UK operators face ‘perfect storm’


Telefónica O2 UK chief executive Ronan Dunne (pictured) set out the stark investment issues facing UK network operators last week, with a new UK coalition government required to reverse the biggest budget deficit in the modern era and a spectrum auction on the horizon that could raise considerable funds.

Dunne made clear UK operators are mindful a 2011 spectrum auction might be considered a way to raise public finances, especially in light of recent money-spinning auctions in India and Germany, where 700 billion rupees (£10.5bn) and €4.4 billion (£3.67bn) was raised in the sale of spectrum for 3G and 4G usage, respectively.

The market climate – with latest quarterly operator results again showing no real customer growth, and regulatory proposals in place to slash mobile termination rates (MTRs) in degrees by almost 90 per cent within the next five years – already puts intense pressure on operator investment programmes, remarked Dunne.

He explained: “All operators are concerned by the timing of the spectrum auction, and the possible influence upon it of economic conditions, and the investment case that might be made for it consequently. You couple that with regulation around mobile termination rates and it is a difficult situation.

“Everyone is in the same boat. In Europe, at this stage, the spectrum issues are not clear – because of policy, debate, change of government and so on. But the return on investment is the most important thing. The prospect is that calculation might be unappealing with this perfect storm – mature market, tough economic conditions, regulation of MTRs, spectrum investment and infrastructure funding.”

He said: “2011 will be a massive year for this industry in those terms.”

Vodafone UK chief executive Guy Laurence also said the new government must urgently examine the issue of UK spectrum, and the case for refarming existing bandwidth, alongside frequencies that will come available from analogue television, for usage with all mobile transmission technologies.

“It is essential the new government takes a fresh look at the crucial issue of spectrum allocation if it wishes to make a success of our digital economy and give operators a fair opportunity to compete,” said Laurence.

CCS Insight director of operator strategy, applications and content Paolo Pescatore said: “This new government is looking to cut costs and raise income, and one of the easiest ways to do that is with a spectrum sale.”

Meanwhile, Dunne dismissed criticism of UK operators’ infrastructure in general, and said various foreign HSPA and LTE deployments remained in their infancy, and are essentially neat PR jobs. He said no operator has yet grasped successfully issues with ‘quality of service’ and traffic management, even if certain infrastructure is in place.

Dunne explained: “Telefónica has been running LTE trials itself, with download speeds of up to 160Mbps. So we will be ready by the time the spectrum is available to us. But this is not a technology arms race. The same exam question is on the desk of every chief technology officer at every operator the world, which is about how to approach this – the right specification, right technology, right traffic management.

“The industry is very keen for customers to try mobile data and to experience it. But to build, we must invest in spectrum, technology and traffic management; and manage customers’ expectations and this idea of unlimited data.

“I don’t think network operators in any part of the world are close to delivering in terms of traffic management. It is only a fledgling technology now. We all have to get better at ‘quality of service’ and segregate different user activity.”

Dunne said O2 UK is already preparing the ground for its investment in spectrum and infrastructure in 2011 by profiling its customers and mining usage data.

“We are already building capability into both our fixed and mobile networks so we can differentiate types of customer and usage. So that if you want email and text, you take one type of tariff; if you share lots of video, you take another; and if you’re interested in speed and dedicated bandwidth for 7.45pm Champions League kick offs, then there is another still.”

Dunne added: “But at the moment, all data is amorphous and unmanaged, which creates an inconsistent experience, and causes bottlenecks. All customers are dumped into one bucket. But it will change in the coming months. The period of unlimited data tariffs is almost over.”