The digital economy’s critical moment

Government has dubbed 2021 “The Year of 5G”, and two of 5G’s most critical milestones will be the two spectrum auctions the Government has slated for later this year.  Spectrum is the wireless ‘link’ between the mobile device and the network and is critical to the delivery of mobile communication services.

The first auction in April is new mmWave spectrum in the 26 GHz band. There is a lot of this spectrum available, allowing for superfast speed, but its  range is limited to a few hundred metres. The second auction, expected at the end of 2021, is for low-band spectrum in the 900 MHz band. There is not much of this spectrum available, but it provides superb coverage, penetrating deep into buildings and sending signals more than 50 km away.

The importance of the second 900 MHz auction – and its allocation settings – to Australia’s digital economy cannot be overstated.  Let me explain why.

The size of the prize: important for jobs and the economy

Telecommunications’ services are critical for the way we learn, play and work. The next evolution of mobile technology – 5G – can  also play a critical role in Australia’s post-COVID-19 recovery because of its unprecedented speed, scale and reliability.

Economic modelling by PwC shows that competitive national deployment of 5G could boost the national economy, with cumulative benefits over the decade of $130 billion – equal to 1.2% of GDP – and the creation of 205,000 net new jobs.

The same modelling shows that 5G could drive further economic development of regional Australia. Over the decade, the cumulative economic benefit would be $38 billion – equal to 1.4% of GDP – with 45,000 net new jobs created. 

Potential additional job creation due to 5G impacts nationwide in all industries from 2021-2030

It is a prize worth getting it right, but achieving our potential is closely linked to ensuring the existence of choice and competition to drive network investment and innovation not just in business centres and capital cities but across suburban areas and the whole country.

Those who fail to study history…

Potential impact is just that – potential. The real challenge is to realise the potential and to deliver to consumers and businesses. The best way to do this is through a competitive market, providing real choice, improved services and innovation for consumers.

Recent history has proven the importance of challenger networks and shown that Australia cannot rely on Telstra to invest voluntarily in new products and deliver value to customers. One stark example of this was the evolution of Australians’ fixed broadband upgrade to ADSL2+, a technology which offered significantly higher bandwidth and faster download speeds than its ADSL predecessor.

In November 2006, Telstra announced plans to offer ADSL2+ services in exchanges where competitors like Optus were also offering ADSL2+ services. Telstra did not offer upgrades to customers in areas not covered by its competitors. Simply put, consumers who had a choice of providers benefited from better technology and those supplied solely by Telstra did not. Ultimately, Telstra’s refusal to invest in newer technologies and having no competing network led to the Government’s investment in the NBN.

Australia’s mobile sector benefits from two alternative networks competing against Telstra’s. But even with this competitive structure, the same theme has emerged with mobile networks improvements in our regional and rural areas. As Optus looked to step up competition, we invested heavily, particularly outside of capital cities. As a result, in 2017, Optus was named 'best in test' by P3 connect Mobile Benchmark Australia 2017, an accolade which drove Telstra to invest heavily to narrowly reclaim the title the following year.

The 2018 neck-and-neck race saw Optus still lead the data category, ‘due to better results in smaller towns and on the roads’ and show a ‘particularly high Quality of 4G Coverage’. Both competitors demonstrated improvements in voice and data. In short, customers benefited from improved coverage that results from competition.

Australians consumers – including Telstra customers – have benefitted from the additional investment and services competition from challenger networks has brought.

Low-band and level-playing field

Low-band spectrum carries mobile signals further than mid- or high-band spectrum, so fewer base stations can service a broad area. For mobile network operators facing the rollout of 5G technology, this characteristic is particularly important in regional areas as it lowers the infrastructure investment required to service customers over a wide area. Low-band spectrum is critically important now.

However, the continual competition-fuelled investment cycle is being challenged by the current uneven playing field in allocation of low-band spectrum.

This imbalance creates the potential for a narrowing of choice for businesses and consumers along with impacts on pricing and new technology’s rollout – especially in suburban and regional areas.

PwC modelling commissioned by Optus shows that a lack of network choice and a subsequent delay in rolling out competitive 5G networks has the potential to reduce the economic benefits of 5G services by 42% and cost the Australian economy $55 billion over the decade.

Consistent with previous approaches to spectrum allocations , the Government can use its policy levers to address spectrum imbalances and promote a level playing field and greater competition.  Such was the case in 2018’s auction of the 3.6 GHz band, when Optus’ ample holdings precluded it from participation – and such should be the case now.

If you believe that competition and choice matter – and Optus feels strongly that they do – there is a strong case to set allocation limits in the upcoming 900 MHz auction to help equalise low band spectrum holdings so that all three mobile network operators have the opportunity to obtain a proportionate slice of this rare commodity

When this valuable yet scarce commodity is allocated, it is vital that it is done in a way that benefits customers, both consumers and business, by keeping national competition and choice at the heart of the decision.

By encouraging network investment and quicker deployment of a competitive national 5G network that benefits all Australians, such an approach will promote competition, and with it the full consumer and economic benefits of competitive national mobile markets. It will also help to accelerate the achievement of Australia’s digitally connected future.

Let’s get this right.