Introduction

1. Econet Wireless New Zealand Limited (“EWNZ”) would like to once again thank the MED for this opportunity to submit on issues arising out of the Renewal of Management Rights for Cellular Services.
2. MED has asked for comment on three questions related to use of the 850/900 MHz spectrum.¹ MED asked that cross-submissions be particularly focused on the “optimal quantity of spectrum” required by current users and new entrants in the 850/900 MHz bands. EWNZ’s comments on these matters are addressed below.
3. In MED’s initial discussion paper, the MED stated that it would take into account in concluding it’s spectrum review any conclusions reached by the Commerce Commission’s mobile market review, released earlier this week. The Commerce Commission has identified spectrum allocation as an area of concern, and has stated that it will work with the MED to recommend a specific course of action. In any event, it would be impossible to separate spectrum renewal issues from spectrum allocation. Therefore, in light of the Commission’s findings, and the interplay of spectrum renewal and spectrum allocation, EWNZ respectfully submits comments on the impact of the optimal spectrum usage on competition in the mobile market. However, it is our expectation that the MED will specifically request comment on the conclusions and findings presented in the mobile market review, as they relate to spectrum renewal, at a later date.
4. EWNZ concludes that:

• “Optimal” spectrum usage would constitute approximately 8 MHz per mobile operator, accommodate at least two additional carriers in the GSM band, and provide for equal spectrum holdings for all cellular market competitors in the 850/900 MHz spectrum bands;
• There is no relevant distinction between the optimal requirements of a current spectrum manager and a new entrant;
• Current spectrum allocation is sub-optimal, and constitutes a significant barrier to market entry;
• Spectrum should accordingly be re-allocated no later than the expiration of the existing management rights period, with preference for existing holders of 1800 MHz licenses;
• In light of the conclusions reached in the mobile market review, the Commission should provide for the regulation of spectrum licenses as a designated service under the Telecommunications Act 2001.

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“Optimal” spectrum usage

5. The MED has requested cross-submissions on the “optimal” 850/900 MHz spectrum usage for existing management right holders and for new entrants. MED’s reference to the “optimal” usage has been the subject of a great deal of subjective interpretation in the current submissions. Optimal usage would, by definition, mean the most desirable or satisfactory usage of the limited spectrum resources available. As there is no reference to the perspective to be used in defining the optimal use, the submissions have varied widely.²
6. From a spectrum monopolist’s perspective, “optimal” spectrum is all the spectrum that one can obtain, as the additional capacity allows the holder to save money on site construction where capacity limitations would otherwise outstrip available demand, and spares investment in new technology to alleviate demand and optimize efficiency and performance.³ However, from an end-users and new entrant’s perspective, the optimal spectrum usage is one that promotes competition (particularly same-technology competition). For the new entrant, competitive distribution of spectrum gives them access to the market and the opportunity to compete on a level playing field; for the end-user, the benefits of competition include an opportunity to choose a different service provider, decreased costs, increased service, and investment in new technology.
7. It is our view that the MED’s intent was not to obtain a subjective view, but to request thoughts on optimal usage that would best promote the purposes of the Radiocommunications Act, the Telecommunications Act, and the ultimate interests of end-users of mobile services. Current Spectrum Usage
8. An overview of current spectrum usage demonstrates why current allocations are sub-optimal and have deterred competitive entry.
9. a. Vodafone has 21 MHz paired GSM spectrum plus 4 MHz unpaired (as shown in Diagram 1). Telecom has 20 MHz CDMA paired spectrum (also shown in Diagram 1). Approximately 4 MHz in the GSM base-station transmit band have not been transferred and remain with the Crown. In addition, interference issues around the 890 MHz border between CDMA and GSM render the first 4 MHz of the GSM band effectively unusable. Both TelstraClear and EWNZ have management rights to GSM spectrum in the 1800 MHz band, and additional (3G) spectrum in the 2.1 GHz band. It is in this environment that the MED and Commission must accommodate one or more new entrants.
   b. Roaming negotiations are inhibited by a monopoly ownership of the 900 spectrum. Vodafone is driving to price roaming at the cost of an 1800 construction network in the rural 20% of sub-economic areas rather than a 900 construction network cost in the 20% marginal rural areas. Simply put, Vodafone are saying xxx costs for roaming rather than yyy costs (which is the opportunity cost when 900 network is built using co-location). Again here, the interplay is misinterpreted by the MED and we believe substantial interface between the MED and the Commerce Commission should be completed before a new policy is approved.

