Australia: 5G investment in Australia: challenges and opportunities in the Australian market

The advent of fifth generation mobile technology (5G) is set to create significant challenges and opportunities for stakeholders in the telecommunications industry.

The transition to 5G will lower the cost of delivering data for mobile network operators (MNOs) and will also provide Australian mobile consumers with a higher quality of service which will allow MNOs to meet the demands for new and emerging data-driven services.

However, reaching this point will require significant investment from MNOs, such as building more mobile towers, cells and acquiring new spectrum to ensure that they can support the delivery of 5G and maximise its capabilities.

The challenge for the Australian Federal Government (Government) and regulators will be striking a balance between incentivising investment and facilitating a competitive landscape that will benefit Australian consumers.

This article examines the challenges and opportunities that lie ahead for investment and the regulation of the telecommunications industry in Australia.

Investment in the Australian 5G rollout

The mobile telecommunications sector in Australia is currently preparing for a generational shift that will see significant advances in technology. Although the benefits this transformation will have on industry and innovation in Australia are largely yet to be realised, what is apparent is that the future of 5G promises to provide high data speeds, high reliability and low latency.

To help achieve the rollout of 5G, the Government has outlined a number of policy objectives and law reforms to support network deployments. In its 2017 directions paper, 5G – Enabling the Future Economy, the Government identified its objective to support the rapid deployment of 5G networks by ensuring that spectrum is made available in a timely manner and that arrangements are made which will allow MNOs to deploy the necessary infrastructure quickly.¹

In line with these objectives, the Government recently legislated its spectrum re-allocation declaration,² which allows the Australian Communications and Media Authority (ACMA) to re-allocate ultra-fast millimetre wave 26 GHz band spectrum (mmWave) across 29 regions in 2021. The Government stated that making this new mmWave spectrum available will assist MNOs in rolling out the network and providing extremely fast high capacity services.³

Although MNOs support the allocation of these high frequency mmWave bands, the allocation of more spectrum in lower frequency bands is also required. This is in part because high-frequency spectrum, such as the mmWave bands, have propagation limitations, including reduced range and low indoor penetration.⁴

Although the Government has highlighted its commitment to assist MNOs with the successful deployment of the network, the fast and efficient rollout of 5G across Australia still depends heavily upon MNOs making costly infrastructure investments. Even after MNOs acquire new spectrum, additional physical infrastructure is still required to supplement the network so it can achieve the coverage and usage that it is capable of delivering. To overcome these limitations, MNOs must install new towers and also retrofit new cells across major cities.⁵ Network costs have also been projected to double as MNOs manage the upgrade from 4G to 5G.⁶

These challenges will make it more difficult for MNOs to maintain their profitability in the short to medium term while their networks are being rolled out. For this reason, the Government and regulators must work in tandem to support the investments being made by MNOs for the success of the network.

Regulating MNOs and the network in the emerging 5G market

In light of the significant challenges and costs that MNOs face in rolling out 5G, it is important that regulatory settings do not hinder fast and cost-effective rollouts of this critical infrastructure.

In its 2019-2023 five year spectrum outlook (FYSO),⁷ ACMA recognised the importance of ensuring spectrum is made available to MNOs in a timely manner.⁸ ACMA has also stated that information about the timing and sequence of major spectrum allocations will be provided in advance under its forward allocation work program.⁹ This is to ensure that both prospective and incumbent spectrum licence holders can make informed and strategic decisions to better support their network planning and manage their investment costs.¹⁰

To facilitate effective rollouts, ACMA will also need to balance the new and emerging approaches to sharing spectrum which could improve the network for consumers, with the need for certainty of investment for existing and incumbent spectrum licence holders. ACMA has noted in its FYSO that maximising the use of spectrum may involve implementing new sharing techniques that have been developed, such as dynamic spectrum access (DSA).¹¹ DSA is an approach to sharing access to spectrum, where lower-tier users dynamically give way to higher-tier users depending on their demands at given times.¹² International telecommunications regulators such as the Federal Communications Commission (FCC) in the United States and the Office of Communications (Ofcom) in the United Kingdom have started looking into the appropriateness of transitioning their networks to a model of this kind.¹³

