Telecom operators and suppliers are awaiting the commencement of a "beauty contest" that will determine which bidders should be granted licences to build third-generation (3G) networks and provide 3G mobile services.
Getting the licensing process right will be critical to ensuring the regulator's key objective of "ensuring that good quality, innovative telecommunications services are available to consumers at the lowest possible price consistent with the sustainability of a competitive market" is met.
To its advocates, 3G will revolutionise mobile telecommunications, enabling handsets to provide features including video pictures and digital sound, which should mean many lucrative revenue streams to those operators with a licence to operate in this market. This excitement, combined with a belief that those operators who did not get a licence would face ruin, saw operators bid more than €50 billion (£39 billion) in Germany and Britain last year.
However, the elation felt by successful licence holders (and governments who had such an unexpected windfall) changed to pessimism as the costs sank in. Operators not only had to pay onerous licence fees but build networks, all on the back of an unproven technology. As a result, subsequent licence award processes, such as those in France, were met with less enthusiasm.
The key challenge is to devise a licensing structure that ensures the maximum amount of money is received and that successful bidders will have funds to build their networks and provide 3G services at competitive prices.
Perhaps surprisingly, the EU has refrained so far from taking a lead in spectrum licensing: in particular, its pricing is still very much a member-states reserved area, subject to their respective obligations under the ITU constitution. The Licensing Directive provides that licences for the provision of telecommunications services should be granted through open, non-discriminatory and transparent procedures based on objective criteria defined in advance.
Spurred mainly by a desire to maximise financial rewards, EU members used different procedures to award 3G licences. States such as Britain and Germany used the mechanism known as the "English auction", where the highest bidder was awarded the licence. Others used the "beauty contest" or "comparative selection" approach, where bidders that most closely met previously defined criteria were successful.
Irish 3G spectrum licences will be awarded using this "comparative selection" approach. However, the lack of transparency inherent in this method has meant unsuccessful applicants elsewhere have challenged licence award decisions in court. Mindful that this could mean litigation, the Irish regulator has promised transparency.
Devising a successful system for the award of licences will only be the first challenge. Equally important is ensuring that licence holders will build a national network in a satisfactory timeframe.
As a means of reducing the burden on operators, attention has focused on infrastructure sharing - where operators co-operate to build and operate a network. The concept of facility sharing as opposed to infrastructure sharing has been used previously by the EU to force national operators to share facilities with newer operators to encourage competition.
The sharing of 3G infrastructure will be much more difficult. No network is yet in place, the technology is complex and untested, and standards are not yet agreed. Infrastructure sharing can take many forms. It could mean different networks sharing space on masts and associated sites. It could involve one operator committing to building the network for one particular area (e.g. Cork), while another operator would build elsewhere (e.g. Dublin), on the basis that each would allow the other access to its network. Even more ambitiously, one entity could build and then operate the network for both operators.
All these options raise key questions. Who will control the network? How will the costs be shared by operators? How will competition, which ensures prices are low and subscribers use the services, be maintained? Failure to resolve these points could mean an absence of pressure on operators to compete on the scope or quality of their network, strangling this new market at birth.
Already in Germany the regulator has issued guidelines that permit sharing of physical components of a network, such as mobile base stations, so long as the independence of the operators is maintained and each retains functional control of its operations. Similarly, in Britain, the regulator is moving towards support of the concept, stating that any such arrangements should be transparent and benefits shared with consumers.
Whilst the Government has missed out on the riches that the Germans and British experienced with 3G auctions, there are advantages of not being first. In particular, to avoid challenge in the courts, the beauty parade structure needs careful consideration.
Infrastructure sharing should have great implications for the success of 3G here. It could help address health and environmental concerns regarding masts and assist in ensuring a speedy roll-out of a fully national network (a crucial factor given the low population density here). It is therefore to be welcomed that the Irish regulator has recently confirmed support for this concept.
However it will be imperative that the tender conditions spell out what level of infrastructure sharing will be permitted not only to enable bidders establish their costs in advance, but also to enable them to deal with competition issues that will impact the building and operating of 3G networks.
However any determination on infrastructure sharing in the tender process will have to be made in the context of the regulator's outline position on "infrastructure access and roaming". So far, the regulator has indicated that all applicants for the class A licence will be invited to offer a binding commitment allowing air interface access to their 3G mobile network and their 2G mobile radio access to mobile virtual network operators (MVNOs).
Additionally, bidders for class A or class B licences will be required to accept a condition to provide national roaming to other 3G mobile operators where such bidders have ownership interests in a licensed GSM network in the Republic. Both MVNO access and roaming have a major impact on a bidder's investment case, not only because they result in the operator having to reserve and sell capacity, and resell services on his network but, more importantly, the price at which the operator grants access or sells whatever services are mandated, based on the 2G experience, is likely to be heavily regulated. Further, MVNO access requires intensive and detailed negotiation between the operator and the MVNO.
It is to be hoped that the regulator provides more detail on each of these issues. Particular concerns raised by MVNO access are whether the MVNO must be licensed to run the mobile switching centre, which he is obliged to operate, and what network elements (if any) must be unbundled for such access? Moreover, how many MVNOs is it envisaged ought to be granted access? These are key issues.
Paul Foley is a communications and technology lawyer and has advised on 2G and 3G licence bids in other European countries. Sylvia Ospina is an international telecommunications and space law consultant.
