BAY OF PLENTY COUNCILS BROADBAND BUSINESS CASE STUDY SPECTRUM AUCTION REVIEW. April 2007

Transcription

1 BAY OF PLENTY COUNCILS BROADBAND BUSINESS CASE STUDY SPECTRUM AUCTION REVIEW April 2007 GDI Ground Floor, 201 Wickham Terrace PO Box 782 Spring Hill, Qld Telephone: +61(7) Facsimile: +61(7)

2 Contents 1 INTRODUCTION PURPOSE OVERVIEW ALTERNATIVE TO LICENSED RADIO SPECTRUM - UNLICENSED WIRELESS BANDS GHZ RADIO SPECTRUM AUCTION SPECTRUM ALLOCATION MANAGED SPECTRUM PARK NATIONALLY AUCTIONED BANDS MANAGED SPECTRUM PARK - SERVING THE BAY OF PLENTY REGION RECOMMENDED CONDITIONS OF THE TENDER PROCESS CHANGE THE SIZE OF THE MANAGED SPECTRUM PARK IMPOSE STRINGENT CONDITIONS OF USE TERMS ON NATIONAL SPECTRUM LICENSEES CONCLUSIONS DISCLAIMER This document has been prepared by Gibsons Digital Innovation (GDI) from information provided by the client and from other sources. Our procedures do not necessarily include confirmation of validation procedures of that information and this document is provided to the client for its exclusive use and benefit only. No other party should rely on it for inferences or forecasts made therein. GDI accepts no responsibility to such parties. In addition, certain inferences and forecasts have been drawn and made on the above basis although every effort has been made to ensure that such inferences and forecasts are reasonable, no responsibility can be accepted by GDI for eventual outcomes. Page ii

3 1 Introduction This document is a supplementary part of a project and series of deliverables required by Bay of Plenty Councils to develop a broadband business case study for the Bay of Plenty region. The project recognises that a wider geographic availability of broadband services is an economic enabler, and that a lack of these services is increasingly an economic disabler. The report is the second supplementary deliverable S2, describing the potential for the announced managed spectrum park to support service delivery over wireless broadband in the Bay of Plenty region, and the auction of nationally owned spectrum slots to be auctioned in May This report and its relationship to other reports in the project is illustrated in figure 1 below: Page 3

4 Bay of Plenty Councils Broadband Business Case Study Deliverables Summary Broadband Definition A1 MUSH Network Design B1 Speeds and scalability policy and related project requirements Base level demand for new infrastructure investment location, value Broadband Architecture Description A2 Current and emerging technologies for broadband delivery and identify applicable hybrids Network Partners B2 Short list if interested parties, from service providers, infrastructure providers, major demand customers ( MUSH) Options Open to Councils to Stimulate Investment A3 Relationship options with suppliers and users, risks, mitigation and benefits Funding Investigation A4 Spectrum and Core Network Funding S1 Benefits / synergies of Core ( MUSH) Networks and Broadband Access Networks B3 Values for stakeholders MUSH customers, and infrastructure investors Sources of funding and applicability criteria Customer Connection A5 Spectrum Auction Review S2 Legislation Review B4 Relevant legislation and impact on project options Customer Premises Equipment ( CPE) funding options for equipment to be installed in customer premises to terminate broadband services Service Providers A6 Service Providers A6 Engagement models for infrastructure investors and services providers Spectrum Auction Summary S3 RMA Review B5 Relevant legislation and impact on project options, especially Council interpretations of the RMA in relation to infrastructure to support the rollout Code of Practice Review B6 Operational A7 Workshop in Tauranga with council staff extension of B Model operational costs for one or more likely agreed infrastructure models Sample Costing A8 Final Report Assemble all previous deliverables prepare business case for investment in broadband infrastructure in the Bay of Plenty Brown fields examples in urban and rural areas. Figure 1 Deliverables Structure Deliverable S2 is the Subject of this Report. Page 4

