Does industry need its mid-band subsidy?
Jun 21, 2019 by Toby Youell

Blog

Governments have long considered tax breaks and credits useful tools to encourage investment in disadvantaged communities. Policymakers hope that they can encourage firms to put an under-used resource—people living in those communities—to more productive use, despite some of the perceived risks and costs associated with doing business in these areas.

Spectrum policymakers have long thought the same way about “junk” frequencies. For example, the need to share the 2.4 GHz band with microwave ovens has persuaded them that it would be unfair to charge for access to the band. They take the view that it’s a risk to use this band, so charging would just discourage people from using it.

Various taxes on commerce, from business rates to congestion charges, also tend to be higher in areas that are already economically vibrant. Premium “beachfront” spectrum, frequencies where the principal challenge is spectrum scarcity, is also famously expensive. British and German mobile operators discovered this when they paid high prices for 3G spectrum at 2.1 GHz auctions in 2000.

Innovative approaches to making better use of spectrum have often focused on where it is under-used, such as the white spaces between broadcasting channels at 470—694 MHz, where sharing is technically complicated. Use of these bands has not been subject to regulatory fees.

The current trend of spectrum policy innovation—exclusive local licences for the industrial internet of things—is to focus on premium mid-bands. In the US, this is the shared Citizens Broadband Radio Service (CBRS) at 3550—3700 MHz. In the UK, it could be 3.8—4.2 GHz. New users of the band expect to pay little to access the spectrum, even though it is not substantially different from frequencies subject to expensive licences.

The starkest example is the 3.7—3.8 GHz band in Germany, which will be made available to industry for a couple of thousand euros for a given campus. Meanwhile, nationwide licences in the adjacent 3.4—3.7 GHz band, which will use the same technical standards, cost operators a total of €6.6 billion at a recently concluded auction.

Mobile operators are frustrated by the industrial set-aside as it reduced the amount of spectrum available for them, forcing them to enter bidding wars. In the 2015 auction of the 700 MHz band, Germany’s three mobile operators were able to each obtain 2 x 10 MHz without extensive price competition. In the 2019 auction, four bidders fought for an 80—100 MHz slice of a 300 MHz pie.

This raises two questions: how did German industry get this massive subsidy and is it deserved?

The answer to the first question is likely to do with its influence among policymakers. From the apparent levels of interest in the 5G Alliance for Connected Industries and Automation (5G-ACIA), German industry seems much more engaged and organised regarding industrial 5G use cases than their counterparts in the US.

For the second, time will tell. Some observers have noted that Apple was forced to pay €13 billion in back taxes after the European Commission ruled that a deal it struck with Irish tax authorities amounted to illegal state aid. Similar tax deals agreed by Starbucks and Fiat in the Netherlands and Luxembourg respectively were also condemned by Brussels.

If regulators ask questions, will industrial stakeholders be able to justify their continued subsidy?•