Spectrum Refarming: Roll-out 3G services on 2G spectrum

SpectrumRecently European Union officially ratified the updated GSM Directive which allows 900MHz frequency to be used for 3G and eventually 4G. This means governments across the region will now be obliged to allow operators to use 900 MHz spectrum band to roll out 3G and other high-speed technologies. The usual spectrum band for 3G services is 2.1 GHz but many operators are planning to use the existing 2G spectrum (850 MHz and 900 MHz) for 3G services.

Spectrum refarming is one of the most significant regulatory but those with 900MHz assets see refarming as a threat to their competitive advantage as well as to the quality of their networks. Although operators may feel threatened by the prospect of losing their existing spectrum assets, the opportunity to expand coverage and reduce costs outweighs any hesitation they may have about service deterioration or loss of market share from reduced spectrum holdings.

Generally speaking, refarming may be seen as process constituting any basic change in conditions of frequency usage in a given part of radio spectrum. Such basic changes might be:

  • Change of technical conditions for frequency assignments
  • Change of application (particular radio communication system using the band)
  • Change of allocation to a different radio communication service.

Before we move further, it would be useful to understand the generic spectrum usage plan. The diagram below shows the how the different frequency bands are being used for different purposes.

Spectrum Map

Key Benefits of UMTS 900

  1. UMTS-CAPEX ImpactCoverage – Ovum’s analysis indicates that UMTS900 provides between 44% (in urban areas) and 119% (rural areas) increased coverage per Node-B compared with UMTS2100. This is primarily due to the propagation characteristics of the lower frequency band.  All 3G applications can be provided and used cost efficiently over much larger area as the coverage radius in 900 MHz is almost double than that of 2100 MHz spectrum
  2. Cost Effective –Radio wave propagation loss is less in 900 MHz, so fewer base stations are required leading to cost savings of around 50–70% compared with networks deployed in 2100MHz core-band 3G spectrum. These coverage and cost-saving benefits mean that operators can bring 3G services to less-densely populated areas that were previously uneconomical to cover
  3. Better Quality of Service (QoS) – Since fewer base stations are required for UMTS 900 roll-out than UMTS 2100, the customer experience is better due to fewer hand-overs. Lower frequency band have a higher in-building penetration. Over 70% of phone calls are now made indoors and UMTS 900 can help improve the Quality of Service (QoS)

Regulatory status of spectrum refarming worldwide

As mentioned earlier, the European Union has already ratified the GSM directive on spectrum refarming and it is obligatory on part of its 27 member countries to change their laws in line with this directive. However, in most of the countries, it is up to the individual Governments to allow UMTS 900. It is necessary in some countries to re-arrange the band allocations by agreement with network operators in order to enable GSM & UMTS900 in 900 MHz spectrum.

Operators who have launched commercial 900 MHz 3G services

13 operators have UMTS 900 networks across the world till date but the reasons for the roll-out on 900 MHz vary from operator to operator.

UMTS 900 Network List

Optus Australia launched UMTS 900 to increase its coverage. With a combination of 900 and 2100 MHz, it managed to increase its coverage to 96% of population. AIS in Thailand launched UMTS 900 as the 3G spectrum (2100 MHz) auction was getting delayed. Elisa launched UMTS 900 to save costs.

UMTS 900 Device Market

As per GSA HSPA devices survey conducted in October, 2009, 190 UMTS-900 HSPA devices have been launched in market by 34 suppliers (this includes 39 USB dongles). Most of the HSPA handsets now have 900 MHz support as well.

Will the operators completely switch off 2G in favour of UMTS900

The operator business is getting complex with many operators having to manage 2G, 3G and LTE networks. It is expected that with the stabilization of LTE by 2016/17, the operators would switch off their 2G networks (so far Japan is the only country to switch off 2G networks). However, due to the migration to UMTS 900, it is possible that the operators switch off the 2G networks much before the expected timelines. This would help the operators save on opex for running multiple networks and would also make the operations less complex requiring fewer people. The 2G network can be sold off to new operators coming up in emerging countries. However, there are a few challenges that would hold the operators back from switching off 2G networks:

  • Migration from 2G to 3G handsets: Though the spectrum band would remain the same at 900 MHz, the 2G users would need to replace their handsets to be able to use the 3G network. The carrier would need to provide handset subsidy to encourage the users to replace their handsets but then the benefits have to be substantially higher than the costs involved
  • Inroaming Revenues: With the voice tariffs dipping, the roaming revenues are a significant portion of the revenues. In case an operator decides to switch off the 2G networks, the users from other 2G networks will not be able to log on to the operator’s network. This loss of revenues may not be sufficiently covered by any opex savings or ARPU upside
  • 1800 MHz: Many 2G networks are on 1800 MHz. UMTS 1800 is still not a viable option given the low ecosystem support. Apart from this, many operators may be holding both 900 and 1800 MHz spectrum and optimizing between the two. In this situation, the operator may not want to switch off 2G network

Another interesting option is that the operators carve out a portion of their 900 MHz spectrum for 3G roll out while retaining the rest for 2G. This would allow them not to participate in the 3G spectrum auctions and have substantial savings. Are the Indian operators listening?

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