3G Licensing Methodologies and
Conditions
ITU Regulatory Meeting
for the Arab Region
April 2003
LYNNE DORWARD
LADCOMM CORPORATION
3G Licensing Methodologies and
Conditions
Basic Steps in the
Licensing Process
2
LADCOMM CORPORATION
April 2003
3G Licensing Methodologies and
Conditions
There are multiple complex steps involved in
the licensing process
1) Band selection (5 stages)
2) Development of the appropriate licensing
methodologies
3) Determining a fair price for the licences
4) Implementing the licensing process
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LADCOMM CORPORATION
April 2003
3G Licensing Methodologies and
Conditions
Band Selection
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LADCOMM CORPORATION
April 2003
3G Licensing Methodologies and
Conditions - Band Selection
Multi-stage process for new spectrum allocations
1.
2.
3.
4.
5.
5
Study existing spectrum uses
Make allocation decision
Initiate rulemaking to solicit public comment
on frequency allocation
If necessary, relocate incumbents or
implement sharing criteria
Develop service/technical rules that will
govern licensees
LADCOMM CORPORATION
April 2003
3G Licensing Methodologies and
Conditions: Band Selection– Stage 2
Make allocation decision
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“Allocations” are blocks, or bands, of
frequencies established for a type of service
such as land based mobile service
Analyze public need and benefit
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market demand for IMT-2000 service
social and economic importance of service
implications for existing services
LADCOMM CORPORATION
April 2003
3G Licensing Methodologies and
Conditions: Band Selection– Stage 3
Initiate rulemaking to solicit public comment on
frequency allocation and technical and service rules
Consider
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–
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Technical rules necessary to protect other users of
the spectrum against harmful interference from a
particular use
Service rules to foster competition among service
licensees and ensure that systems are built out
rapidly
LADCOMM CORPORATION
April 2003
3G Licensing Methodologies and
Conditions: Band Selection - Stage 5
Develop service/technical rules that will
govern licensees
Technical
–
May include maximum transmitter power levels, outof-band emission limits
Service
–
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rules
rules
May include eligibility requirements, size of
designated service area, amount of spectrum to be
licensed and build-out requirements
LADCOMM CORPORATION
April 2003
3G Licensing Methodologies and
Conditions: Band Selection – Stage 5
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Technical Considerations
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Equipment Limitations
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Necessity for service to use particular frequency
Amount of spectrum required
Signal strength required for service
Is interference likely to be encountered
Upper practical limits of the useful radio frequency
spectrum, including anticipated limits due to
technological advances
Operating characteristics of transmitters, including
size, cost and technical considerations
Receivers available and being developed
LADCOMM CORPORATION
April 2003
3G Licensing Methodologies and
Conditions
Licensing Methodologies
10
LADCOMM CORPORATION
April 2003
3G Licensing Methodologies and
Conditions
The 3G
Licensing Process So Far
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LADCOMM CORPORATION
April 2003
3G Licensing Methodologies and
Conditions – Methodology Overview
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Licensing methodologies for 3G are a new
phenomena: barely three years old
Like any new process, there have been missteps and
growing pains in the process
In the case of 3G, some of the original licensing
approaches have had a major impact on the entire
telecommunications market:
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The fallout is still being experienced
Some investors have been scared away (mainly in Europe)
Other operators are delaying 3G tenders
Generally, the licensing methodologies and processes
have been more successfully implemented in Asia
LADCOMM CORPORATION
April 2003
3G Licensing Methodologies and
Conditions - Asian 3G Licences

