Spotlight on spectrum prices in Latin America


Investment commitments and hedging obligations have been consolidated under the spectrum licenses in Latin America.

In general, there is an inversely proportional relationship between the cost of spectrum and the investments of the operators, which is why collection-oriented tenders are less and less used as the processes aim to bridge the digital divide.

Brazil’s spectrum bid was a clear example. It has raised some 47.2 billion reais ($ 8.5 billion), of which only 4.8 billion reais will go to the government, while the remainder relates to investment commitments.

The tender encountered some problems before the launch and was postponed several times. In the end, he received a lot of praise, however. Lucas Gallitto, public policy ddirector and Latin America hThe director of the GSMA industry association told BNamericas that the tender highlights the good results that could come from industry efforts.

And consultancy firm Telconomia wrote in a recent analysis that “The combination of a certain type of auction with investment commitments is becoming a more common auction format among Latin American governments and the Brazilian experience sets an interesting precedent for future processes,” given its conception in which investment commitments have been given priority over tax collection ”.

According to Telconomia, if spectrum the price is adjusted based on capacity and population, that is, MHz for population (MHz-Pop), and license conditions are measured, Mexico and Chile are awarded prizes higher in 2021.

from Mexico the excess spectrum auction has been widely criticized by regulator IFT because the price was a brake on access to frequencies. The IFT-10 tender made 41 spectrum blocks available, but only three proposals were submitted.

“Spectrum rights have become an obstacle to being able to provide services in unconnected areas”, the head of the IFT radio spectrum unit, Alejandro Navarrete, said in a statement.

Operators must pay an annually updated amount for the rights to their spectrum holdings. “The spectrum in Mexico is expensive and on top of that it is unpredictable which becomes an aggravating factor,” said Gallitto.

Telefónica México returned its frequencies and became an MVNO because it could not contain the annual costs.

High spectrum costs are also a likely reason why the 700 MHz band has remained deserted in the Dominican Republic last spectrum tender.

In Chile, the 3.5 GHz band, which accounted for around 76% of collection, was also among the most expensive at US $ 0.0041 / MHz-Pop / year, according to Telconomia.

THE INCOME RELATIONSHIP

The GSMA analyzes spectrum costs in proportion to revenues rather than MHz-Pop.

In this case, the cost involves up-front payments and up-front costs such as direct financial costs to operators for assignments and renewals, and annual fees or charges.

Under this model, Mexico, Ecuador, Colombia, Argentina, Paraguay and Peru spectrum offered at prices above the regional average.

The results show that in 2019, the average spectrum Cost was around 4.5% of recurrent spectrum costs, down from less than 3% in 2018 and less than 2% in 2015.

In countries like Colombia or Ecuador, the cost of spectrum was much higher than the regional average of 5%.

Cost of spectrum in proportion to recurring revenues. Source: GSMA.

OUTLOOK 2022

5G tenders are expected to take place in Mexico, Costa Rica and Uruguay. Brazil and the Dominican Republic are also considering tenders for bands that were not awarded in the last auction.

Spectrum prices will be key to meeting public policy goals and bridging the digital divide, according to industry associations.

Besides auctions, spectrum renewals are another factor that could lead to more investment.

Recently, in Paraguay, where spectrum licenses are only valid for five years, operators who have renewed frequencies pledged to invest $ 47 million.

“In a 24-month period, almost 90% of IMT spectrum concessions in Latin America will be renewed. It’s at least as important as the auction, ”said Gallitto.

According to the GSMA study on the cost of spectrum in Colombia, for example, annual tariffs represent an increasing proportion of the annual total. spectrum more than 30% in 2019, in particular due to the cost of renewals.

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