5 2 Purpose The purpose of this document is to inform the reader of the importance of the 2.3GHz radio band for the delivery of broadband wireless services in the Bay of Plenty region, and to comment on the plan by the Ministry of Economic Development to make available 95MHz in this band available for the delivery of broadband services. 3 Overview Comments and assumptions made in this document are based on the most recent document released by the Ministry of Economic Development (MED) entitled Radio Frequency Auction No. 9: Overview dated April This document is comprehensive and discusses the approach to the use of 95MHz of bandwidth in the 2.3GHz band for the delivery of Broadband Wireless Access (BWA) services in New Zealand. A section of this band is to be made available for BWA services, some almost immediately, and the remainder over several years as existing users relinquish their allocated frequencies. It is intended that part of this band will be auctioned for national service delivery perhaps 60MHz to be allocated to a minimum of three organisations, and the remainder (15MHz) to be placed in a managed spectrum park for regional use by individual service providers. There is justifiable concern that the process by which the planned 95MHz is allocated to service providers may limit the utilised bandwidth to areas such as the Bay of Plenty, and thereby adversely affect the delivery of broadband services in the region. An important outcome of this deliverable is that it can be used as the basis for a formal response to the MED overview paper described above. The emerging standard for this form of wireless broadband delivery is called WiMAX (Worldwide Interoperability for Microwave Access) and is supported by many manufacturers, ensuring competitive pricing will emerge for equipment and for end users. The 2.3GHz band in important for the delivery of broadband services because: i) This is the first radio band to be widely supported by manufacturers of wireless broadband equipment, although other bands will eventually receive manufacturer support. ii) In regional areas of New Zealand, wireless distribution networks offer the fastest and lowest cost way to deliver broadband services. If the most suitable band 2.3GHz is not fully available, it is likely that many homes and businesses will not be able to receive broadband services cost effectively for a number of years until other technologies and/or wireless bands are available 1. This document reviews whether the managed spectrum park of 15MHz announced as part of the planned Wimax spectrum auction process might serve the needs of the Bay of Plenty. We conclude that this spectrum allocation is insufficient in high density areas and recommend the terms under which nationally auctioned bandwidth will be made available in the region to 1 Other bands supported by the WiMAX forum are 2.5, 3.3 and 3.5GHz bands. Page 5

6 supplement the managed spectrum park if it is not deployed in the region by the successful respondent to the auction. The 60MHz of spectrum to be made available by auction for national application will be allocated to a minimum of three tender respondents to ensure a competitive environment results. The problem with this approach, which is evident from past auctions in New Zealand and other parts of the world, is that national tenders for spectrum tend to lead to the use of spectrum in high demand density areas where there is a better return on investment, and little or no use in regional areas. This effectively results in the denial of the tendered spectrum in these regional areas. This is acknowledged in the MED overview document, and a range of terms for a use it or lose it requirement are discussed. Our concern is that the terms for reallocation are still somewhat vague, based on periods of some years, and the auction is planned for May (next month). If the use it or lose it terms are unclear in any way, they may be subject to long delays in reallocation for local use. 2 Alternative to Licensed Radio Spectrum - Unlicensed Wireless Bands At present, the delivery of long distance wireless broadband in the Bay of Plenty region is provided using unlicensed radio spectrum, because the current licensed spectrum is in the hands of organisations not operating in the Bay of Plenty, or is currently allocated for other purposes not associated with the delivery of broadband services. Unlicensed spectrum is subject to interference from other users and because any users are able to operate anywhere in the band, the consequence is reducing signal to noise ratios in the Bay of Plenty which cannot be resolved by ISPs (Internet Service Providers) in the region who are dependent on these unlicensed frequencies at present. The ISPs interviewed who use wireless broadband note their effective range is reducing as interference increases. This means unless the region acquires sufficient licensed bandwidth as a result of the planned auction, there will be a serious interruption to the delivery of cost effective broadband services over much or the rural and remote areas of the region. Page 6

