September 2001
Mexican Spectrum Auctions: Obligations, Commitments, and
Promises
By C. Hirsch, Mexico
Since 1996 Mexico has implemented by law auctions as the only
mechanism to assign spectrum even for private microwave links.
Licenses are granted for 20 years, with the option of renewal for
another 20-year period.
In May 1998, the wireless local loop (WLL) (3.4 GHz) and personal
communications services (PCS) (1.9 GHz) auctions ended with eight
winners bidding more than US$1 billion. The winners were required to
pay 100 percent of their bids in September 1998. Six carriers met
their commitments, but two failed, representing more than 40 percent
of the auction results. These two companies received a six-month
waiver and were still unable to pay; they received another extension
until June 15, 1999. In the first half of 1999 one of them paid and
the other failed. The company that had not paid yet (Midicel)
committed to install two million fixed wireless lines in five years.
Why are we talking about this old story? Because the company that
bid US$120 million and could not pay is still fighting in Mexican
courts and trying to recover its frequencies. The Communications
Ministry has a difficult decision, to strictly follow the rules or to
continue giving credit to Midicel's promises, waiting for those huge
investments that can boost teledensity. In Spanish there is a saying:
"Promising does not impoverish you."
The Mexican fixed local market is still heavily concentrated, with
Telmex having 12 million lines, and the WLL and wireline CLECs having
altogether less than one million. On the other hand, competition in
mobile services is healthy, with three cellular companies: Telcel
with 11.8 million customers, Iusacell with 1.8 million, and
Telefonica with 1.1 million; and two PCS companies: Pegaso with
650,000 and Unefon with 400,000. Today there are 15.6 million mobile
subscribers compared to 12 million fixed line customers. In coming
years all future growth and local competition will be based on mobile
technologies, and fixed telephony will be used specially for
broadband and business customers.
What is happening in Mexico is very similar to what is going on in
other countries. Authorities have to choose between auctions or
beauty contests. In the latter, the selection of winners is based on
obligations, commitments, and promises. In fact, once the license is
granted it is a very tough process to cancel it even if the operator
has not accomplished what it promised. At this moment, everybody is
talking about market forces, but falling into the temptation of ease
and quick solutions based on false promises.
On one hand, there is general economic agreement on the regulatory
beauty of the auction with no conditions. The company has to commit
itself and risk its money, and in order to win frequencies they have
to pay more than anyone else. After that, it is in the best interest
of that company to make the most of its investment; and if there is
enough competition in the country, this is exactly what will benefit
the most consumers and society as a whole.
On the other hand, when a beauty contest is used, the evaluation is
typically based on promises: "Tell me what you will do and I will
choose the best offer." The main problem with this approach is that
after two or three years, marketing conditions will change and it
will be impossible to evaluate the results. The regulator will be in
a difficult position to force the commitments or cancel the license.
The recommendation to regulators who grant spectrum concessions
could be a simple rule: "Do not tell me what you will do; risk your
money and try to make the most out of it."
Dr. Paul E. Green Recognized by the Russian Popov Society
By Henrich S. Lantsberg, Russia
The Executive Board of the Russian Popov Society for
Radioengineering,Electronics and Communications, a Sister Society of
IEEE ComSoc, at its Meeting on April 4, 2001 in Moscow, Russia,
elected Dr. Paul E. Green (recently retired from Tellabs and IBM
Research) an Honorary Member of the Russian Popov Society with the
following citation: "For great contribution to information
theory,radioastronomy, communications and to the longterm beneficial
cooperation between the IEEE and the Russian Popov Society."
It is a visible recognition of his election to the highest grade of
membership in the Popov Society. Dr. Paul.Green,Past President of
ComSoc in 19921993, has been well known in Russia since the
mid-'60s for his pioneer radar investigations of planets carried out
jointly by scientists of the MIT Lincoln Laboratory and scientists of
the Institute of Radioengineering & Electronics of the USSR (now
Russian) Academy of Sciences headed by Prof. Vladimir A. Kotelnikov,
IEEE Life Fellow and winner of the IEEE 2000 prestigous Alexander G.
