On 2 October 2018, Italy’s 5G auction came to a close, after a staggering 14 days of competitive bidding. The amount raised by the auction far exceeded the government’s expectations, reaching €6.5bn across the 700MHz, 3.7GHz, and 26GHz bands. At such a high price, it is likely that Italian MNOs will face challenges in deploying 5G quickly and efficiently. A significant amount of the money they were planning to use for network deployment has already been allocated to licences, at a time when the Italian market is also facing intense competition at the retail level. The government has stated the intention to reinvest the proceedings in ICT; telcos have to hope it follows through, to minimise the impact of a costly investment they had little choice in making. More positively, Italy became the quickest country in Europe to award the 26GHz band, with a pioneering framework for sharing to go with it, which bears potential for innovation.
The auction raised far more than expected, particularly in the 3.7GHz band
If the government’s statements ahead of the auction are to be taken seriously, it is reasonable to say that Italy’s 5G auction well exceeded all expectations, as it ended up raising almost 2.5 times as much money (€6.5bn) compared to the initial predictions (€2.5bn). The 3.7GHz band sparked the fiercest competition. While the 700MHz band was awarded after the first day of competitive bidding rounds, for a total of €2.04bn, it took 14 days (and €4.34bn) to award lots in the 3.7GHz band. This is also due to the way spectrum lots are packaged in that band (two blocks of 80MHz each, and two blocks of 20MHz each) and the fact that operators competed aggressively for the larger ones from the outset, which could have contributed to increase the final price significantly.
Eventually, Telecom Italia and Vodafone obtained the largest spectrum lots in the 3.7GHz band, for about €1.7bn each, whereas Iliad and Wind Tre paid about €483k each for the 20MHz lots. This amounts to €0.36/MHz/pop, which is almost 10 times as much as the amount spent by Finnish operators for the 3.4–3.8GHz band (€0.036/MHz/pop) and, remarkably, 7.6 times as much as the cost of the 3.7GHz spectrum in Spain, where licences are slightly longer (20 years compared to 19 in Italy). In the 700MHz band, Iliad obtained the 2x10MHz reserved to the new entrant, for €676m. Vodafone and Telecom also obtained 2x10MHz each, spending €683m and €680m, respectively. Spectrum in the 26GHz band was also awarded. Italy is the first of the EU5 to do so. Fastweb, Wind Tre, Vodafone, Iliad, and Telecom each obtained one of the five 200MHz lots, for figures between €32.6m and €33m.
The 700MHz band was also comparatively expensive, and will not be available until 2022
The auction of the 700MHz band raised much less than the 3.7GHz, but this does not mean it was awarded cheaply. In fact, spectrum in the 700MHz band also turned out to be very highly priced by international comparisons. Arguably, Italian MNOs are getting the worst value-for-money in the EU5 so far. The overall cost of €2.04bn translates into €0.56/MHz/pop; this is more than 2.5 times the value of the same spectrum in Germany (€0.20/MHz/pop). Licences in both countries will last 15 years, with the important difference that German MNOs can use that spectrum from 2019, whereas Italian operators will have to wait until 2022 for TV broadcasters to relinquish that band. French operators paid even more (€0.70/MHz/pop) but crucially, their licences will last longer, since spectrum has become available in stages across the country between 2016 and 2019.
At such a cost (and overall conditions of use), Italian MNOs have made considerable investments, the returns on which could be particularly challenging to realise. On the one hand, MNOs’ willingness to spend so much in 5G spectrum can be seen as a sign of confidence for; however, it was arguably a necessary investment, as no operator could afford being left behind in the race for 5G in the country. On the other hand, some causes for concern emerge. Not only does the very high price of the spectrum mean that MNOs will have to seek fresh funds for the actual deployment of their 5G networks; also, this auction comes at a time when the aggressive pricing strategy of the new entrant Iliad has triggered a price war, which has inevitably put MNOs’ revenues under pressure. If this continues, there will be a likely negative impact on 5G development in the country. It is therefore unsurprising that, following the auction, Vodafone’s CEO took the opportunity to remind governments that “Auctions should be designed to balance fiscal requirements with the need for investment to enable economic development. [...] It is critical that European governments avoid artificial auction constructs which fail to strike a healthy balance for the industry.”
Italy is a European leader in the award of the 26GHz band, with a promising sharing framework attached
Amid the worries sparked by an auction which could leave operators cash-strapped, one element of definite positivity is represented by the award of spectrum in the 26GHz band. Italy is the first country in Europe to complete the award of spectrum in this band; in doing so, the regulator AGCOM approved a sharing framework to facilitate innovation in this band.
Rights of use in the 26GHz band involve dynamic shared use of the spectrum between licensees of this band. Priority is given to the licensee of each specific lot; all other licensees can use the same spectrum in the areas where the licence holder is not using it. To this end, they can strike ‘reasonable and non-discriminatory’ commercial agreements, adequately sharing costs, and involve a third party to manage interferences. Licensees also face an access obligation, which requires them to make available wholesale capacity for 5G services to companies not classified, either directly or indirectly, as electronic communications providers.
In principle, this model has potential to facilitate new business models; certainly, the award of this band is very timely, and makes Italy a leader in Europe, considering that 2019 is the year when devices and terminals compatible with this band are expected to become commercially available.