7 3 2.3GHz Radio Spectrum Auction 3.1 Spectrum Allocation Information released by the Ministry of Economic Development (MED) indicates the following allocation of the 2.3Ghz band is planned: i) A 15MHz band to be declared as a managed spectrum park to be used regionally ii) 16*5MHz bands to be auctioned nationally with a minimum of three successful respondents sharing this bandwidth as equally as possible. 3.2 Managed Spectrum Park Section 4 assesses the potential for this band to meet the needs of a competitive broadband environment in the Bay of Plenty for the wireless delivery of services. We assume that this band will be made available to individual services providers working in specific localities, and normal frequency management rules will apply. 3.3 Nationally Auctioned Bands We assume for the purposes of this report the worst case scenario, that item ii), the 16*5MHz spectrum may not be deployed in the Bay of Plenty for some time, if at all. This assumption is based on observed behaviour in New Zealand and elsewhere in that nationally owned spectrum tends to be used in high density areas and if this is the case in this situation, the Bay of Plenty cannot be sure this part of the spectrum will not be available. We note the MED report contemplates an auction requirement that each successful tenderer will nominate six Territorial Local Authority (TLA) areas from eight over which they will achieve 50% coverage of the population by The only TLA in the Bay of Plenty region mentioned is Tauranga. While the principle in this requirement is important, it means the Tauranga TLA might wait four years before this vital bandwidth is used, and that the remainder of the region is not subject to any coverage requirements at all. Section 5 of this report summarises the suggested terms of licensing for any successful bid for the nationally auctioned bands. Page 7

8 4 Managed Spectrum Park - Serving the Bay of Plenty Region The 15MHz of radio capacity for Wimax must serve the region effectively if, in the worst case, this is the only available licensed spectrum we can be sure will be available for the region. Determining whether this band has the capacity to serve the region depends on a number of assumptions, as follows in table 1: Assumption Sub Bands Guard Bands Use of Sub Bands by manufacturers Competition Nominal End User bandwidth Assume Quality of Service Customer base market penetration Description Required to operate in 5MHz and 10MHz bands to suit the operational requirements of most Wimax equipment providers. The auction will offer multiples of 5MHz (total 16). Will be a 5MHz band 5MHz is likely to be all that is offered from the managed spectrum park due to the limited capacity (3*5MHz). Assume a minimum of two competitors must be able to operate in any area Assume 1Mb/s minimum speed for end users Voice (VoIP) as well as internet access. This places a greater demand on the available bandwidth and will tend to reduce the number of customers that can be accommodated on a 5MHz band. Rural and remote areas assume 50% will not have access to alternative technologies (eg ADSL) and the remainder will rely on wireless delivery Metro areas assume 30% will not have access to alternative technologies and the remainder will rely on wireless delivery. Frequency re-use Assume bands must have one adjacent cell operating at a different frequency. Table 1 Managed Spectrum Park Assumptions Page 8

9 We now consider two examples of the use of the managed spectrum park one urban and the other country. While there are many variables in radio design, we make the following assumptions in the design of radio systems for the two examples that follow: i) All antenna heights are kept as low as possible to maximise frequency re-use. ii) Where economical, multiple base stations will be used iii) Sectorised antennae will be used to re use radio spectrum Urban Example: Whakatane: There are approx 5,422 properties within the urban area, and that this available market is within reach of a single Wimax cell broadcast site. From table 1, the total market size to be served via wireless is 5,422* 30% = 1,627 end users. Using the total of 3*5Mb/s bands 2 from the managed spectrum park can support approx 600 customers at most, far short of the estimated available market of 1,637. It appears essential that at least four more 5MHz bands are provided for adequate service in Whakatane, to take the total market that can be served to approximately 1,400 customers. We conclude from this example that the frequency allocation for the managed spectrum park is inadequate for the delivery of wireless broadband services in any of the larger metro areas in the Bay of Plenty region Whakatane, Rotorua or Tauranga. Regional Example: Area from Ruato to Lake Rotoma This area comprises six communities, shown in figure 2 below, Ruato, Gisborne Point, Rotoiti, Hinehopu, Rotoehu and Lake Rotoma. Total dwellings in these communities is 765. We assume the distance from Rotorua will allow spectrum reuse here and that in addition to ADSL services from Telecom at Rotoiti for example, 70% of the population cannot be served by ADSL. This means the total population that is available to the Wimax service providers is assumed to be 535 dwellings. Figure 2 Regional Example 2 Assume no guard band is needed as sectorised antennas are used from a central location in Whakatane Page 9

