ARCEP submits its methods of allocation and terms of use for 700 MHz frequencies to the Electronic communications advisory committee, for its opinion

Paris, 19 June 2015

The increasing use of the mobile internet brought about by the growing ubiquity of smartphones and tablets, and the launch of 4G, is driving an exponential increase in traffic on cellular networks. To be able to keep pace with this increase in consumption, it is vital that operators be allocated new frequency bands, and particularly bands in the lower frequencies whose propagation properties are especially well suited to the task.

It is within this environment, and thanks to recent improvements to digital terrestrial television (DTT) compression standards, that the Government decided to free up the 700 MHz band and to allocate 2×30 MHz of spectrum to mobile operators.

This band will be freed up progressively across the country, between April 2016 and June 2019. A bill on "the second digital dividend, and ongoing upgrades to digital terrestrial television" is currently being debated in Parliament, and will entrench the process in law.

As a result, based on the priorities set by the ministers responsible for digital affairs, and in accordance with the regulatory objectives assigned to it by law, ARCEP is responsible for proposing the allocation methods for these frequencies and the terms and conditions under which mobile operators can use them. The procedure is then set in motion by the ministers. ARCEP is responsible for putting this procedure into place, and for allocating frequencies to operators.

Call for applications to be launched in July

Yesterday, on Thursday, 18 June, ARCEP submitted its draft decisions on the future assignment and allocation of the 700 MHz band to the members of the Electronic communications advisory committee, CCCE (commission consultative des communications électroniques) for their opinion.

These draft decisions are the result of a year of preparatory work carried out in tandem with market stakeholders and the ministers responsible for digital affairs. They are a follow-up to the "Strategic review of spectrum for superfast mobile" (Revue stratégique du spectre pour le très haut débit mobile) that was submitted for consultation last December.

Once it has received the CCCE opinion, ARCEP plans on adopting its final proposal in early July, so that the ministers responsible for digital affairs can issue the call for applications later in the month.

Several objectives attached to the planned allocation procedure

The ministers responsible for digital affairs have set several priorities in terms of monetising intangible State assets, regional development, investment and the preservation of fair and effective competition.

As concerns the monetisation of intangible State assets, ARCEP has worked with the ministers to establish a procedure that takes the form of a multiple round ascending auction. The auction will begin with a reserve price, set by the ministers, of 416 million euros for a block of 2×5 MHz, or 2.5 billion euros for the entire band. A detailed description of the procedure can be found in Appendix 1.

In accordance with a request made by the ministers and Parliament during recent parliamentary debates (on a bill on growth and business, a bill on the second digital dividend and ongoing upgrades to digital terrestrial television, and on the work being done by the High Commission for public postal and electronic communications services (Commission supérieure du service public des postes et des communications électroniques), the procedure takes utmost account of digital regional development priorities.

The procedure therefore includes coverage obligations that are as strong as those attached to the 800 MHz band. There are particularly strong demands for deployment of the 700 MHz band in rural areas, in addition to 800 MHz band frequencies, to be able to improve the quality of 4G services in these areas over time and to prepare for the potential development of 5G services on these bands.

In addition, the call for applications includes new obligations aimed at improving mobile data availability on-board everyday trains (TER, RER, Transilien). These obligations will be completed by a more detailed quality of service audit for all railway lines (including TGV high-speed trains) and underground lines, to encourage operators to increase the quality of service they provide. Coverage obligations are detailed in Appendix 2.

The procedure is also meant to stimulate investment, by enabling every player to achieve a fair share of the mobile market. The band was therefore divided into six blocks of 2×5 MHz, so that spectrum can be allocated to a large number of candidates. These blocks can be combined to allow the candidates to provide their customers with the highest connection speeds possible. However, to encourage heavy use of this frequency band and to limit imbalances between operators, a single candidate cannot acquire more than three blocks (i.e. 2×15 MHz) in the 700 MHz band, and will not be able to exceed a limit of 2×30 MHz of low frequency spectrum, i.e. in the 700 MHz, 800 MHz and 900 MHz bands combined. Lastly, the type of auction being planned allows the candidates to fully manage the outcome: they can choose to continue or to stop their bidding at any point in time, knowing how much spectrum they will be allocated.

Frequencies due to be allocated before the end of 2015

Once the call for applications has been launched, candidates will have until the end of Q3 2015 to file their applications. ARCEP plans to conduct the auction in the fourth quarter of the year, and to award the licences to the winning candidates before the end of 2015.

Annex 1 - Description of the French 700 MHz band allocation process

The 700 MHz band will be allocated through a multi-round ascending auction, described hereunder.

1. Main auction

Six 2×5 MHz blocks will be auctioned at the same time with a single unit price. Throughout the procedure, ARCEP, as the auctioneer, will gradually increase this unit price.

At the beginning of the first round, ARCEP asks the bidders about the amount of blocks they are willing to buy at the reserve price (416 million euros each).

At the beginning of each subsequent round, ARCEP increases the unit price for each 2×5 MHz block by 5 million euros (1). The bidders then submit the number of blocks they are willing to buy at this price. They can either maintain their demand, relative to the previous round, or reduce it by one block. Bidders are not allowed to increase their demand, or reduce it by more than one block at a time.

Throughout the auction, bidders are subjected to a spectrum cap:

When the aggregate demand (i.e. the sum of all the bidders' demands) reaches six, the auction ends and the blocks are allocated at the round price.

For instance:

In the unlikely event that the demand should decrease below 6 (which would mean several bidders reduced their demand on the same round), an ad-hoc tie-breaking mechanism allows the determination of the winners. All 6 blocks will be allocated at the end of the auction.

2. Positioning auction

After the main auction, the winners, their respective allotment and the final price of the blocks are all known. However, even though ARCEP guaranties contiguous allocations, the positioning of the winners within the band must be determined: leftmost, rightmost, in the middle…

In order to do so, ARCEP runs a single round sealed bid positioning auction: each winner submits a list, in order of decreasing preference, of positions within the band and a price it is willing to pay to get its preferred position within the band. ARCEP then sorts the winners in order of decreasing bid first and meets their preferences if possible. The winners pay the amount they submitted if they get their preferred position and nothing if they get their last choice. Should a winner get an intermediate choice of positioning, it pays an intermediate amount.

For instance :

3. Frequency payment

Winners pay, for a 20 years license, the sum of the amount bid on the main auction and the amount resulting from the positioning auction. This total amount is paid in four equal instalments: the first is paid at the license delivery; the subsequent three are paid annually. Licensees will also be required to pay annually an amount equal to 1% of the turnover attributable to these frequencies.?

Annex 2 - Coverage obligations

T1 = license delivery date

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(1) This amount needs to be confirmed, it is chosen here in order to illustrate the auction