Skype s Response to the ACMA Discussion Paper Spectrum Reallocation in the 700MHz Digital Dividend Band October 2010

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1 To: The Manager Major Spectrum Allocations Section Australian Communications and Media Authority PO Box Melbourne VIC to 6 December 2010, Luxembourg Skype s Response to the ACMA Discussion Paper Spectrum Reallocation in the 700MHz Digital Dividend Band October 2010 Skype thanks ACMA for this opportunity to comment on its proposed spectrum reallocation policy in the 700MHz digital dividend band. Skype Communications S.a.r.l ( Skype ) is a Luxembourg based provider of peer to peer software applications that enable Skype users to communicate with other Skype users, and enabling, optionally and where possible, certain forms of communications with the subscribers of electronic communications networks and services. Skype is a software company and not a telecommunications carrier and as such, Skype does not own or control any telecommunications facilities. Instead, Skype relies on network partners who are themselves telecommunication carriers, to enable Skype users to communicate over the Internet. Like many other Internet companies, Skype collaborates with an ecosystem of software and hardware partners to maximise the capabilities of our software. Skype has also partnered with wireless operators around the world who extend Skype into a mobile environment. Consistent with this business model, Skype does not intend to transform itself into a telecommunications carrier by bidding for spectrum in the 700MHz Digital Dividend band. In our view, consumer benefits are best advanced when each ecosystem partner performs a function it does best. And Skype continues to focus on what it does best: innovating and building software that enables the world s conversations. Skype is therefore participating in this ACMA consultation on behalf of our users who might subscribe to those services enabled as a result of the digital dividend spectrum reallocation process. Please find hereby Skype s response to the ACMA s Discussion Paper.

2 International Harmonisation Q1. Should the ACMA align its configuration of the digital dividend spectrum with harmonised Region 3 arrangements? If not, what configuration arrangements should the ACMA put in place for the digital dividend spectrum? In proposing to choose harmonisation with Region 3 arrangements, Skype notes that one consequence of this policy would be that it would not be possible to fully align Australia s digital dividend with Europe s. This situation will clearly have some impact on the global compatibility and harmonization of devices used for mobile telecommunication and broadband, and whilst this potential disjunction will be significantly mitigated by Australia s alignment with the Asia Pacific countries comprising ITU Region 3 countries, there could be a degree of incompatibility between some devices produced for American and European markets and those for the Australian market which would, to some degree, reduce the social and economic benefits of the Australian digital dividend where it is to be used for these purposes. Q2. What are the benefits and risks of the ACMA s preferred approach? Is there evidence to support the stated benefits or risks? Skype notes that legacy arrangements for European broadcasting services preclude the Australian digital dividend ( MHz) from being substantially aligned with European frequencies, in that only a limited overlap ( ) MHz is possible. We therefore share the ACMA s view that in this situation it is unlikely that Australia would be able to achieve significant advantages by attempting to partially align with this plan, and that although the Australian frequencies align more closely with those of the United States, the interleaved nature of the US arrangements represents an inefficient harvest of the digital dividend by requiring more guard bands to protect against adjacent interference, and making more complex and expensive the building of mobile handsets. However, aligning Australia s digital dividend with ITU region 3 (which covers the Asia Pacific region and contains the major economies of China, Japan and India) would represent the most effective means of maximising advantages for Australian industry and consumers by leveraging the economies of scale for handset production and for maximising international roaming opportunities (both inbound and outbound). The Asia Pacific region is a large and rapidly growing market and we understand the ACMA s rationale for weighing in the economic benefits of alignment with this region. Skype commends Australia s active participation in the work of the Asia Pacific Community Telecommunications Wireless Forum (AWF) in developing harmonised arrangements for the MHz band and the progress made at the September 2010 Seoul meeting. However, Skype notes that the process is not finalised and that, by adopting this strategy, it is not likely that Australia will be able to finalise its band plan until the Region 3 arrangements are settled. In these circumstances, Skype would submit that the best outcome for Australia would be for ACMA to confirm its intention to allocate the full 126 MHz of available digital dividend for mobile communications purposes, and to continue to engage with the region 3 planning