Bell Award. Dr. Green is also known in Russia for his fundamental
monograph on fiber optics.
Dr. Paul Green's Russian friends and colleagues send him their most
sincere and friendly congratulations on this important achievement.
Mobile Communications Development in Central and Eastern
European Countries
By Arturas Medeisis, Lithuania
Figure 1. The Central and Eastern European region:
A-Albania; BH-Bosnia-Herzegovina; CZ-Czech Repulbic; EE-Estonia;
CR-Croatia; LT-Lithuania; LV-Latvia; M-Moldova; MC-Macedonia;
SK-Slovakia; SL-Slovenia; YU-Yugoslavia.
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Central and Eastern European (CEE) countries (Fig. 1) today present
an interesting example of social, economic, and technical
development. Developing for a long time behind the Iron Curtain of
the Communist era, many CEE countries achieved significant levels of
welfare in many sectors.
Unfortunately, these developments were based on apparently unhealthy
economic principles, so after abolition of Communist rule the CEE
countries were thrown back in their socio-economic development and
faced a hard struggle on their way to liberal market economies,
confronted by many transitional difficulties. All these processes
also had a heavy technology impact since many old systems had to be
replaced or renovated to comply with Western standards.
In particular, mobile communications were reserved by Communist
regimes exclusively for military use, governmental offices, emergency
services, and certain kinds of state-owned companies like railways
and utilities.
Therefore, the few mobile systems existing in CEE were designed to
cope with limited traffic and had no important functions such as
airtime accounting, all of which made their later commercialization
impossible.
Today, when most CEE economies are growing at an impressive rate,
with annual GDP increases of around 5 percent on average and even up
to 10 percent in some countries, this dynamically developing
marketplace has become an excellent ground for telecommunication
developments. Mobile systems, thanks to their quick deployment
capabilities and advanced services, were the first new development in
this yet-to-be-explored market.
First Steps for Public Mobile Telephony in CEE
Liberalization of the CEE countries at the beginning of the '90s
opened all roads for development of communications. Mobile systems
were seen as a competitor even to fixed networks because of the
relatively low teledensity in CEE (between 5 and 30 percent in
different CEE countries).
Table 1. GSM operators and subscribers in CEE countries
(Source: European Radiocommunications Office).
| Country |
GSM-900/1800 operators |
GSM subscribers (February 2001) |
Total GSM penetration (%) |
| Albania |
1 |
30,000 |
1.0 |
| Bulgaria |
2 |
570,000 |
7.1 |
| Croatia |
2 |
915,000 |
19.0 |
| Czech Republic |
3 |
4,260,000 |
41.6 |
| Estonia |
3 |
545,040 |
38.9 |
| Hungary |
3 |
3,000,000 |
30.0 |
| Latvia |
2 |
382,500 |
14.8 |
| Lithuania |
3 |
470,000 |
12.7 |
| Poland |
3 |
6,795,300 |
17.5 |
| Romania |
3 |
2,430,000 |
10.7 |
| Russia |
Regional licences |
2,235,000 |
1.6 |
| Slovakia |
2 |
1,293,700 |
24.3 |
| Slovenia |
3 |
1,155,200 |
57.8 |
| Ukraine |
4 |
210 000 |
0.5 |
But the early '90s were exactly the time when mobile technologies in
Europe were moving from the first to the second generation (1G to
2G). So, having to make a selection for urgent deployment, CEE
countries chose to initially install 1G networks, which at that time
where already well established, cheap, and easily compatible with the
analog public switched telephone networks (PSTNs) then prevailing in
CEE.
In most CEE countries it turned out to be the Scandinavian NMT-450
system, with usually one nationwide mobile network installed in every
country between 1991 and 1993.
However, those initial NMT-450 networks were not given a real chance
to develop to a mature stage, because the Global System for Mobile
Communications (GSM) standard was quickly gaining wider acceptance
throughout Europe. So with a few exceptions (big countries like
Poland, Russia), in most CEE countries NMT networks never managed to
enroll more than a few tens of thousands of subscribers.
