August 23, 2013

Should National Telecom Regulators Impose Buildout Requirements on Operators?

Photo credit: fingle / Foter / CC BY-NC-SA

In the mobile operator space in many countries, the national regulators are imposing so-called “buildout requirements” as a license condition on many wireless providers. In some countries, these requirements are restricted to licenses awarded by the auction process (e.g., cellular access spectrum) or block allocations while in others these conditions are attached to the majority of licenses.

Where buildout requirements are employed, a license typically has a clause that requires the licensee to build out a network/link or specified portion of a network within a certain period of time, with penalties imposed for failure to do so.

The rationale behind imposing these requirements is to ensure that after spectrum is assigned it is put to its intended use without delay. By doing this, or so the theory goes, bidders are discouraged from acquiring spectrum with the sole intent of blocking competitors’ activities without themselves offering service. Of course, the ultimate goal is the protection of spectrum—a finite and precious resource. There is no reason buildout requirements cannot be attached to any license grant, assuming that the detail of the requirements recognizes any constraints of the application for which the spectrum is sought.

Nevertheless, Aviat Networks is strongly against auctions and block allocations, but where these are a necessity then buildout requirements must be part of any award, with strong enforcement rules. The problem is that with strong enforcement operators and regulators can be at loggerheads and get tied up in court with lawsuits and countersuits for years. For example, in the U.S. you have the case of Fibertower. The FCC claims that Fibertower deliberately underbuilt its network and so moved to revoke its spectrum licenses. With the regulator moving against the operator, it came under insurmountable financial pressure and filed for bankruptcy. But even now, the operator’s creditors are fighting the FCC in order to recoup frequencies valued at more than US$100 million. So it is questionable whether this actually works in practice.

Microwave is the point
Focusing on point-to-point microwave, let’s examine the approach taken in two different countries. In the United States, for traditional link-by-link allocation, the FCC imposes an 18-month deadline by which time the link in question needs to be in service. However, in the United Kingdom, Ofcom imposes no such deadline. For certain applications, certain routes and sites are critical and can quickly become “full.” If these key locations are being filled by license applications that are not being translated into operational services, then this spectrum is effectively wasted as no one else can use it, nor is there any service being offered. Spectrum wasted in this manner reduces overall spectrum efficiency, and all spectrum authorities are motivated to ensure that spectrum is used in the most efficient way possible.

Of course having these rules is fine, but what happens when the rules are breached? In some cases, an operator will apply for an extension prior to the expiration of the original deadline; this may or may not be granted. However, the real test is what happens when the deadline passes. Ideally, what should happen is that the license(s) in question would be revoked and the associated spectrum made available for reallocation. Furthermore, if the spectrum in question was originally made available by block allocation or auction, then again, ideally, this spectrum should be returned to the pool of spectrum available for link-by-link licensing.

Additionally in shared bands, i.e., spectrum shared by the Fixed Service (FS) and the Fixed Satellite Service (FSS) should be governed by the same requirements in this instance. Therefore, unused/defunct FSS allocations/licenses should also be revoked with the spectrum being made available for reuse. In the case of FSS locations, this can have a significant effect owing to the geographic full-arc protection area that is usually associated with earth stations.

Counterpoint
The alternative viewpoint is that the current buildout requirements are counterproductive, in their aim to foster efficient use of spectrum. One reason cited for this view is that it takes time for an equipment supply ecosystem to develop, which will serve the spectrum users. However, when we examine this claim more carefully, it seems that this is often used where the spectrum has been awarded to a single user either by block allocation or by auction. We have written before about how auctions and block allocations are unsuitable for point-to-point microwave, and the claim above is a direct result of this process, which negatively impacts the number of operators. In turn, that reduces the ranks of equipment vendors, leading to thinner competition and, therefore, decreased incentive for innovation. This situation is made worse if the operator in question chooses a band plan that is nonstandard in terms of either existing U.S. or international arrangements.

Signal termination
In the final analysis, it does not serve any stakeholders’ goals to have valuable spectrum allocated but unutilized. Thus, having buildout requirements would appear to be a good idea. But along with that, an effective mechanism for reclaiming and making available to others spectrum that runs afoul of these rules is paramount to making the process work for the Greater Good. In Aviat’s view, buildout requirements are a valuable tool in ensuring spectrum efficiency and as such, their use should be seriously considered in all countries.

Ian Marshall
Regulatory Manager
Aviat Networks

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