An industrial 5G Spectrum Policy for Europe

By Joakim Reiter, Group External Affairs Director, Vodafone Group Plc

In the race for economic prosperity and sustainable development across the globe, digital is quickly becoming a new engine of economic growth. Policymakers recognise that Gigabit connectivity propels the digital transformation of both industry and society. A successful rollout of 5G across Europe is a necessary condition for this European digital transformation.

Vodafone is playing its part in this transformation. As of November 2019, we have invested around €5 billion in 5G spectrum across the EU, rolling out 5G services in 100 European cities across seven Member States. We are actively developing the innovative services and applications that will realise the benefits of 5G for all. Given the profound impact of 5G on the industrial and business sectors in particular, we are working closely with our business customers across a range of sectors as they embark on this digital journey.

Our ability to deliver on our commitment is determined by the conditions for investment set by governments and regulators. Investors, such as Vodafone, need to operate at efficient scale to earn the return that enables their investment in the first place. Consistent and predictable regulation is critical, supported by policies that promote development and tackle fragmentation.

Despite this, there is an ongoing regulatory discussion on the issue of whether internationally harmonised cellular spectrum should be ‘set aside’ for private localised use instead of auctioned to whoever is able to create the largest value to society, including nationwide public networks.

Set-aside results in less spectrum remaining available for deployment in national networks, giving marginal potential benefits to a narrow set of stakeholders at the expense of all other 5G users, society and the wider economy.

The report that we have published today, ‘An industrial 5G Spectrum Policy for Europe’, demonstrates that set-aside policies will lead to a significant consumer welfare loss, reducing the incentive for investment by distorting competition, inflating the costs of spectrum licences and limiting the ability of operators to build the best 5G networks possible for everyone.

This report includes expert independent analysis and evidence from the consultancies Arthur D. Little and Compass Lexecon.

In the case of Germany alone, Compass Lexecon found that the decision to set aside 100MHz from the recent spectrum auction could cause a consumer welfare loss of between €6.2 - €15.6 billion for a licence ending in 2040. As a result of this set-aside, we estimate that operators paid an extra €2.2billion in this auction, money that could otherwise have been used for faster and more extensive deployment of 5G.

We believe that those regulators considering setting spectrum aside for local use should adopt the following three-step approach.

First, is there a market failure to justify a departure from a conventional market-based award procedure? We consider that there is currently no compelling evidence of a market failure. National operators are already delivering innovative 5G and 5G-ready connectivity to a range of industrial partners across the continent. The case studies gathered by Arthur D. Little and evidenced in our report show that this innovation cuts across a variety of sectors, including manufacturing, transport, energy, agriculture, logistics and mining.

Second, what are the costs and benefits of setting aside spectrum for localised use? This should take into account that most of the benefits of 5G in industry can be delivered through a range of technical and commercial alternatives that do not require spectrum set-aside.

Third, what are the alternative policy options to set-aside? Spectrum leasing is a good example of a pioneering, alternative policy approach, and we set out the case for it in the report.

With a series of important European 5G spectrum auctions set to take place in the near future, it is key that regulators consider the evidence and evaluate the policy alternatives if Europe is to achieve its Gigabit Society vision.