All this led to a situation where the newly established 1G networks,
after two or three years, were quickly overridden by their mighty 2G
digital counterparts. However, most of the early NMT networks still
exist and are operational, although serving largely the old customer
base or remote, scarcely populated areas where NMT-450 sometimes
provides more cost-effective coverage. In some other cases NMT-450
networks were converted to serve different purposes (e.g., as a WLL
solution for fixed subscribers in rural areas).
Public Mobile Telephony Systems Today
Experience with the NMT networks taught CEE administrations one
early lesson, which was that considerable advantage might be gained
by allowing truly trouble-free roaming between many neighboring
countries. So, in their selection of 2G technology, all CEE countries
unanimously opted for the GSM standard.
Installation of GSM-900 networks in CEE started around 1995, and
very soon GSM dominated the landscape of public mobile telephony.
An important element for successful development was the early
introduction of wide competition. Competition increased even further
with the licensing of the GSM-1800 systems.
Table 2. Investment and penetration statistics of the IT
market in CEE countries in 1999 (Source: Prime Investment/IDC,
2000).
| Country |
IT investments per capita (US$) |
PC penetration rate (%) |
Internet penetration (%) |
| Slovenia |
165 |
25.0 |
13.0 |
| Czech Republic |
152 |
10.7 |
8.0 |
| Hungary |
120 |
n.a. |
11.0 |
| Poland |
61 |
13.7 |
6.0 |
| Estonia |
n.a. |
6.9* |
13.0 |
| Latvia |
n.a. |
9.1 |
4.4 |
| Lithuania |
63 |
5.9 |
3.0 |
| Slovakia |
74 |
n.a. |
4.0 |
| Russia |
17 |
n.a. |
0.4 |
| Bulgaria |
22 |
3.7 |
2.5* |
| Romania |
11 |
2.8 |
2.8 |
| Western Europe |
549 |
27.7 |
21 (UK only) |
| *Residential
users only |
In many CEE countries the licensing of GSM-1800 was arranged in such
a way that licences were given to existing GSM-900 operators plus one
or two newcomers. Table 1 shows the number of operators of either
GSM-900 or GSM-1800 or both in different CEE countries, together with
their subscriber numbers and total penetration statistics.
Today many GSM-900/1800 operators strive to further improve their
networks and services, regarding both commercial aspects (new
services, variety of tariff schemes, etc.) and technical elements
(better QoS, coverage, etc.). However, the most important
developments in 2G networks today concern the introduction of new
communication protocols and platforms, allowing increased
transmission speed and new operation modes, thus paving the way to
2.5G and 3G services.
Here the similarities stop, since different operators select
different technologies, notably either high-speed circuit-switched
data (HSCSD) or its packet-switched rival, General Packet Radio
Service (GPRS). Although trials and implementation of these
technologies started by the end of 1999 or the beginning of 2000, up
to now there have been no reports of their being a big commercial
success, and users so far seem to limit their mobile use to voice and
short messaging service (SMS).
At the same time, some operators have claimed that both HSCSD and
GPRS appear to be tough to implement, even causing operational
disruptions in networks. Apparently, introduction of the new data transmission
technologies would require major reconfiguration of the networks, and
hence much more time would be needed to begin successful commercial
use. However, the market itself seems not quite ready to accommodate
the new services yet.
3G Developments in CEE
Fast development of GSM networks attracted much attention to the
mobile telephony market in CEE. Now everyone appears confident that
multimedia capabilities of 3G networks would bring even more benefits
and further boost the mobile penetration as well as the overall IT
market (Table 2).
CEE countries have already confirmed their commitment to the
implementation of the harmonized European standard for 3G, known as
the Universal Mobile Telecommunication System (UMTS). However, how to
award UMTS licences appears to be less than clear to administrations
of CEE, and little harmonization is likely to be achieved in this
field.
Until very recently, most CEE countries issued mobile licences by
means of the so-called beauty contest procedure. Only Slovakia and
Slovenia have so far used some form of auction to licence mobile
spectrum. However, this peaceful scenery was spoiled by news from the
famous UMTS auction in the United Kingdom, echoed by the also quite
successful German auction. This gave rise to a new way of thinking,
and many CEE finance ministers hooked onto the bright idea of
improving their less than plentiful state budgets.
