Case-by-case review of cellular rights

Infrastructure investment and current usage

10. In July 2006, following Cabinet approval [CBC Min (06) 13/7], MED released a discussion paper on the case-by-case review for the renewal of management rights in the 800 and 900 MHz spectrum bands, the main bands currently used for cellular services in New Zealand. The discussion paper sought stakeholders' views on the current usage and likely future use of these bands, the level of infrastructure investment, whether the rights should be renewed, the appropriate renewal period, and the appropriate pricing approach.
11. Four submissions were received and evaluated. The respondents were NZ Communications, TelstraClear, Telecom and Vodafone. Cross submissions were invited and received from the respondents on the specific issue of the optimal quantities of spectrum required by current right holders and potential new entrants for the period 2011 to 2031.
    

Infrastructure investment and current usage

12. Significant investments have been made to use the 800 and 900 MHz bands. Vodafone indicated in its submission that it has invested over $2 billion since it entered the New Zealand market, including the purchase of BellSouth for […].
13. Telecom uses the 800 MHz band for all of its existing cellular operations. Vodafone uses the 900 MHz band as its core network for 2G services but also uses the 1.8 GHz band and 2.1 GHz band for 2G and 3G services, respectively.
14. Both NZ Communications and TelstraClear expressed interest in also deploying cellular networks in the 800 and 900 MHz bands if they could gain access to them. These bands are valued for their superior performance and longer reach, which results in lower deployment costs, particularly for coverage outside metro areas.
    

The "Non-Scarcity" of cellular spectrum

15. A report by Network Strategies Ltd in November 2006 confirms that, in comparison to overseas operators, both Telecom and Vodafone have generous spectrum allocations in the 800 and 900 MHz bands, after allowing for differences between New Zealand and other countries. This is consistent with an earlier report by PricewaterhouseCoopers and the New Zealand Institute of Economic Research in July 2006, which noted that cellular spectrum in New Zealand is "not scarce", with existing right holders having more spectrum than technically required to operate nationwide networks.
    

Likely future use

16. Recent work by the International Telecommunications Union - Radiocommunications (Study Group 8) on future cellular technologies suggests that the 800 and 900 MHz bands will continue to be used for cellular services until at least 2025. These bands are currently used for 2G and 3G cellular services and are candidate bands for 4G services, which are anticipated to be implemented from 2015.
17. Telecom and Vodafone have long-term plans for advanced cellular services in these bands. In December 2006, Telecom announced the upgrade of its CDMA2000 (Code Division Multiple Access) network to the next generation EVDO (Evolution Data Optimised) Revision A system. In its submission, Telecom states that it may further upgrade to Revision B (higher data rates) and other advanced services in the future. In October 2006, Vodafone launched its HSDPA (High Speed Data Packet Access) broadband network, with 42% population coverage, using its 2.1 GHz (3G) spectrum, and intends to use its 900 MHz spectrum to build HSDPA outside city areas. These types of enhancements can increase the intensity of use in the frequency band.
18. NZ Communications, which owns or has access to 1.8 GHz and 2.1 GHz spectrum, has been planning to deploy a cellular GSM (Global Service for Mobile Communications) type network. However, it would prefer to use the 900 MHz band, over which Vodafone holds the only private management rights, for low population density areas because of its coverage and cost advantages. The ownership changes announced by NZ Communications are likely to give a new readiness to implement a network in New Zealand.
19. TelstraClear, which owns 1.8 GHz and 2.1 GHz spectrum, has announced the launch of its 3G service "Unplugged", initially in Tauranga, in 2007. TelstraClear would prefer the option of deploying this service using 800 MHz spectrum, as is currently being done by its parent company, Telstra Corporation in Australia, or alternatively, in the 900 MHz band.
    

Appropriateness of renewal

20. The desired policy outcome is a renewal package that supports competition in the relevant markets, minimises the risk of stranded investment, avoids undue disruption of services, facilitates the migration to new technologies, and maximises the opportunity for new investment in the spectrum. The renewal price is to also produce a fair financial return to the Crown.
    

Respondents' views on renewal

21. 21. NZ Communication's view is that the rights must not be renewed in their current format and would like the 900 MHz band to be divided into equal portions to the four respondents. For NZ Communications, there is no distinction between the optimal requirement of an incumbent and a new entrant, which is approximately 8 MHz.
22. TelstraClear recommends that the bands be reconfigured because incumbents' holdings exceed their current and future requirements. It suggests that 10 MHz be freed up in each band and be reallocated through a competitive process to allow two new viable entrants into the market.
23. Telecom states that it will require the renewal of its entire current holdings to be able to provide a full range of advanced services and higher data speeds, particularly for rural customers. Vodafone (using GSM) and other CDMA operators in the USA and Europe have "companion bands" in the 1.8 GHz and 2.1 GHz bands. Telecom can only operate in the 800 MHz band using its current technology because the 1.9 GHz band in New Zealand is not configured for CDMA use. If Telecom chooses to adopt the UMTS (Universal Mobile Telecommunications System) path, then it can operate in both the 800 MHz and 2.1 GHz bands.
24. Vodafone's preference is for right holders to be given the right of first refusal to all their current spectrum holdings and opposes an auction as a method of reallocating rights, stating that this is inconsistent with the Government's long-standing approach to renewal issues.