Sunday, 30 April 2017

The FCC and the ACMA: opposite ends of the spectrum

By Nick Wood, Total Telecom
Thursday 13 April 17

Two watchdogs on different sides of the planet, and with different approaches to regulating the market, end up facing similar problems.

The first thing you will notice about this week's Friday Review, is that it is being published on a Thursday. This is not some time-warping new editorial policy that completely ignores the Gregorian calendar and laws of physics. It is because tomorrow the U.K. is off on its Easter holidays. With that bit of admin out the way, let's crack on. Two spectrum stories this week served to highlight the tricky balancing act that regulators must perform in order to capitalise on the 5G opportunity. First, Vodafone Hutchison Australia (VHA) on Monday warned the government that state-owned broadband wholesaler NBN Co currently holds frequencies in the 3.4 GHz and 3.7 GHz bands that could prove vitally important for future 5G services. Later that same day, on the opposite side of the world, AT&T agreed the $1…

The first thing you will notice about this week's Friday Review, is that it is being published on a Thursday.

This is not some time-warping new editorial policy that completely ignores the Gregorian calendar and laws of physics. It is because tomorrow the U.K. is off on its Easter holidays.

With that bit of admin out the way, let's crack on.

Two spectrum stories this week served to highlight the tricky balancing act that regulators must perform in order to capitalise on the 5G opportunity.

First, Vodafone Hutchison Australia (VHA) on Monday warned the government that state-owned broadband wholesaler NBN Co currently holds frequencies in the 3.4 GHz and 3.7 GHz bands that could prove vitally important for future 5G services.

Later that same day, on the opposite side of the world, AT&T agreed the $1.6 billion (€1.51 billion) acquisition of Straight Path, which holds nationwide 28-GHz and 39-GHz spectrum; both bands are being used extensively for testing millimetre wave (mmWave)-based 5G technology and services.

On the surface, it looks like the U.S. government has once again let the market get on with what it does best, while Australia's has intervened to the possible detriment of end users.

Dig a little deeper though, and it becomes clear that when it comes to allocating frequencies, regulators need to take as longer term view as possible to make sure they are put to good use, and that the governments they serve don't miss out on potential windfalls.

"The job of a regulator is getting more complex because technology evolves all the time," noted John Naylon, CTO and co-founder of Cambridge Broadband Networks Ltd (CBNL), in an interview with Total Telecom earlier this week.

The principles of providing fair access to spectrum, ensuring efficient use of resources, and technology neutrality are fairly well established the world over, he pointed out.

Nonetheless, "regulators are feeling their way a little bit."

That seems to be the case for Australia's Communications and Media Authority (ACMA).

"Spectrum bands which do not have a clear use at one time can rapidly evolve to be prime candidates or even the only possible solution for major technology evolutions which could bring substantially higher economic benefits to Australia," said VHA, in a submission to the government's Joint Standing Committee inquiry into the NBN rollout.

The 3.4-GHz and 3.7-GHz spectrum was set aside so NBN Co could use fixed wireless technology to connect around 80,000 premises located on the fringes of metropolitan areas, outside the planned footprint of its fibre-to-the-node (FTTN) network.

Since then though, these frequency bands have been identified as suitable for mobile broadband use, including 5G, on a global basis.

"This spectrum band is the only internationally-aligned 5G band which is likely to be available in Australia," VHA claimed.

According to VHA's calculations, if the per premises cost of pushing FTTN out to these extra 80,000 customers was 50% more than the existing FTTN footprint, the total cost of the entire FTTN network would be around A$270 million (€192.36 million).

By comparison, re-auctioning the spectrum would fetch several billion dollars, the operator said, some of which could be set aside to cover the cost of NBN migrating to a new technology or frequency band.

The ACMA is not the only telco regulator that appears to have missed out on fully capitalising on 5G spectrum.

AT&T's acquisition this week of Straight Path and its nationwide 28-GHz and 39-GHz licences, in a deal worth $1.6 billion including debt and civil penalties, looks on the face of it like a great example of hands-off regulation.

But the fact is, in the 90s, the Federal Communications Commission (FCC) gave those 39-GHz frequencies away for free because they were considered worthless. The individual that was gifted the airwaves, legendary telco lawyer Leo George, sold them to fixed wireless pioneer Winstar Communications. Winstar picked up the 28-GHz frequencies at an FCC auction in 1998 for a mere $42 million (research subscription required).

Winstar expanded a bit too fast, and when the dot-com bubble burst, the debt-laden company was unable to raise enough cash to keep the lights on or pay its creditors; it filed for bankruptcy in April 2001. Winstar's spectrum licences were acquired by IDT, which spun them off in 2013 into a separate unit, called Straight Path Communications.

In November 2015, an anonymous source accused Straight Path of misleading the FCC in order to renew its 39-GHz licences. According to the source and the investigation that followed, Straight Path deployed network equipment solely to convince the FCC that it was fulfilling its obligation to put its spectrum to use. Once the renewals were granted, the equipment was taken down again.

Under a settlement with the FCC reached this January, Straight Path agreed to pay a $15 million fine and return 196 of its 39-GHz licences to the regulator. It also agreed to sell its remaining frequencies within 12 months to avoid a further $85 million fine. 20% of the sale proceeds are payable to the U.S. Treasury.

That brings us more or less up to this week's AT&T deal.

This long and winding tale shows that two telco watchdogs with vastly different approaches to regulating the market can still end up facing similar problems.

In the ACMA's case, it allocated spectrum for a state-run fixed wireless service for hard-to-reach areas, but now it faces the prospect of possibly re-allocating that spectrum in order to make better use of it.

For the FCC, it gave away a huge chunk of spectrum for free to a private entrepreneur who, unlike the FCC, saw the frequencies' true potential. However, in the 23 years since then, nothing of great consequence has been done with that spectrum, and FCC intervention was necessary in order to ensure things didn't stay that way.

The lesson in all this? Predicting the future is difficult and hindsight is always 20/20, but it is worth considering that what makes sense in the short term could be storing up trouble for later. Ultimately, it seems that with spectrum, it pays to play the long game.

Speaking of things that are long...As mentioned earlier, the U.K. gets an extended weekend to mark Easter, which means Total Telecom will be back online next Tuesday.

To everyone who is off work for the next four days, have a great holiday, and to everyone who isn't, we shall see you soon!

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