Some thoughts on Jamaica’s 700 MHz auction
In the coming weeks Jamaica will auction its 700 MHz band for mobile broadband wireless service. Is it a good investment opportunity?
Last week, the Spectrum Management Authority (SMA) in Jamaica published an Information Memorandum, Licensing the 700 MHz Band, on the proposed auction of frequencies in the country’s 700 MHz band. As drafted, the Information Memorandum aims to provide some context to and a framework for the proposed auction for which Request for Bids (Request for Proposal) should be issued on or around 22 May 2013. As a follow up to our earlier post, What is so special about the 700 MHz band?, and in light of Jamaica’s imminent auction, this post briefly discusses: the 700 MHz band; possible pros and cons associated with take up of those frequencies in Jamaica; and finally, some additional considerations, with regard to Jamaica’s auction process
The 700 MHz band
The 700 MHz band that Jamaica is preparing to auction, consists of frequencies between 698 MHz to 806 MHz, which historically, was allocated for analogue television broadcast for channels 52 to 69. With the transition to digital television signals, and more importantly, mandated switchovers from analogue TV to digital TV in many countries, bands that had been used for analogue TV can now be reallocated for other services. According the band plan for the Americas issued by the International Telecommunications Union (ITU), frequencies in the 700 MHz band can be allocated for “broadband wireless access” services. (For more insight, read What is so special about the 700 MHz band?)
The considerable take up of mobile/cellular services globally, along with the increasing demand for bandwidth for mobile broadband and wireless broadband services, means that existing allocations are becoming exhausted, and additional frequencies are needed to satisfy demand. The 700 MHz offers a number of distinct advantages over existing allocations, which makes it attractive for mobile/cellular or wireless services. For example, it offers better signal propagation than higher frequency transmissions, which in turn can result in improved efficiencies in the network designed and deployed.
Is Jamaica’s 700 MHz band a good investment opportunity?
For telecoms companies that intend to participate in Jamaica’s auction of its 700 MHz band, it will be critical that they are confident about the long term viability of such an investment, and have developed a robust business case. Below are some issues worth considering.
- Market size. Jamaica has the largest market in the English-speaking Caribbean, with a population of 2.7 million. Hence companies can enjoy some economy of scale in Jamaica, which might not necessarily exist in other countries in the region.
- Competition. Although all markets in Jamaica’s telecoms sector are open to competition, historically, much of the attention has been in the mobile/cellular (voice) market, where currently there are two players Digicel and LIME. Both companies have been rolling out mobile broadband services, but the focus of the industry – both the players and the regulator – is still on voice services.
In the Internet broadband space, there are less than 10 active Internet Service Providers (ISPs), but the three main ones are: Digicel, Flow and LIME. Flow and LIME offer a wired/fixed broadband service – coaxial cable and ADSL over copper lines, respectively. Digicel offers a wireless broadband service (using WiMAX technology), which is popular in areas with no wired services. Digicel also offers pre-paid plans, which again makes the service popular when occasional access is needed.
- Service penetration. In respect of mobile/cellular service, the number of subscriptions is slightly over that of the population, at approximately 108 subscriptions per 100 inhabitants in 2011 (Source: ITU). In the coming 12 to 18 months this rate may decrease slightly when number portability is implemented, and customers will be able to port their numbers to the providers of their choice.
Although not officially recorded and reported, mobile broadband subscriptions rates would be significantly lower than that for mobile voice services. Pricing is still quite high, and not readily affordable by most consumers, who might be more reliant on free Wi-Fi when available.
On the other hand, in 2011 fixed Internet broadband was approximately 3.9 subscriptions per 100 inhabitants (Source: ITU), which does suggest that although there are players in that market, there might still be an untapped opportunity for additional providers. Furthermore, Internet use is nearly 10 times higher than subscriptions at 32 users per 100 inhabitants (Source: ITU). Hence there appears to be an appetite for Internet access among the general populace, although connectivity rates are low.
- Location. Although the anticipated auction of spectrum is limited to Jamaica, the country is frequently used as a point of entry for expansion and investment in the wider Caribbean. An example that immediately comes to mind is Digicel. Digicel established its very first operation in Jamaica in 2001. As of 2012, it has a presence in 31 countries worldwide.
- Profitability. Finally, it is worthwhile highlighting that across a number of industries, especially banking and telecoms, the Caribbean is generally considered a highly profitable region. Jamaica, as one of the larger countries, tends to be a significant contributor to overall profits. In a recently released bond-offering document by Digicel, it was reported that the company’s Jamaican operations generated an operating profit of 30% (Source: Irish Times).
Final points to note
To wrap us, attention is drawn to the fact that Jamaica has established a reserve price of between USD 40 and USD 45 million, for the sub-bands that it plans to sell via auction. However, cash only is not enough. There is also a comprehensive application process that will be established, which successful applicants should satisfy, and would require considerable preparation.
Finally, it is important to note the SMA’s lengthy disclaimer for the Information Memorandum, which starts:
This Memorandum is for information purposes only. It is made available on the express understanding that it will be used for the sole purpose of assisting the recipient of this Memorandum in deciding whether it wishes to proceed with a further investigation of possible participation in the Award Process…
It is therefore incumbent on prospective applicants and investors to conduct their own independent research and due diligence, especially since a deposit of between USD 2.7 and USD 3.0 million must accompany submitted applications in order to participate in the auction.