Ofcom completes UK 5G spectrum auction

Ofcom has today announced the outcome of the principal stage of its auction to release airwaves for 4G mobile and future 5G services in the 2.3GHz and 3.4GHz bands. In the auction, Vodafone spent the most of all operators, O2 acquired all of the available spectrum at 2.3GHz and and BT/EE's share of spectrum fell as per the auction rules.

Matthew Howett, Founder & Principal Analyst at Assembly comments:

"Despite Three having made the most noise about the rules of the auction, it was perhaps O2 that had the most to lose, being the operator that probably needed more spectrum the most. The outcome is a particularly good result for them.

Even though the auction raised a fraction of the amount of the 4G auction or even the 3G auction two decades ago, the prices paid are above expectation which shows how valuable these airwaves are to operators, particularly given the emerging hype around 5G. 

However an unsatisfactory outcome in this auction was never going to necessarily spell the end to any one operators 5G future given that the technology will ultimately work across a number of spectrum bands, both new ones and ones already held by the mobile operators."

The EC’s Digital Tax faces a long road ahead

The European Commission has today launched a new proposal to adapt the taxation system of the digital economy, in which value is created in countries where a business does not have a physical presence. The EC proposes to introduce a taxable “digital presence”, fulfilling one of three criteria (at least €7m turnover per year in an EU country; more than 100,000 users in a member state in a year; or more than 3,000 business contracts in a state in a year). It also proposes an “interim tax”, which will apply to revenues created from online advertising.

Luca Schiavoni, Senior Analyst at Assembly, comments:

"The idea of a digital tax has been a long time coming, and, while it might not be welcomed by big tech companies, it is hardly a surprise. So much so, that some of them were already changing the way they book their income to pay taxes where they make their profit (for example, Facebook started doing it for some countries in 2016).

Today’s proposal of the EC will nonetheless face significant obstacles. Despite many member states’ appetite for a taxation system which allowed them to get more out of big tech, some countries with a lower corporate tax rate will no doubt try to amend it. Other stakeholders are also concerned: EU E-commerce businesses have already warned about a revenue-based tax for digital platforms, which would turn into an export tax for EU SMEs.

The EC is launching this proposal at a time when the OECD has come up with a comprehensive report on the same topic, which points to the risks of economic distortion and higher costs for business. The Commission is trying to act quickly (more quickly than the OECD itself), which is aiming to have an agreement in place by 2020. However, given the wide disagreements, it might end up being a fruitless effort – even the interim tax will have to be agreed upon by member states, which will take time.

Commissioner Moscovici also stressed that the interim tax is not against “GAFA” (i.e. Google, Apple, Facebook, Amazon) or against US firms; however, those companies are likely to be the ones most affected. While on the one hand this strengthens American concerns about tax; on the other it shows the underlying problem of European firms still struggling to compete with the world’s online giants."

Telecom Italia approves network separation plan

On 6 March 2018, Telecom Italia (TIM)’s board approved a plan to move the company’s fixed network assets into a legally separated entity, which will still be part of the group and will be 100% controlled by TIM. According to the plan, access to the network will be granted through a ‘one-stop-shop’ access point for regulated and unregulated wholesale services for all operators including TIM, delivering a 'fully neutral and equivalent' model.

Luca Schiavoni, Senior Analyst at Assembly comments:

“Several factors contribute to TIM’s decision. It is perhaps striking that, despite the currently changing political landscape in the country, the board decided to approve the plan without waiting for a new government to take power. On the one hand, this is because nearly all the main political parties in Italy have taken the stance of the need to have a separated fixed network, which means that political pressure for this to happen would have likely continued under the new parliament. On the other, the market in Italy is evolving in such a way, that it is now a good time for TIM to make the spin-off.

In particular, the rise of wholesale-only provider Open Fiber has, for the first time since the liberalisation of Italy’s telecoms market, put significant pressure on TIM’s future wholesale revenues, currently around €2bn per year and forecast to decline by about a third by 2022. Alternative operators quickly warmed to Open Fiber’s arrival on the market, which is now starting to give them an alternative to TIM’s network. For years, these operators have raised concerns about access conditions and TIM’s way to satisfy their access requests.

For now, it is hard to make predictions about ownership of the network. TIM will be the sole owner for the time being, though political pressure and changes in market conditions could result in new investors (both private and public) coming into the netco. It will take at least one year before things become clearer on this front.”

Stakeholders unhappy with spectrum deal as part of the EECC code

On March 1, 2018, the European Commission, the EU Parliament, and the EU Council reached a preliminary agreement on parts of the forthcoming European Electronic Communications Code, related to spectrum policy. The agreement includes the availability of spectrum for 5G in the EU by 2020; a 20-year period of ‘investment predictability’ for spectrum licences; and enhanced coordination and peer review of planned radio spectrum assignment procedures.

Luca Schiavoni, Senior Analyst at Assembly comments:

"Thursday’s agreement obviously brings the EU one step closer to having a framework for 5G – a drum which policy makers and the industry have beaten hard in the last few weeks, particularly in Barcelona at MWC. However, there is little to cheer about, as once again the distance between different institutions has emerged, and compromises mean nearly everyone is unhappy.

The 20-year period for licences’ length is probably too little, too late, and is certainly seen as such by the industry, whose appetite was whetted by the EC through a promise of 25-year long permits in the initial proposal. Governments, on the other hand, tried to push for a 15-year period, as they have an interest in retain more control on the resource and its frequency of award.

Some stakeholders, such as ETNO, have already voiced their discontent, and they are likely to be joined by others. They very much have a point – progress in 5G deployment in other regions, such as the US, shows that investment is key, and requires a favourable regulatory environment. EU institutions maintain they want 5G commercially available by 2020, though it is currently unclear whether they will even be able to ensure the necessary spectrum awards will have taken place by that deadline."