3 processes in order to secure harmonisation. Identifying and signalling its approach in advance of the forthcoming March 2011 AWF meeting will assist Australia in setting and driving the agenda, and therefore in driving positive outcomes at the earliest opportunity. Geography Q3. Should remote parts of Australia be excised from spectrum licensing of the digital dividend band? Why? Q4. If not, how much digital dividend spectrum should be made available in remote areas of Australia? Should different amounts of spectrum be made available for spectrum licensing in different areas, for example, metro versus rural? Fundamentally, Skype believes that digital dividend spectrum should be reallocated nationally via allocation procedures designed to ultimately achieve market based outcomes that would promote further competition and consumer choice. Skype also believes that optimal use of digital dividend spectrum would be to reallocate it for mobile broadband and fixed wireless use. In order for mobile broadband services to be deployed commercially, it would be highly desirable for spectrum to be made available on a fully national basis, in individuated lots that can be purchased individually or in any combinations, so as to enable aspirant operators to bid for preferred lots or aggregation of lots in order to address service development plans that may focus variously on local, regional and national markets. This is because firstly, users require geographic ubiquity and secondly, because aspirant operators must be unconstrained in their ability to develop business plans that justify the heavy capital and ongoing operational expenditures required for these investments. This flexibility must include a meaningful economic decision as to whether to deploy its own network or pay roaming charges to other operators to service off net areas. Adopting this approach will optimise the ability of users to enjoy full service ubiquity wherever they live or work, and for all Australians to participate fully in the opportunities arising from a developing digital economy. Accordingly, Skype believes that all of the spectrum in this frequency band should be used for broadband wireless telecommunications, regardless of the form of licensing used. In remote areas, where low teledensity and greatly increased costs of providing facilities based services lead to reduced competitive pressure, it may prove useful for the ACMA to investigate prevailing market conditions in particular local areas when determining how to allocate spectrum most efficiently, with the types of license designed around the likely intended use. In these areas Skype suggests that the ACMA could invite and assess expressions of interest for these local markets and make decisions on a case by case basis. In areas of low competitive interest, and where an aspirant operator is proposing to offer services only within that local geography (i.e. not forming part of a larger regional or national network), then apparatus licensing could be a more suitable alternative due to the higher degree of predictability about the technology choice and diffusion characteristics. This approach would maximise efficiency by leaving open the possibility of enabling

4 additional apparatus or class licensed services to operate in that band during the same term, should the opportunity arise. However, if spectrum licensing is the preferred solution in a particular geography, Skype would then recommend that the amount of spectrum made available should be determined with reference to the likely levels of traffic demand over that area. It is clear that demand is likely to be far higher in metropolitan locations than remote locations due to higher populations and levels of business activity. While adopting a geographically tailored approach would maximize allocation efficiency we would caution against implementing any planning decisions that could serve to deprive remote users from accessing the full range of mobile applications and capabilities, or which could retard opportunities for regional economic growth and development. A key lesson learnt from the explosive growth in mobile communications (and associated bandwidth requirements) over the past twenty years is that economic growth can be significantly retarded by conservatively forecasting demand for radiofrequency spectrum. Uses of Digital Dividend Q12. What services are interested parties planning to deploy in the digital dividend band? What are the technological requirements in terms of spectrum usage? Will these services require paired or unpaired spectrum? Skype believes that digital dividend spectrum would deliver the most optimal consumer and social outcomes where reallocated and deployed for fixed wireless and mobile broadband use. In particular, it is a cost effective means of enabling less developed and underserved communities to leapfrog into the digital age and participate in the information society ecosystem. It is clear that there is a very high degree of demand for these frequencies for these purposes, especially by existing and aspirant mobile broadband and fixed wireless operators deploying various technologies. Skype notes the following comments in the ACMA s Communications Report : Wireless technology is playing an increasingly important role in the provision of broadband access in Australia The ABS estimates that mobile wireless broadband accounted for 23% of all subscribers at June 2009 and is the fastest growing broadband technology in Australia. [pp35 36] During , mobile network coverage increased with GSM networks providing coverage to 96.22% of the population and 3G networks providing coverage to 96.06% of the population at 30 June Mobile operators continued to announce plans to upgrade mobile networks to support both voice and higher data rate services. In particular, 3G networks, which are able to support triple play services, were upgraded during for high speed downlink packet access (HSDPA) protocol increasing the download speed capabilities of these networks. [p 15] Australians continued to shift to mobile services with an estimated million mobile services in operation at 30 June This is an increase of 9% since June