Today many CEE administrations are considering the possibilities of
selling 3G spectrum in their countries by means of auctions. One of
the most interesting examples could be the initiative discussed
initially between the three Baltic states (Estonia, Latvia, and
Lithuania) to issue UMTS licenses in a combined regional auction,
thus increasing the size of the potential market and provoking higher
license prices.
However, all this talk about money seems to fade away slowly as less
optimistic news has now started flooding in about the latest UMTS
licensing failures (e.g., in Italy and France) and the financial
troubles of operators that have paid huge amounts of money for UMTS
licences in the United Kingdom and elsewhere.
A similar failure with 3G auctioning in CEE happened in Poland,
where five UMTS licences had to be issued by the end of 2000 in a
combined beauty contest/auction arrangement. However, by the
prescribed deadline only three existing Polish mobile operators had
registered and were given licenses at a fixed price of around $575
million each, payable over a few years.
Probably with this example in mind, the Czech Administration
recently recommended to its government the issuing of three UMTS
licences to incumbent mobile operators at a fixed price of $135
million. The Czech government still hopes to sell one additional UMTS
licence through open auction, with the same initial price tag of $135
million. But even this seemingly moderate approach has been
challenged by incumbent mobile operators, who claim that the price is
too high, and that the issue of an additional licence should be
delayed at least until 20042005 to give existing operators more
time to develop their networks.
The Russian Scenario
Figure 2. The splitup of the Russian mobile market into
different standards (source: Sotovik.ru)
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The Russian Federation is obviously a market in itself and therefore
probably deserves a few separate words.
The situation in the mobile market in Russia today is very
controversial and differs significantly from that in the majority of
CEE countries. Right after liberalization, Russia took a twofold
approach to standardization of mobile technologies. Some systems were
given federal standard status, which allows unlimited licensing and
deployment anywhere in the Russian Federation. These federal
standards include European standards NMT-450 and GSM-900/1800.
On the other hand, the Russian administration decided to allow other
mobile communication technologies, coming from different regions of
the world, by giving them regional standard status. Among these could
be mentioned such technologies as AMPS, D-AMPS, and even CDMA
(IS-95). The conditions of their use are such that operators of
AMPS/D-AMPS are given licences to operate their networks only in a
particular region, and no automatic interregional roaming is allowed.
CDMA systems are officially allowed on a regional basis and only for
provision of WLL services to fixed subscribers. However, because of
the inherent mobility features of their systems, CDMA operators
reportedly allow mobile users into their systems, thus raising many a
hot debate over illegal competition. Anyway, CDMA users today account
for a negligible fraction of the Russian mobile market, which was
reported to have reached 3.4 million subscribers by the beginning of
2001 (source: Sotovik.ru).
Regardless of this mixup with standards and many regional operating
companies, the Russian mobile market shows constant growth (more than
152 percent over the last year) and also a certain preference for GSM
technology. So while at the beginning of 2000 GSM subscribers
accounted for 52 percent of the total number of mobile users, by the
beginning of 2001 GSM already occupied 70 percent of the Russian
mobile market (Fig. 2). The last important market statistic to
mention is that the Moscow metropolitan area alone accounts for
around 60 percent of all mobile users in Russia.
Conclusions
The CEE market today is little explored by outsiders, probably
because of inertia caused by its long isolation and the currently
poor performance of its national economies.
However, the well-developed education system, good record of
engineering achievements, and skilled human resources provide this
market with a significant potential in technological areas, which is
yet to be unleashed to its full extent in coming years.
Within the area of mobile communications CEE countries have taken
one good approach in the general adoption of harmonized European
standards for their networks, which made it possible to overcome the
many difficulties of small fragmented markets. Today mobile
communications in CEE countries are keeping truly abreast with the
latest developments in the rest of Europe, showing impressive mobile
penetration figures.
The only difficulty that telecommunications professionals in the CEE
could not possibly have foreseen was that the national economies
unfortunately could not restructure and develop as quickly as they
can develop their networks.