10 If two competing Wimax providers were to serve this area, one with 5MHz capacity able to serve 200 customers and the other with 2*5MHz, total customer connections can be 600. This may be an unlikely scenario as: i) One provider would be able to serve all the population if they were granted all the managed spectrum park (3*5MHz), but it is unlikely this would be permitted as it would stop any other application for spectrum from the managed spectrum park in the area. ii) Two providers would want to compete for the same customers, and to be fair, they might only be allocated 1*5MHz each sufficient for 400 customers. We conclude that the bandwidth allocation for the managed spectrum park is probably inadequate for urban population areas, and may be inadequate for regional communities such as shown in figure 2 unless high antennae are used, thereby reducing frequency reuse and competitive markets. It appears essential therefore to ensure that the national spectrum described in section 3.3 is made available in the region, especially if the successful bidder does not offer services in the region within a short timeframe. The next section presents detailed requirements of successful respondents for the national spectrum auction, to ensure regional availability. Page 10

11 5 Recommended Conditions of the Tender Process The previous section has concluded that the bandwidth allocated for the managed spectrum park is not adequate to provide wireless broadband services in the Bay of Plenty region, if this is the only available spectrum for Wimax services. The following sections suggest a range of approaches that would improve the utility of the total Wimax spectrum of 95MHz. Where necessary, we refer to the relevant section of the MED paper Radio Frequency Auction No. 9: Overview. 5.1 Change the Size of the Managed Spectrum Park This is the simple approach and ensures no contractual processes must be imposed on a successful tenderer if they do not use their national spectrum allocation in a specific region such as the Bay of Plenty. It is recommended the managed spectrum park be increased to 30MHz with another 7.5MHz of guard band capacity, creating a theoretical capacity of 1,200 connected customers within a coverage region. This allows approximately 60MHz of the band for the spectrum auction, for which reasonable use it or lose it conditions would still apply. If this option is not chosen, then the detail set out in section 5.2 is proposed as conditions imposed on national spectrum holders who do not use their bandwidth in any region within a specified period of time. {Ref Radio Frequency Auction No. 9: Overview: We note the decision between in section 88 to make between no capacity for the managed spectrum park, and 15MHz while still leaving sufficient capacity for a minimum of three national providers. We accept that the allocation of 15MHz for the managed spectrum park may be the best option, given the lack of total capacity for WiMAX (95MHz)} 5.2 Impose Stringent Conditions of Use Terms on National Spectrum Licensees When the full 16*5MHz bandwidth is in fact offered for tender, the terms for use in all regions must be stringent to ensure this essential bandwidth is quickly added to the 15MHz managed spectrum park allocation if the successful bidder at auction does not provide services in the region. The suggested terms are as follows: i) Regional Commitments. The MED overview document describes a requirement to deliver services into six of eight North Island TLAs by 2012, to comply with the use it or lose it approach. We seek the following amendments to this requirement: a. Services must commence within two years of award of the spectrum, and reach 50% of the population within three years. b. Offer the option to substitute three of the six TLAs for the whole of the Bay of Plenty region 3. Note that other aggregated regions in New Zealand can offer the 3 TLAs are therefore Tauranga, Whakatane, Rotorua, Western Bay, Opotiki, Kawerau Page 11

