Life after UMTS in Spain
Contents
General Overview
Spectrum Situation
Scope
Timing
Opportunity Knocks
Acknowledgment
Two days before the country's general elections on March 12, the Minister of Development, Rafael Arias-Salgado, announced the granting of sixteen licenses for telephony and radio, which will definitely modify and shape the Spanish communications sector for the next years.
Six of the Spanish licenses are the so-called Wireless Local Loop (WLL), which should break Telefónica's control of the local loop. The other ten licenses will introduce digital technology to the Spanish radios. Decisions for the Universal Mobile Telecommunications System (UMTS) licenses were announced three days later, right after the election's results. As the Minister of Development explained, the decision about the UMTS licenses had already been taken on March 10, together with the rest of licenses granted. However, given that the country's general elections were on March 12, the government did not want to make public the UMTS decisions to avoid any attacks coming from the opposition.
The decisions of the WLL tender were published in two Orders of March 8, 2000, one for the WLL at 3.5 GHz and the other one for the WLL at 26 GHz. The UMTS results were published in another Order dated March 10. Given that some of the applicants were consortia of different companies, it is interesting to see below which companies participated in each of the winning consortia. Three UTMS licenses were granted to the Spanish trio of existing mobile operators:
- Telefónica, (incumbent operator)
- Airtel, the number two mobile operator (controlled by BT and Vodafone AirTouch)
- Amena, the mobile unit of Retevisión (the second fixed-line carrier, which is controlled by Telecom Italia).
It is important to note that Spain is one of the first countries having awarded the third generation (3G) licenses. At the moment, only Finland has already issued UMTS licenses; although, the UK is currently staging an auction for five UMTS networks it plans to authorize.
General Overview (Back to top)
France Telecom and Deutsche Telekom, which were rival bidders for a 3G license, were the big losers. Both, with their respective consortia, Movi2 and Movilweb21, were hoping to obtain the fourth license granted to Xfera. The German carrier was trying to break into the Spanish market in partnership with Jazztel, a Madrid-based operator. France Telecom, main shareholder of UNI2, had also formed a consortium with Iberdrola, the domestic power group. It is important to note that the fourth license winner, Xfera, obtained 293.8 points, 3.5 more than the Movi2 consortium (France Telecom) and 18.6 more than the Mobileweb21 consortium (Deutsche Telecom).
The licenses in Spain were granted through a beauty contest instead of an auction, as in the UK. Using a beauty contest as a tender system has a much higher risk of litigation arising from the bidders not being satisfied with the results or the process itself. In this regard, the Movi2 consortium has already announced that it is going to challenge the tender process and, therefore, the Ministry's decision. Movilweb21 has also announced that it believes that the process was not transparent enough and that it will support Movi2 in any litigation process.
With Deutsche Telekom and France Telecom out of the picture, Telecom Italia will be the only operator competing with Telefónica in Spain in both fixed and mobile telephony. BT and Vodafone will be competing with the Spanish incumbent in the mobile market with their participation in the promising Airtel.
There are currently 15 million mobiles in use in Spain. As in the rest of the EU countries, UMTS is expected to be a most profitable business. Each one of the four consortia has paid huge amounts for each license, and they will now have to develop their networks and start offering services. To do that, each one has also undertaken investments near to Euros 5,500 million in 10 years. Xfera has undertaken to invest around Euros 7,800 million, to provide coverage to the 95% of the population in three years and to create around 7,000 jobs.
It is noteworthy that this consortium has a shareholder structure that could be the subject of conflict with the Servicio de Defensa de la Competencia (Spanish competition authorities). Mannesmann, which owns 7% of Xfera, is in a merger process with Vodafone, which at the same time owns a 21% stake in one of the other UMTS license holders, Airtel.
The Order of Nov. 10, 1999, which set out the tender regulations, has to be interpreted in conjunction with the Competition Regulations to determine a potential competition conflict. Should there be any conflict, Xfera has announced that the Mannesmann stake will be transferred to Orange, which will—at the same time—be sold.
Some analysts have also pointed out that perhaps Vodafone would negotiate, giving BT participation in Xfera in exchange for BT not impeding Vodafone taking control in Airtel. This issue is currently being reviewed by the Spanish Ministry of Economy, the competition authorities, and the telecoms regulator (Comisión del Mercado de las Telecomunicaciones (CMT), which will have to decide whether the current shareholders structure is valid.
Spectrum Situation (Back to top)
Following the award of the 3G licenses last March, the Spanish spectrum situation is as follows:
3G Licenses:
As mentioned above, the Order dated March 10, 2000, established the four winners of the 3G Licenses, which are: Telefónica, Airtel, Amena, and Xfera.
