Government offers light relief for 5G expansion
At the end of May 2021, the Spanish government announced that it would be relaxing some of its conditions ahead of the 700 MHz spectrum auction in July. The auction is important for operators wanting to expand their 5G services in the country, because this low frequency band is conducive to wide-area coverage.
The sale could also prove to be more popular than usual, as the government intends to cut the combined starting price for all seven allocations by 15% — from €1.17 billion to €995.5 million. The government is also offering favourable conditions to the roll-out of services in areas that have newly allocated blocks, for example, by extending deadlines for deploying services by a year.
Now, as you can imagine, the Spanish authorities aren’t setting these conditions as an act of charity. An important priority of their Digital Spain 2025 Agenda is the promotion of 5G services nationally so that most of the population is covered by that year. And although the main players, including Telefonica, Vodafone, Orange and Masmovil, have all launched 5G services in Spain, it has come at a heavy cost.
In many ways, the Spanish telecommunication market is typical for Europe (see Regulatory Tide Turns for European Operators). Companies are faced with fierce competition and burdened with escalating deployment costs as demand for connectivity shows no signs of slowing down. Many operators also carry heavy debts that may take years to reduce as the cost of infrastructure and licences continues to rise. So the new conditions could be seen as recognition by the government that operators will need help if they’re to fulfil its pledge of nationwide 5G coverage.
Although lower prices and longer deadlines will be welcomed by most companies, there’s one change that could cause a divide between major players and their smaller counterparts. This is because the new conditions for this 5G auction remove the obligation for network owners to grant access to their competitors. Network owners therefore can’t be forced to lease their networks to rivals, but they’re free to negotiate leasing deals with competitors without regulatory intervention.
This change in network-sharing conditions could have grave consequences for smaller players like MasMovil and Euskaltel, which both rely on network-sharing deals with Orange for their 5G services. MasMovil’s agreement, signed back in October 2019, allows it to offer 5G services in 4,500 locations, covering 35% of the population. Euskaltel, a smaller player than MasMovil, is set to offer 5G services as a virtual operator from January 2022.
According to the terms for the next auction, the bigger players can refuse to play ball with any of their competitors, or if they do, they can charge whatever they want. So this change could make it difficult for the likes of Euskaltel and MasMovil to widen 5G coverage without their own 5G networks.
It therefore makes sense for both companies to join forces, and this is arguably a welcome move in a sector that has been criticized in the past for being too fragmented. From a 5G perspective, the merger will be good for Euskaltel, given that MasMovil’s Yoigo 5G service is based on its own network as well as that of Orange. MasMovil owns 80 MHz of spectrum in the 3.5 GHz band, thanks to a deal with Eurona Wireless Telecom and its acquisition of Neutra Network Services in 2018. The operator is well-placed to expand its 5G network, and should have substantial independent coverage by the time its contract with Orange ends in 2028.
When it comes to making money in the Spanish 5G segment, independence will be key. And it looks like the state of play isn’t set to change any time soon, especially when taking into account the government’s decision to double the duration of licences from 20 years to 40 years. According to Spain’s Ministry of Economic Affairs and Digital Transformation, longer licences will “guarantee an adequate return on investment for the operators”.
In other words, when considering existing debts and the heavy investment needed to expand 5G coverage, it’s going to be a while before Spanish operators can start to see a return on their 5G ventures.
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