In considering these new and emerging approaches to spectrum sharing, ACMA must consider their applicability to the Australian environment. Because it is vast and sparsely populated, Australia differs markedly from most other countries. While the European Parliament is considering alternative infrastructure models to facilitate 5G such as spectrum sharing,¹⁴ this approach was shut down by Australian MNOs following a consultation by ACMA MNOs such as Telstra and Optus expressed their view that these new approaches to network sharing create uncertainty of investment and potentially dilute the rights of their spectrum licences.¹⁵ These MNOs also argue that potential Australian Consumer Law issues could arise in implementing spectrum sharing techniques like DSA in Australia. If lower tiered users suffer from network disruptions under DSA, for instance, there may be issues around representations of the performance of the 5G service delivered by MNOs. Questions could also arise around whether the service is fit for purpose for these customers.¹⁶

Vodafone Hutchison Australia (Vodafone) submitted that the benefits of non-traditional spectrum sharing may be limited to edge cases where a primary user's spectrum space is inefficiently used and this problem cannot be addressed via other commercial or regulatory means. Vodafone also raised a concern that non-traditional spectrum sharing could entrench obsolete or inefficient spectrum uses and believes that the clearing out of inefficient incumbents should be a first priority.

While DSA has not received major support from MNOs in Australia, it is still important that ACMA continues to monitor developments which may improve 5G networks and could benefit industry stakeholders as well as the downstream markets.¹⁷

Like ACMA, the Australian Competition and Consumer Commission (ACCC) must also ensure that its regulatory settings are flexible enough to be able to keep up with new developments and the potential evolution of competition in the telecommunications markets. The ACCC has flagged the likely increase in physical infrastructure sharing (such as sharing mobile towers and antennae) that will arise due to the challenges involved in rolling out a dense network across Australia.¹⁸ Network sharing of this kind in Australia is regulated by the ACCC under the Facilities Access Code, and is not uncommon.¹⁹

The ACCC also anticipates opportunities for active network sharing in the Australian context. Active network sharing involves MNOs sharing the radio access network itself (including the spectrum).²⁰ While this type of sharing has been argued to provide MNOs with more efficient asset utilisation, as well as accelerate the deployment of 5G and minimise infrastructure development works,²¹ in the past the ACCC has considered that network sharing of this nature could create complex issues for regulating competition in the Australian market. The ACCC previously stated that active network sharing could make it difficult for consumers to differentiate the services offered by MNOs due to risks of tacit collusion depending on the degree to which MNOs share this infrastructure.²² However, active network sharing among MNOs may become a more favoured approach by the ACCC, so long as MNOs are able to maintain differentiated customer facing offers. As discussed below, this approach has become increasingly common in overseas markets.

MNOs in the United Kingdom have seen the value in active network sharing due to the demands of rolling out the 5G network. In July 2019, Vodafone Limited and O2 finalised an active network sharing agreement in order to accelerate their deployment of 5G in a more cost-effective manner and to increase the utilisation of their spectrum.²³ The ACCC has signalled that emerging approaches and new technology which incentivise investment and provide benefits to Australian consumers will be closely examined to ensure that Australian market is well placed to deliver the networks.²⁴

The ACCC has emphasised the importance of considering the competition implications in allocating spectrum.²⁵ The ACCC has argued that allocation limitations may need to be set by taking into account the spectrum holdings of MNOs, and using this metric to distribute spectrum more evenly, both among existing MNOs and potential new entrants into the market.²⁶ Mr Sims argues that it would be a poor outcome for competition and consumers if the true transformative capabilities of 5G by limiting spectrum access to the highest bidder.²⁷ However, the ACCC's view on limiting spectrum allocations in this way has not been supported by the Government. This is because there is a real concern that limiting spectrum in this way could act as a disincentive to investment.