5 2008, and represents an overall penetration rate of 110%. 3G services continue to drive growth within the mobile sector in Australia, with consumers seeking to take advantage of the increasing functionality and capacity of 3G handsets and networks that support a range of applications such as the Internet. At June 2009, there were approximately million 3G services in operation, an increase of 44% since June [p 16] During , the mobile sector was estimated to have accounted for the single largest share of industry revenue, nearly 40%, compared with nearly 32% in In comparison, the wired (fixed line) telecommunications sector accounted for nearly 33% of total industry revenue in , a decline from 49% in [p 30] This set of data confirms not only the dramatic growth of mobile use in Australia, but the dramatic rise in the use of mobile telecommunications to access data rich services formerly accessed only via fixed networks. This trend is matched by revenue and economic growth: as the ACMA notes, Telstra, the nation s PSTN owner, now earns more from its mobile business than from its fixed line business. As has been ascertained from the responses to the DBCDE Green Paper, in Australia (as in the rest of the world) the leading GSM/3G operators are seeking access to digital dividend spectrum in order to upgrade and enhance existing network operations, in particular to enable the growing bandwidth demands represented by smartphones and other mobile devices used for online access and commerce. Furthermore, a key objective of the Government s NBN initiative is to help drive the development of a digital economy. This strategy will provide consumers, businesses and governments across the country with ready access to information and services that will make our institutions more accessible, improve the workings of our public and enterprise infrastructure, and enhance the delivery of core government services such as health and education. Wireless services are a critical element of this solution, whether in urban, suburban, regional or rural areas. As the ACMA data indicates, the overwhelming and irrevocable trend is towards increased mobility and use of wireless services generally, and that this ecosystem will drive and support a variety of applications and network systems. The Digital Dividend spectrum is particularly suitable for these uses due to its superior propagation characteristics, as well as the superior economic advantages of building networks and manufacturing equipment in the lower UHF range. In a competitive market these cost advantages can be expected to flow through significantly to consumers in the form of lower handset and airtime charges, improving the economic model and fuelling further growth, innovation and digital cohesion. Accordingly, over and above the economic advantages in making spectrum available for mobile purposes, there is a particular benefit associated with the release of spectrum in the 700 MHz range.

6 License Design The presence of multiple providers would, prima facie, lead to a notion that the marketplace is competitive and the possibility that this competition would spur innovation and new business models. Skype s view is that the process for awarding digital dividend spectrum lots should be designed so as to enable as wide variety as possible of market outcomes including, in particular, the entry of operators wishing to provide service on fully national, regional or niche bases where ultimately, the desirable outcome would be to promote competition and consumer choices and investment certainty. Q17. Should all the spectrum licenses commence on the same date? Should spectrum licences in a particular licence area commence on the same date? If so, what should the ACMA consider when selecting this date? Q18. Would it be preferable to make the commencement date flexible? How flexible should the commencement date be? What benefits or disadvantages might result? Q19. Should the ACMA consider staggering the commencement date of licenses in accordance with the availability of spectrum under the restack process? A key objective of both the Radiocommunications Act 1992 and the AMCA s supporting Spectrum Management Principles is to maximise overall public benefit by promoting the movement of spectrum to its highest value use. In the context of the digital dividend, Skype submits that this outcome would be best achieved by the commencement of spectrum licences in particular areas as soon as they become available: that is, as soon as the band has been cleared of incumbent licensees. This approach would lend itself to a national solution whereby new licences for mobile telecommunications services are rolled out in lockstep with the progressive closure of the analog television frequencies as broadcasters cease their simulcasts and migrate fully to the restacked digital television frequencies. This solution would maximise efficiency by making the spectrum available for new uses at the earliest possible opportunity, whilst assisting national and regional mobile and fixed wireless operators investment models by enabling them to begin earning revenues as soon as their networks and network enhancements have been deployed in accordance with their rollout schedules. The complex and extensive band clearance procedures required under the digital dividend process, should provide sufficient time (between the re allocation of new licences, the progressive clearance of legacy licensees and the subsequent commencement of the new spectrum licences) to enable new spectrum licensees to be adequately informed about the licence commencement date. In this situation, the ACMA should be able to set a commencement date for a particular licence area that would not unduly prejudice the interests of a well organised licensee. This becomes more significant if a progressive authorisation approach is adopted, which in theory would maximise efficiency by commencing licence period more or less immediately as they become available. Here, flexibility in commencement dates would equate to economically underutilised spectrum for the period of time that licence commencement was delayed an outcome that would not