To date, the market is almost evenly split between
beauty contests and auctions:
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3 beauty contests (all with fixed fees)
3 auctions
2 direct awards (one with revenue sharing scheme)
Average licence term is 15 years
Most licences transferable with restrictions
Limited coverage and service launch obligations
In South Korea and Malaysia, not all licences were
awarded due to bidders’ inability to meet qualification
criteria (3rd S. Korean licence was eventually awarded)
LADCOMM CORPORATION
April 2003
3G Licensing Methodologies and
Conditions - European 3 G Licences
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EU directives have greatly influenced licensing process
throughout Europe (even non EU countries)
Results to date:
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9 beauty contests (8 with fixed licence fees)
11 auctions
4 direct awards (3 with no licence fees)
Average licence term almost evenly split between 15 & 20 yrs.
Most licences are transferable with some restrictions (e.g.
cannot be transferred to dominant incumbent)
In many instances, there are stringent coverage and rollout
requirements, many of which cannot presently be fulfilled
Some initial licences subsequently declined and other
awarded licences under review by licensee or have already
been returned to regulator/government
LADCOMM CORPORATION
April 2003
3G Licensing Methodologies and
Conditions– Licence Costs and Impact
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After initial European UMTS bidding frenzy in 2000, regulators and
governments had to significantly lower expectations; bidders
strongly indicated their reluctance to pay early stage prices
Many processes faced long delays or were unsuccessful due to
unrealistic expectations - for example:
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France compelled to lower fixed licence fee from $4.5B US to $570M;
not all licences awarded (only 2 out of 4 initially, with 3rd eventually
awarded 4Q 2002)
Belgium valuations low (only 3 bids for 4 licences)
Poland had to reduce licence fees and number of licences (original
$650M US reduced to $223M and 5 licences reduced to 3) and
reschedule entire licence process
Czech licence fees considerably lower than anticipated with some
incumbents declining to bid for licence
Business cases for new market entrants are questionable where
high licence prices have been paid
LADCOMM CORPORATION
April 2003
3G Licensing Methodologies and
Conditions: Asian Costs per Pop
$25.00
$US
South Korea
$20.00
$15.00
Taiwan
Singapore
$10.00
$5.00
New Zealand
$0.00
Mar-00
Japan
Jun-00
Australia
Malaysia
Oct-00
Jan-01
Apr-01
Jul-01
Nov-01
Feb-02
May-02
Sep-02
*Hong Kong is not included in graph due to revenue sharing formula rather than straight
licence fee
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LADCOMM CORPORATION
April 2003
3G Licensing Methodologies and
Conditions: European Costs per Pop
$140.00
$US
$120.00
UK
$100.00
Germany
$80.00
$60.00
Slovenia
$40.00
Italy
Netherlands
Denmark
$20.00
Liechtenstein
$0.00
ce
De
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Belgium
Austria
Greece
France
Poland
Switzerland
Norway
Sweden
Isle of Man
Spain
Finland
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LADCOMM CORPORATION
/01
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Ap
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Czech Republic
Ireland
Luxembourg
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April 2003
3G Licensing Methodologies and
Conditions – Conclusions
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Licensing methodologies for 3G are stabilizing as
regulators, governments and investors learn from
earlier mistakes
It is likely that regulators will be more inclined to allow
market and operator flexibility
There is now enough historical data to consult and
there is also ready access to groups experienced in 3G
licensing
Now that licensing methodologies and market
expectations are more mature, for those who have not
yet introduced 3G, it will be much easier to define the
right licensing balance
LADCOMM CORPORATION
April 2003
3G Licensing Methodologies and
Conditions
Determining a Fair Price
for the Licence
19
LADCOMM CORPORATION
April 2003
3G Licensing Methodologies and
Conditions – Determining a Fair Price
The major challenge of a 3G licensing
process is to structure it in such a way that
it is sufficiently inviting to attract potential
bidders/investors while at the same time
satisfying the government’s goals and
objectives.
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LADCOMM CORPORATION
April 2003
3G Licensing Methodologies and
Conditions: Possible Approaches in
Determining a Fair Price

Auction
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Beauty Contest
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Beauty contest – no licence fee
Beauty contest – fixed licence fee
Direct Award (First Come, First Served)
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
Straight auction
Auction with pre-set conditions e.g. service and/or
coverage and/or roll-out requirements
Generally to incumbent operators
Lotteries
LADCOMM CORPORATION
April 2003
3G Licensing Methodologies and
Conditions: Possible Approaches Auctions
PROS
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Speed of process
Generally costs less to
administer than a beauty
contest
Entity which places highest
value on licence wins
Spectrum is public resource
so revenues benefit citizens
Promotes efficient, high value
use
Ensures transparency of/lack
of bias in licensing process
Minimizes post bid
challenges/interventions
LADCOMM CORPORATION
CONS
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May result in increased
concentration in industry
rather than increased
competition
Likely to discourage new
entrants
High licence price may restrict
operator’s ability to extensively
deploy network
May ignore non-financial
public interest objectives
Revenue potential could
create incentive to restrict
output and raise prices
April 2003
3G Licensing Methodologies and
Conditions: Possible Approaches Beauty Contests
CONS
PROS
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Awards licence to applicant
who would best serve public
interest
Supports government
objectives/initiatives e.g.
providing service to remote
areas, social obligations etc.
Entity which places highest
value on licence wins
Allows for equity
considerations
Ensures that bulk of
investment is directed at
rapid network deployment
LADCOMM CORPORATION
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Time consuming process
Greater cost to administer the
process
Less transparent than other
techniques
Sets the stage for government
to determine what the market
wants
No process to deal with a tie
More susceptible to post bid
challenges/interventions
April 2003
3G Licensing Methodologies and
Conditions: Possible Approaches Lotteries

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PROS
Speedy process
Provides rules for a tie
Less likely to be
challenged
LADCOMM CORPORATION


CONS
It is possible for an
unqualified party to win
The resellers may benefit
rather than the public
April 2003
3G Licensing Methodologies and
Conditions: Possible Approaches First Come, First Served