Another challenge for the ACCC has been finding the right balance in making sure that the telecommunications market is competitive.²⁸ When analysing the competitive dynamics in telecommunications markets, the ACCC has focused on the number of market participants as an indicator of more competitive results for the market, rather than more meaningful indicators. ACCC Chair Rod Sims highlighted in his speech at the ACMA Radcomms on 30 October 2018 that the regulator wants to make sure that the telecommunications market remains an attractive investment for new MNOs to enter the market and achieve competitive results.²⁹

While the ACCC has made attempts to encourage entry into the market from a fourth MNO, for example by attempting to block the TPG merger with Vodafone, it is clear that interventions of this kind have been viewed as detracting from the competitive landscape. Indeed, Justice Middleton accepted that the merger of TPG and Vodafone would enhance the competitive landscape and opined that this merger would provide a 'strong competitive force against Optus and Telstra'. The pragmatic approach taken by the Federal Court serves to cement the idea that it is not always the number of competitors, but the strength of competition that is critical.³⁰

Where to next?

With the rollout of the 5G network underway, regulators and the Government must find a balance between meeting the interests of telecommunications industry, with those of Australian consumers. This includes being aware of new technology and approaches that could improve network utilisation, and which could incentivise investment, both in cities and in rural Australia.

Regulators must also be conscious to ensure regulatory frameworks are flexible enough to allow these new technologies to be effectively implemented. This will help ensure that the Australian 5G network is in a strong position to deliver the full benefits promised by this technology for the benefit of the Australian economy.

Footnote

¹Department of Communications and the Arts, 5G – Enabling the Future Economy, p 10.

² Radiocommunications (Spectrum Re-allocation—26 GHz Band) Declaration 2019.

³Australian Government, Department of Communications and the Arts, Communications Policy Objectives for Allocation of the 26 GHz band, available here.

⁴ McKinsey and Co, The Road to 5G, the Inevitable Growth of Infrastructure Costs, available here.

⁵ Infrastructure Australia, Australian Infrastructure Audit – Telecommunications 2019, p 572.

⁶ McKinsey and Co, The Road to 5G, the Inevitable Growth of Infrastructure Costs, available here.

⁷ Australian Communications and Media Authority, Five-year spectrum outlook 2019–23 The ACMA's spectrum management work program.

⁸ Ibid, p 53.

⁹ Ibid, p 53.

¹⁰ Ibid, p 53.

¹¹ Ibid, p 20.

¹² Ibid, p 20.

¹³ Office of Communications, Enabling wireless innovation through licensing, shared access to spectrum supporting mobile technology, July 2019.

¹⁴ European Parliament, 5G Deployment – State of Play in Europe, USA and Asia 2019, p 10.

¹⁵ Telstra Corporation Limited, New Approaches to Spectrum Sharing Discussion Paper.

¹⁶ Ibid.

¹⁷ Australian Communications and Media Authority, Five-year spectrum outlook 2019–23 The ACMA's spectrum management work program, p 12.

¹⁸ Australian Competition and Consumer Commission, Competition & the 5G Spectrum, available here.

¹⁹ Ibid.

²⁰ Ibid.

²¹ McKinsey and Co, Sharing and 5G: A Turning Point for Lone Riders, available here.

²² Australian Competition and Consumer Commission, Competition & the 5G Spectrum, available here.

²³ O2 and Vodafone finalise 5G network agreement in the UK, available here.

²⁴ Australian Competition and Consumer Commission, Competition & the 5G Spectrum, available here.

²⁵ Australian Competition and Consumer Commission, NBN Affordability a Growing Issue, available here.

²⁶ Ibid.

²⁷ Ibid.

²⁸ Australian Competition and Consumer Commission, Competition & the 5G Spectrum, available here.

²⁹ Ibid.

³⁰ Michelle Rowland MP, Speech – Address to Commsday Melbourne Congress – Thursday 10 October 2019, available here.

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