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Final report for the GSMA The socio-economic benefit of allocating harmonised mobile broadband spectrum in the Kingdom of Saudi Arabia 30 April 2012 Janette Stewart, Gilles Monniaux and Alex Reichl Ref: 21366-172 . Contents 1 Executive summary 1 2 Introduction 2 3 Socio-economic benefits of allocating harmonised mobile broadband spectrum in KSA 3 3.1 Introduction 3 3.2 Step 1: Impact of spectrum allocation on mobile broadband penetration 3 3.3 Step 2: Impact of mobile broadband penetration on GDP 5 3.4 Step 3: Impact of GDP growth on employment 6 4 Practical concerns raised by spectrum management issues 7 4.1 Spectrum management issues in KSA 7 4.2 Impact on cost of mobile broadband 21 4.3 Impact on consumers 23 Annex A About Analysys Mason and the authors Annex B The GSMA and its ‘Spectrum for Mobile Broadband’ campaign Annex C Macroeconomic model of the socio-economic benefits of allocating 800MHz and 2.6GHz spectrum for mobile broadband by 2013 Annex D Overview of broadband services and the ICT ecosystem in KSA Annex E Public sources used to benchmark global trends in regulating, licensing and operating mobile broadband wireless access systems Ref: 21366-172 . The socio-economic benefit of allocating harmonised mobile broadband spectrum in the Kingdom of Saudi Arabia Copyright © 2012. Analysys Mason Limited has produced the information contained herein for the GSMA. The ownership, use and disclosure of this information are subject to the Commercial Terms contained in the contract between Analysys Mason Limited and the GSMA. Analysys Mason Limited St Giles Court 24 Castle Street Cambridge CB3 0AJ UK Tel: +44 (0)845 600 5244 Fax: +44 (0)1223 460866 [email protected] www.analysysmason.com Registered in England No. 5177472 Ref: 21366-172 . The socio-economic benefit of allocating harmonised mobile broadband spectrum in the Kingdom of Saudi Arabia | 1 1 Executive summary The Kingdom of Saudi Arabia (KSA) would receive considerable socio-economic benefits from the release of harmonised spectrum in the 700/800 and 2.6GHz bands for use by mobile operators to deliver next-generation mobile broadband services. In particular, the Kingdom would see: a total1 GDP gain of SAR358 billion in net present value (NPV) over the period 2013 to 2025 jobs for 424 000 people by 2020 mobile coverage to KSA’s large rural areas, providing education and information benefits to the poorer areas of the Kingdom. Any delay in the release of this harmonised spectrum would have a significant impact on these benefits. A five-year delay in the release of harmonised spectrum would reduce the total GDP gain over 2013–2025 to just SAR96 billion, and reduce the number of jobs created to 75 000. The current spectrum allocation for LTE in KSA involves a totally non-harmonised arrangement in the 2.3GHz (STC) and 2.5GHz (Mobily) bands. Because this fragmented allocation is unpaired it can only be used in TDD mode. As a consequence, the current allocation would not generate the socio- economic benefits of a harmonised FDD allocation in the 2.6GHz and 800MHz bands for LTE. In order to achieve the benefits described above, KSA must release the internationally harmonised spectrum band plans of 140MHz of spectrum at 2.6GHz and at least 60MHz of digital dividend spectrum at 800MHz. The combination of those two bands offers excellent coverage for rural areas and good in-building penetration combined with high capacity for KSA’s cities. This international harmonisation is critical to ensure that the new devices which are being developed around the world (such as tablets, smartphones and ultrabooks) will be able to work in KSA. Failure to harmonise this spectrum with the international community will result in KSA being forced to use higher-cost (typically a 500% increase in cost in 2013 falling over time to “just” 60% by 2020) and poorly-performing devices. This means that KSA consumers and businesses will not be able to use the latest/best devices for LTE (including iPad 3). Instead, they will be forced to use generic, less convenient devices at higher cost per device. In addition, people from neighbouring GCC countries will not be able to roam with their devices in KSA. In the worst case, KSA’s failure to harmonise would have a negative impact on the services available to foreign mobile operators with borders onto the Kingdom, limiting the economic growth of those operators. Many GCC countries expect KSA, as a role model for the region, to take a lead in driving social and economic improvements. Timely release of this highly valuable spectrum would ensure that the Kingdom maintains this role model status and would help to drive the whole of the GCC though the next decade of economic growth and social improvements. 