12 same substitution, so long as the result is that the aggregated region will offer service to a greater number of the population than the substituted TLAs. For example, a respondent could offer the six Bay of Plenty TLAs in place of any three of the eight TLAs, so long as the total population in the aggregated area exceeds the population in the three aggregated TLAs. This option allows an aggregated region to negotiate a preferred supplier arrangement with one or more of the successful auction bidders. It is understood that most respondents to the auction could not make binding commitments to coverage in any areas, or to achieve successful partnership agreements with third parties for sub licensing agreements before being awarded the tender. However, this amendment will allow the Bay of Plenty region to commence negotiations with national spectrum holders to improve the viability of investment in the region in a variety of ways and for the spectrum holders to be relieved of some of their responsibility for regional rollout to potentially uneconomic areas through this substitution. {Ref Radio Frequency Auction No. 9: Overview: We note the decision in section 57 to require service delivery to a number of TLAs in each Island. We seek a variation on this requirement in two respects: i) Bring the compliance date forward to commencement of service delivery to two years (2009) and coverage of 50% of the population in three years (2101). ii) Allow substitution of a limited number of TLAs, by negotiation, to an aggregation of a larger number of aggregated TLAs so long as the total population that will achieve coverage will exceed the substituted TLAs.} ii) Reallocation of National Spectrum to the Managed Spectrum Park. The first allocation of regional spectrum will be the 15MHz for the managed spectrum park in any region, and additional spectrum from the national spectrum will be transferred to a regional area under the following circumstances: Any applicant for spectrum from the managed spectrum park that cannot be fulfilled from the 15MHz base allocation will in the first case be advised to contact national spectrum holders to arrange a sub lease of spectrum that will not otherwise be used. If applicants for this band cannot reach an agreement with any of the national spectrum holders for the first services to be delivered within two years of the award of national spectrum (2009), a formal request for additional managed spectrum park bandwidth will trigger the following actions if the application for additional spectrum is outstanding for more than 3 months: i. All national spectrum holders who are not fully using their spectrum in a region where the managed spectrum park is unable to accommodate demand will be advised to confirm their intended use of their spectrum within 6 months. This will become a binding commitment for the national spectrum holder even if they have an agreement with a sub licensee for the use of the spectrum. ii. National spectrum holders who do not make or comply with the commitment described in i above, will be advised their bandwidth allocation is to be transferred to an applicant for managed spectrum park bandwidth for a minimum five year period. Page 12

13 {Ref Radio Frequency Auction No. 9: Overview: We note the decision in section 65 regarding the revocation of spectrum rights without compensation. We seek a variation on this requirement in two respects: i. All national spectrum holders who are not fully using their spectrum in a region where the managed spectrum park is unable to accommodate demand will be advised to confirm their intended use of their spectrum within 6 months. This will become a binding commitment for the national spectrum holder even if they have an agreement with a sub licensee for the use of the spectrum. ii. National spectrum holders who do not make or comply with the commitment described in i above, will be advised their bandwidth allocation is to be transferred to an applicant for managed spectrum park bandwidth for a minimum five year period} Page 13

14 iii) Conditions Applied to Managed Spectrum Park Licensees. When an applicant for managed spectrum park bandwidth is allocated bandwidth under normal circumstances from the base 15MHz or under the terms described above, they must comply with the following terms: i. Must provide services in the region within 12 months of being awarded the license to use bandwidth from the (existing or expanded) managed spectrum park. ii. If condition i is not met, the allocated bandwidth will be withdrawn and returned to the base pool, or to the national spectrum licensee as appropriate. iii. Must advertise the broadband services throughout the whole of the coverage area served by their spectrum license. The timing of these various conditions is based on a requirement that no applicant for managed spectrum park bandwidth will wait more than 12 months for confirmation of allocation of suitable bandwidth, and the delay in delivering broadband services to the community will be no more than 18 months. {Ref Radio Frequency Auction No. 9: Overview: We note the decision in sections 82 to 107 regarding the use of the managed spectrum park and seek the following variations: i. Managed spectrum park bandwidth users must commence provision of services in the region within 12 months of being awarded the license to use bandwidth from the (existing or expanded) managed spectrum park. ii. If condition i is not met, the allocated bandwidth will be withdrawn and returned to the base pool, or to the national spectrum licensee as appropriate. iii. Must advertise the broadband services throughout the whole of the coverage area served by their spectrum license}. Page 14

15 6 Conclusions There is a real danger that the use of much of the 2.3GHz band will be denied to the Bay of Plenty for up to four years as a result of the planned spectrum auction, other than the 15MHz of the managed spectrum park which is considered to be inadequate for broadband service provision in the region. The preferred changes to the auction process are: i) Shorten service delivery times in nominated areas for national bandwidth holders from four years to two years. ii) Create an opportunity to aggregate the demand for the whole region and allow substitution for a number of TLAs, to create the opportunity for greater regional aggregation and cooperation with national license holders. iii) Force national spectrum holders to relinquish bandwidth to the managed spectrum park if demand exceeds supply for the managed spectrum park within two years of award of national spectrum. Page 15