7 serve to promote the efficiency principles of the Radiocommunications Act and the Spectrum Management Principles. Q20. Are there any other considerations that the ACMA should take into account in determining the commencement date for the digital dividend spectrum licenses, such as the availability of spectrum in other bands, for example, 2.5GHz? Skype believes there may be value in conducting the 700MHz and 2.5 GHz closely together as these bands are likely to be used by similar operators for similar purposes. In this regard, simultaneous or concurrent allocations would enable aspirant bidders to more easily plan their investments and avoid a potential situation of artificial spectrum scarcity. Q21. How long should the spectrum licenses operate? Is it preferable to have as long a term as possible, that is, 15 years? Are there reasons why a shorter term might be preferable? Q22. Should all the spectrum licenses have the same term or should the ACMA be flexible in the term of the license? The term of spectrum licences comprises one of a large number of elements of spectrum, industrial and competition policy that collectively are intended to promote optimal social and economic outcomes, and which need to be assessed with reference to one another in the context of any particular market issue. As regards the appropriate license term, Skype submits that the ACMA should consider this with respect to policy aims of attracting the necessary investment to drive broadband adoption and to maintain a competitive environment that promotes new market entry and other forms of innovation. Skype notes that 15 year terms have been the standard period for spectrum licences designed for mobile telecommunications purposes since the commencement of the Radiocommunications Act Notwithstanding, there may be good reasons to depart from this practice, such as where the likely uses of this spectrum may not be for mobile communications but for example for niche uses in remote areas which would be more suited with shorter terms for a spectrum licence or, if appropriate, allocating by means of apparatus licences. Accordingly, if the ACMA is considering changing its approach, it should articulate its thoughts into a structured paper and invite industry discussion (whether as part of this allocation process or as a separate consultation). Q23. Should the ACMA consider incorporating either of the optional core conditions in the digital dividend spectrum licenses? Why or why not? As discussed above, Skype considers that the ACMA should adopt a progressive authorisation approach to the issuance of spectrum licences being made available as television broadcasters exit the digital dividend frequencies. Accordingly, Skype recommends that the ACMA utilise its power under section 66(5) of the Radiocommunications Act 1992 to include relevant rules as a core condition of these licences.

8 Q24. Are there any optional conditions that the ACMA should consider including in the digital dividend spectrum licenses? Why? Skype wishes to stress that it is not the mere availability of wireless broadband as such, but the availability of very high speed unrestricted access to Internet content, services and applications, which is necessary to deliver key socio economic benefits. In the context of the digital dividend, it would be against the interest of all constituents if the policies adopted would enable wireless broadband network operators to inhibit open access to the global public Internet or regard to the situation in downstream retail markets. Although, for the most part, such regulatory protection would be implemented and applied under the access and competition regimes, we believe it is crucial that frequency bands are designed and allocated in accordance with these principles in mind, including where suitable the application of appropriate ex ante and ex post regulations or licence conditions. Skype believes that open access rules and openness principles should be included as a condition in the relevant licences. In the US 700MHz auction, for example, one of the licensing conditions for one commercial spectrum block in the 700 MHz Band was the application of a no blocking rule based on the FCC s Carterphone principles which allow consumers to attach any device to the network so long as it does not harm the network. Specifically, the FCC prohibited licensees from blocking, degrading, or interfering with the ability of end users to download and utilize applications of their choosing on the licensee s C Block network, subject to reasonable network management 1. To protect the innovation that device and application neutrality will bring, the license conditions relating to device and application openness should be enforceable through a clear and efficient process. As a minimum, normal competition laws should continue to apply to the acquisition of and trade in spectrum licences, even in circumstances where spectrum is intended to be used for NBN related purposes and may otherwise be exempt from certain aspects of competition law regime. Skype also notes that another key aspect of access is the availability of spectrum for those who will use it to deploy new networks and services. There is little point in making planning and allocating spectrum on the basis of its potential economic value and contribution to the overall public benefit, if this value and these benefits are not realised as a result of underutilisation. Accordingly, the ACMA should consider introducing use it or lose it provisions and/or the imposition of network deployment milestones in order to ensure that licensees effectively exploit this public resource. *** Should you require any clarification or additional information with respect to the contents of this submission, please do not hesitate to contact us. We would be happy to engage with you further on the points raised here. 1 See FCC Order, Service Rules for the , and MHz Bands, WT Docket No , FCC , at 89 91, (rel. Aug. 10, 2007) ( 700 MHz Order ); see also 47 C.F.R

9 Yours sincerely, Ms Tan Hsu Phen Valerie Director, Government & Regulatory Affairs, Asia Pacific Skype Skype ID: valerie.tan1