2G Licenses (GSM):
The licenses were granted by the Spanish government during the country's telecoms liberalization process. Telefónica, Amena, and Airtel were the three companies awarded a 2G license allowing the provision of GSM Mobile Telephony services. At the moment, both Telefónica and Airtel are considered dominant operators in the Spanish mobile market, each controlling more than a 25% share.
Individual Licenses Type B2:
These licenses are granted for the provision of voice telephony services available to the public through the establishment or exploitation of a public telecommunications mobile network, which can be terrestrial or based in satellites.
Although the provision of these services is fully liberalized and any operator can provide them, only two B2 licenses have been granted. The two companies with a B2 licenses are Telecommunications par Satellites Mobiles, S.A.S and Iridium Communications Germany GmbH.
Individual Licenses Type C:
Type C2 license enables its holder to establish or exploit its own network by using the public domain of radio-electric spectrum, but excluding the provision of voice telephony service to the public. The network can be terrestrial or based in satellites.
At the moment, the CMT has granted seven type C2 licenses to the following operators: RONDA Grupo Consultor S.L.; Hot Telecommunications Ltd; Telespazio S.p.a.; Eter Comunicaciones S.L.; Tarifa Plana S.L.; Globalcom Insa S.A.; Telefónica Servicios Audiovisuales S.A.
Scope (Back to top)
UMTS opens the door to a range of new mobile data applications, such as electronic banking, telemedicine, and satellite-based navigation in addition to Internet and Web access and interaction.
The UMTS Forum estimates that there will be one billion wireless users by 2005 and two billion by 2010, when almost all wireless systems are expected to be 3G. When UMTS is rolled out, it will offer wireless data at three speeds, the highest being 2 Mb/s for stationary wireless terminals. Even when a UMTS terminal is in motion, data speeds would be much higher than today's 2G devices.
Handsets may look different from today's wireless phones, and customers are likely to have a choice of several types and styles of terminals, depending on where and how they want to use them. They may be called "communicators" or "smart phones" and may also change some people's habits. Whereas UMTS is thought of mostly in connection with cell phones, it could end up encompassing a wide range of wireless networks, ideally covering cordless systems, private wireless networks, and satellite networks. Users would be able to move seamlessly between these infrastructures without a break in service.
The evolution from 2G to 3G has already started with the introduction of General Packet Radio Service (GPRS), the first step in placing packet-based architectures on the GSM network. GPRS will allow access to Internet, e-mail, and other IP-based data services at faster speeds and lower costs by allocating a portion of the service provider's spectrum to packet-based radio.
Timing (Back to top)
The introduction of GPRS will be a pivotal step on the road to UMTS, as it will be the service providers' first experience with packet-based data architectures and services. The UMTS timeline calls for trials to begin in 2001 and commercial rollout to occur between 2002 and 2005. The EU directive of Dec. 14, 1998 provides that the UMTS services should be launched in most countries by January 2002. In reality, how well and how fast wireless service providers can confront and solve the initial data challenges posed by GPRS will ultimately affect the timing of the rollout.
In Europe, licenses have begun to be awarded to a new round of service providers, for whom UMTS will be a starting point. In the autumn of 1999, Finland was the first country to grant 3G licenses. The UK's deadline for applications to bid for a license was January this year. The Netherlands and Germany are expected to follow shortly afterward, with Belgium, Austria, France, and Portugal scheduled to grant licenses later in the year.
In virtually every nation, spectrum has been set aside for 3G/UMTS. Meanwhile, some nations will enter the licensing process far ahead of others, simply because their existing spectrum has been fully consumed. Such a shortage propelled Japan toward 3G by sheer necessity, and it will provide the first commercial implementation of 3G of any kind in 2001. Japan's 3G format, however, will not be European UMTS, but Wideband Code Division Multiple Access (W-CDMA).
Opportunity Knocks (Back to top)
With more than 60 licenses in 15 EU countries within the next five to six years, there are many opportunities for aspiring UMTS operators. They will need to prioritize where they focus their efforts. This means an evaluation process to narrow down the list to those licenses that are most attractive.
There is an increasing trend for licenses to be awarded by auction. The auction approach provides greater transparency to participants but at a cost of several hundred million Euros per licensee. It seems unlikely that a new entrant could afford to outbid an incumbent where the number of UMTS licenses is no greater than the number of 2G licenses.
In the UK, the 5th license means that each operator needs a different strategy to improve its position beyond that of a conventional "me too" player. Now that the 5th license genie is out of the bottle, it will be difficult to put it back. The ongoing auction in the UK currently seems set to generate some US$15B. However, concern is mounting as to how this capital drain paying the price of the license will affect the future investments in the network and the actual provision of the services.
Acknowledgment (Back to top)
Xavier Muñoz is a Spanish lawyer at Rakisons Solicitors' Telecommunications Department.
This article was contributed by the European Telecoms Intelligence Bulletin, SMi Publishing.