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Future spectrum requirements

10. As a part of EWNZ’s planned country-wide roll-out, we anticipate using 900 MHz GSM spectrum for our rural network. As TelstraClear and Telecom have already noted,⁴ the 850/900 MHz bands provide a wider coverage area, and therefore substantially reduce the number of sites needed toprovide coverage. These savings would allow EWNZ to invest in additional infrastructure, sufficient to compete in the rural areas as well as the major metropolitan centres, and provide better service and coverage to our end-users.
11. Neither Vodafone nor Telecom mentioned any specific spectrum requirements.⁵ Vodafone stated that it would need, under next-generation network technology, between 1.25 and 20 MHz of spectrum,⁶ depending on desired data rates,⁷ though it didn’t mention whether it needed that spectrum in the 900 MHz band.⁸ Telecom seems to state that they can use between 10 and 20 MHz, with 20 MHz allowing for higher data rates and allowing a buffer to handle capacity in the event they build a new network.⁹
12. TelstraClear recommended that two new entrants be given access to a 10 MHz block in the 850/900 MHz band, and that 10 MHz should be sufficient for any mobile operator.¹⁰ TelstraClear proposes granting two, 10 MHz blocks to new entrants, presumably leaving the remaining spectrum with the existing spectrum managers, that is, Telecom with 10 MHz in the 850 band and Vodafone with an effective 11 MHz in the 900 MHz band.
13. In keeping with TelstraClear’s analysis, we do not believe that new entrants or existing operators would have different spectrum requirements over the next 20 years. While a new entrant will have less stringent spectrum demands at the beginning of their management rights term (while they build up customers and market share), in order to fully compete they will need to be offering similar services and be able to provide similar coverage levels to a similar market size, and the new entrant will quickly require spectrum capacity levels substantively similar to that of the new entrant long before the expiration of management rights in 20 years. Any new entrant would be expected to achieve similar spectrum requirements within, say, five years of commencement of operations.
14. In addition, as the overall desire is that spectrum management rights, once allocated, will normally be renewed, it would create undue uncertainty amongst competing carriers if it was considered highly likely that its spectrum would be re-allocated again after a 20 year period to meet the increase in spectrum requirements of new entrants. Therefore, it is in the best interest of the MED to allocate spectrum rights now among current and potential new entrants (reserving some spectrum aside, if necessary, to accommodate future new entrants).
15. Therefore, it is EWNZ’s opinion that spectrum should be allocated so as to promote effective competition in the mobile market.

¹The three issues/questions from the discussion paper are:

Issue 1.1 – What significant changes in cellular technology and in the cellular market do you foresee within the next 10-20 years? How might these changes affect the future use of the 800 MHz and 900 MHz bands?

Issue 1.2 – What is the current level of spectrum-related investment in the 800 MHz and 900 MHz bands? How might the use of these bands be optimised? What are your intentions in the next few years with respect to this spectrum?

Issue 1.3 – Should rights to unused spectrum be renewed? Why or why not?

²Indeed, Vodafone provides two different definitions of an optimal network. In paragraph 8 of their submission, they state that technology, network traffic, and network configuration are the key parameters in determining the optimal network. One page later, Vodafone states that the key parameters to an optimal network are spectrum holding, discount rate, and the cost of the network. See Vodafone submission, paragraph 17.

³In a similar vein, issue 1.3 of the original MED release requested comment on whether “unused” spectrum should be re-auctioned or otherwise re-allocated. It is Econet’s view that the term “unused,” to have any real meaning in the context of this review, must be considered to mean “inefficiently” used. EWNZ knows of no “unused” spectrum in the 800 and 900 MHZ bands; however, it is easy for a spectrum squatter to make minimal, inefficient and unnecessary use of a spectrum in order to horde the spectrum.

⁴See TelstraClear Limited’s submission of 11 September 2006, paragraph 2 and 8; Telecom’s submission of 4 September 2006, paragraph 17.

⁵To our knowledge, neither Vodafone nor Telecom provided any actual usage data showing capacity requirements, spectrum planning, spectrum efficiency efforts, or other indicators of current spectrum usage from which a determination can be made as to whether that usage is “optimal”. However, based on the breadth of spectrum within their control, and the relatively small market New Zealand market when compared with the end-user market size and the spectrum allocations other OECD countries, it does not seem credible that current or planned usage, at existing allocations, is “optimal.”

⁶Vodafone submission, paragraph 20; 41-42.

⁷As there is no standard in place, however, there is no means of supporting or verifying Vodafone’s spectrum needs, nor does it seem that preferred peak performance on an undeveloped, and possibly never-to-be-seen, technology should determine the allocation of competitive spectrum in a multi-billion dollar mobile market. In addition, Vodafone does not state that the 20 MHz must be in the 900 MHz band – Vodafone’s current holdings would allow for 20 MHz even were Vodafone to give up 14 MHz of 900 MHz spectrum.

⁸Indeed, Vodafone itself states that “White Papers on Systems beyond IMT 2000…identify the 900MHz band as one of the bands used for Systems beyond IMT 2000.” See §40 (emphasis added).

⁹See Telecom submission, paragraphs 19 and 20.

¹⁰See TelstraClear submission, paragraph 13.