In July, we started the series entitled EC White Paper, where we present Telefónica’s contribution to the public consultation on the White Paper. As a result of this consultation, the Commission will present a legislative proposal, the Digital Networks Act, which will determine the future of the European Union and the telecommunications sector over the next decade through a new regulatory framework.
The first post analysed the proposed future for the telecommunications sector. The second post identified the new challenges facing the new Commission. The third post addressed the Internet imbalance. The fourth post explained the challenges of access regulation. The fifth post delved into whether the regulatory model limits innovation in the telecoms sector. In the sixth post we explained the relevance of Taxonomy to mobilise investment towards more efficient next generation networks. In this seventh and final post we reflect on the design of a new spectrum policy that incentivises investment in connectivity, making life easier and more profitable for European citizens and more competitive for our businesses.
Spectrum policy as a tool to incentivise investment
We do not need to go into great length describing the loss of investment capacity in the sector in recent years. Just recall that the sector’s revenues in Western Europe are now 15% lower in current Euro terms than at the peak of the mid-2000s, with a particular impact in Southern European countries, which have seen declines of 40% in Italy and Greece and 35% in Spain. Analysts’ expectations for the future are for growth below inflation, well below other sectors such as digital services with which we compete for funds to finance new investments.
Spectrum policy has not been a mere witness to this situation. With nuances depending on the country, the reality is that the sector’s lack of attractiveness for investors is in large part caused by auctions that have revenue as a relevant objective and by spectrum reservations that facilitate access to frequencies on preferential terms to new entrants or other users that in one way or another compete with mobile operators.
Telefónica proposes three axes on which to build future spectrum policy, making it a tool to restore confidence and facilitate investment:
- increase certainty over the renewal of spectrum licences supporting existing networks,
- allocate additional spectrum to enable growth, innovation and meet future demand for 5G Advanced and 6G mobile services,
- and establish an institutional framework to ensure that future allocations are made in return for fair and reasonable investment commitments.
Renewal of licences
One of the main concerns of operators and their shareholders relates to the uncertainty associated with the expiry of spectrum licences that are being used to provide coverage and capacity to our networks. The possibility of not obtaining the renewal of these rights, or having to do so at very high prices, is a high risk that impacts the valuation of the company and slows down investment. In some ways, the way in which operators access spectrum in Europe has generally resembled a short-term rental regime rather than an ownership or long-term lease regime, and it is understandably difficult for a tenant to consider investments associated with an asset to which it has only a temporary right.
The current European Electronic Communications Code has already attempted to change this situation by requiring Member States to consider the possibility of extending licences well in advance. In Spain, the duration of all licences has been extended by 10 years at no extra cost, taking the duration of most licences to 2040 and beyond, and increasing the certainty of future renewal, all in order to encourage investment in 5G and future 6G deployments. Other countries such as France, Germany, Portugal or the Czech Republic have taken similar steps in what we believe is the right direction.
The future Digital Networks Act is an opportunity to consolidate this trend and trigger a process that should lead to the transformation of existing licences into indefinite licences, with the possibility of recovery by the State in exceptional and predefined circumstances, similar to the existing framework in the UK and the US. This would increase the necessary certainty over the large number of usage rights that expire between 2025 and 2035.
New frequencies to support future services
Traffic flowing over mobile networks continues to grow, with substantial incremental traffic volume added each year that needs to be addressed. Ericsson’s latest report for example estimates that traffic in Europe has grown by 20% between 2023 and 2024, excluding fixed wireless traffic, and will double between 2025 and 2030. Without additional spectrum for mobile networks it will be very difficult to increase capacity in a sustainable way to cope with this growth.
Even more important is the fact that there are many applications of mobile connectivity to be explored, from drone use to the connected car, virtual/augmented reality, and other applications that will be supported by 6G. It is not possible to wait for all these applications to become a reality before trying to find new spectrum for them. Progress often works in the opposite direction: it is the security of available spectrum that removes barriers to innovation, makes it possible and shapes it. Action is needed now to ensure that spectrum is available in the future to enable innovation in mobile services.
Spectrum is a scarce asset, especially at frequencies where enough power can be transmitted to serve large areas, allowing signals to travel long distances and penetrate walls or other obstacles. It would be a mistake to assume that mobile networks, which can best exploit these characteristics to serve millions of European citizens, have fulfilled their mission, have no new innovations to contribute and therefore do not require new frequencies. The new Digital Networks Act must take this into account and introduce mechanisms to ensure that allocation decisions are made based on rigorous demand and cost-benefit impact analyses.
In the short term, we are in time to introduce the considerations of the previous paragraphs into the debate on the harmonisation of the 3.8-4.2 GHz and 6 GHz bands, with decisions that send a clear signal of more spectrum availability for mobile networks, helping this way to change investors’ expectations.
The possibility for mobile networks to access the 3.8-4.2 GHz band seems to have been ruled out a priori, without in-depth analysis, due to pressure to reserve and allocate it, at a very low price, for uses that may be in direct competition with mobile operators services, such as the deployment of local mobile broadband networks or private networks.
In the case of the upper part of the 6GHz band, there is strong pressure to gain access to spectrum at no cost for the expansion of WiFi network capacity, mainly for the deployment of private networks in enterprises using this technology. It is essential that the 700 MHz available in the upper part of the 6 GHz band is allocated in Europe to public mobile networks without unnecessary power constraints, to meet the citizens future demand of mobile services and to ensure the evolution of 5G and the implementation of 6G.
An institutional framework that prioritises investment and coverage over payments to the state
Facilitating renewals and bringing new spectrum to market is, however, not enough. Assignments also need to be made through well-designed processes and reasonable compensation. We believe that the current framework can be improved, and that it would be good to move towards a more formal and transparent procedure for communication of proposals between Member States and the European Commission.
Such a new procedure should be underpinned by the broadest possible consensus on the objectives to be pursued by spectrum policy and how to achieve them. The “connectivity toolbox” jointly developed by the Commission and Member States between 2020 and 2021, included a comprehensive section with concrete measures to design spectrum assignment processes with the objective of maximising investment. This seems to us to be a good starting point.