PROS
Speedy process
Inexpensive to
administer
Less likely to be
challenged




25
LADCOMM CORPORATION
CONS
It is possible for an
unqualified party to win
The resellers may benefit
rather than the public
May not end up in the
hands of an entity who
most values the licence
The licence value is not
taken into account
April 2003
3G Licensing Methodologies and
Conditions
Implementing the
Licensing Process
26
LADCOMM CORPORATION
April 2003
3G Licensing Methodologies and
Conditions: When Auctions Are Unsuitable
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Where no mutual exclusivity exists
Where licensees would need to participate in
multiple auctions for a single system (e.g.
satellite operators)
Where the free market does not easily value
the services (e.g. public safety, national
defence)
Where shared use of the spectrum, whether on
a licensed or unlicensed basis, proves more
efficient
LADCOMM CORPORATIONLADCOMM CORPORATION
September
2002
April 2003
3G Licensing Methodologies and
Conditions – Auction Elements

Decide on the structure of the auction and how the process
is to be managed e.g.:
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one round or simple (open or closed)
multiple-round auctions (sequential or simultaneous)
Determine the reserve price, if any, and what the approach
will be in the event that the reserve price is not met
Establish a clear policy regarding bid deposits and under
what circumstances, if any, these deposits will be returned
Take the necessary steps to ensure that the bidding process
will be completely secure (no consultation or price fixing
between bidders)
Make sure that the payment schedule is unambiguous with
control mechanisms in place to deal with non payment
LADCOMM CORPORATION
April 2003
3G Licensing Methodologies and
Conditions – Beauty Contest Elements
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Define evaluation criteria and scoring mechanism; ensure they
are defendable and that evaluators are qualified and objective
Clearly scope out commitments which may form part of the
beauty contest submission; define acceptable parameters e.g.
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Required commercial launch date
Coverage commitments (population, geographic)
Network deployment schedule
Roaming requirements
Quality of service objectives
Tariff scheme
Job creation requirements or other social obligations
Ensure that there are appropriate review and control
mechanisms in place to deal with the winning operators’
potential failure to meet licence commitments
LADCOMM CORPORATION
April 2003
3G Licensing Methodologies and
Conditions – Current Considerations
These factors are not insurmountable challenges
but rather, reminders to ensure a rational process.
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Operator/Investor Fatigue
Increasing caution at corporate Board of Directors level
Globally depressed telecom valuations
Some market consolidation taking place
General scarcity of project and vendor financing
Conflicting views regarding 3G revenue potential
2G market saturation in many companies/countries
LADCOMM CORPORATION
April 2003
3G Licensing Methodologies and
Conditions - Foundation for A Successful
Process
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Study other 3G licensing processes to identify strengths
and weaknesses; learn from the successes and
mistakes of others
Find out anticipated timetables of other 3G licensing
processes; if possible, avoid simultaneous competition
Confirm that there are no regulatory or legal
impediments to the 3G licence process
Make sure that the process is well publicized globally
and that licensing documentation is easy to obtain
Publish draft licensing conditions (including fixed licence
fee or auction reserve price) in advance and solicit
bidder input - gain consensus
Clearly define any pre-qualification requirements
LADCOMM CORPORATION
April 2003
3G Licensing Methodologies and
Conditions– Factors to Consider in Fee
Setting
These factors apply for both beauty contests with
fixed fees or for reserve prices with auctions
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Availability of 2G and 3G spectrum (easily obtainable
or rare commodity?)
Number of 3G licences being awarded (more licences,
less value)
Degree of existing competition in mobile market
Mobile penetration level in country (potential for further
growth)
Recent international and regional benchmarks
LADCOMM CORPORATION
April 2003
3G Licensing Methodologies and
Conditions
Appendices
33
LADCOMM CORPORATION
April 2003
3G Licensing Trends - Asia
Price per pop calculated using total country population and average licence fee in instances where
there is a range of fees
34
LADCOMM CORPORATION
April 2003
3G Licensing Trends - Europe
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Price per pop calculated using total country population and average licence fee in instances where there is a range of fees
LADCOMM CORPORATION
April 2003
3G Technology Standards
IMT-2000 Terrestrial Radio Interfaces
IMT-2000
CDMA
Direct Spread
IMT-2000
CDMA
Multi-Carrier
IMT-2000
CDMA
TDD
IMT-2000
TDMA
Single Carrier
IMT-2000
FDMA/
TDMA
WCDMA
(UMTS)
CDMA2000
UTRA TDD &
TD-SCDMA
UWC-136/
EDGE
DECT
3G CDMA
Although there are five terrestrial standards, most of the attention
and energy in the industry has been toward the CDMA standards
36
LADCOMM CORPORATION
April 2003
3G Technology Bands
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The ITU has identified five bands for IMT-2000
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806-960 MHz
1710-1885 MHz
1885-2025 MHz
2110-2200 MHz
2500-2690 MHz
IMT-2000 technologies can be deployed in all
of these bands as well as in any band allocated
for mobile services
Ref: World Radio Conference – 2000 (WRC-2000) Istanbul, June 5, 2000:
Footnote S5.388 is associated with Resolutions 212 and 223 (the 1.9 and 2.1 bands)
Footnote S5.384A is associated with Resolution 223 (the 1.7 and 2.5 bands)
Footnote S5.317A is associated with Resolution 224 (the 800/900 bands)
37
LADCOMM CORPORATION
April 2003