two or three years handsets will support 5G in all the existing 4G bands."
Nagpal is also one of several industry commentators, including some high-profile operators, who think the attractions of very high frequency spectrum have been over-hyped. "The signals don't travel very far and don't go through objects, and so you will need an awful lot of basestations to cover a given area, for which the site rental costs and backhaul costs are very expensive," he says. "So I expect usage of these frequencies to be limited to hotspots, such as shopping and tourist areas."
Vodafone Group plc (NYSE: VOD)'s chief technology officer, Johann Wibergh, expressed similar reservations during Mobile World Congress last week, arguing that sub-6GHz spectrum was likely to represent the "sweet spot" for 5G. (See Vodafone CTO 'Worried' About 5G mmWave Hype.)
Aetha Consulting advises a number of operators and governments on spectrum strategy and policy, and Nagpal's remarks may help to address some of the telco concern about the prospective 5G bill.
Deutsche Telekom's Höttges reckons that deploying a 5G network across Europe could cost anything between €300 billion ($317 billion) and €500 billion ($528 billion). (See DT Plots 5G Across Entire Footprint.)
Technology innovation and the use of lower frequency bands could help to reduce the expense of 5G rollout, but there is a growing expectation that deployment will take a very long time, and that 5G will co-exist with more advanced versions of 4G LTE technology for many years. (See DT CTO: Costs Must Fall or 5G 'Won't Work'.)
"Operators will buy kit that can largely be used for 4G and then gradually move to 5G when devices come into the market," says Bengt Nordström, the CEO of the Northstream consulting group. "It is realistic to expect that a lot more 4G will happen over the next five years."
— Iain Morris, , News Editor, Light Reading