1 In terms of net present value (NPV) using a discount rate of 5%. Ref: 21366-172 . The socio-economic benefit of allocating harmonised mobile broadband spectrum in the Kingdom of Saudi Arabia | 2 2 Introduction Analysys Mason Limited (‘Analysys Mason’) has been commissioned by the GSMA to investigate the socio-economic benefit of allocating harmonised mobile broadband spectrum in the Kingdom of Saudi Arabia (KSA). The objective is to provide a complete view of the benefits associated with the development of mobile broadband in KSA, and to explore how spectrum management policy could affect those benefits. In particular, we discuss practical concerns associated with the current spectrum situation. The remainder of this document is laid out as follows: Section 3 presents our findings on the socio-economic benefits of allocating harmonised mobile broadband spectrum in KSA Section 4 describes practical concerns associated with spectrum management issues. The report also includes a number of annexes containing supplementary material: Annex A provides an overview of Analysys Mason and the authors of the report Annex B includes an overview of the GSMA and its Spectrum for Mobile Broadband campaign Annex C provides details of our calculations of the socio-economic benefits of mobile broadband Annex D presents a macroeconomic overview of KSA and includes an analysis of the pricing of residential broadband services Annex E contains the list of public sources used for the benchmark of global trends in regulating, licensing and operating mobile broadband wireless access systems. Ref: 21366-172 . The socio-economic benefit of allocating harmonised mobile broadband spectrum in the Kingdom of Saudi Arabia | 3 3 Socio-economic benefits of allocating harmonised mobile broadband spectrum in KSA 3.1 Introduction Analysys Mason has developed a macroeconomic model to estimate the socio-economic benefits of releasing 140MHz of harmonised spectrum at 2.6GHz and 60MHz of digital dividend spectrum at 800MHz and allocating them for mobile broadband in KSA. The model follows the three steps outlined below to calculate the socio-economic benefits of allocating harmonised mobile broadband spectrum: 1) It assesses the impact of harmonised allocation of 800MHz and 2.6GHz spectrum on mobile broadband penetration 2) It assesses the impact of mobile broadband penetration on GDP 3) It assesses the impact of GDP growth on employment. This three-step analysis is undertaken for the following three scenarios:2 no harmonised 2.6GHz or 800MHz spectrum is released (counterfactual case) harmonised 2.6GHz and 800MHz spectrum is released in 2013 (base case) harmonised 2.6GHz and 800MHz spectrum is released in 2018 (five-year delay case). The three scenarios used in the macroeconomic model do not specifically include the current non- harmonised allocation of spectrum in the 2.3GHz and 2.6GHz bands; this impact is addressed in detail in Section 4.2. By comparing the counterfactual case and the base case, it is possible to estimate the socio- economic benefits from releasing the 800MHz and 2.6GHz spectrum in 2013. Similarly, by comparing the base case and the five-year delay case, it is possible to estimate the ‘cost’ of the delay in terms of lost socio-economic benefits. Annex C describes how the macroeconomic model calculates the socio-economic benefits in the base case. The rest of this section describes the differences between the three scenarios to estimate the benefits from harmonised spectrum allocation and the ‘cost’ of a five-year delay. 3.2 Step 1: Impact of spectrum allocation on mobile broadband penetration The first step in the macroeconomic model is to assess the impact on mobile broadband penetration of allocating of harmonised 800MHz and 2.6GHz spectrum. 2 None of the three scenarios includes any unharmonised 2.6GHz, 2.3GHz or 1.8GHz spectrum. Ref: 21366-172 . The socio-economic benefit of allocating harmonised mobile broadband spectrum in the Kingdom of Saudi Arabia | 4 The release of both 800MHz and 2.6GHz provides additional capacity and means that the expected increase in the total number of mobile broadband subscriptions (both handset mobile broadband subscriptions3 and dedicated mobile broadband subscriptions4) is not limited by spectrum capacity issues or limited to only 3G services, as would be the case without this spectrum release. In addition, the release of 800MHz provides greater coverage than 2.6GHz and means that household mobile broadband penetration (typically provided over dedicated mobile broadband subscriptions4) is not limited to urban areas. Figure 3.1 below summarises how we expect mobile broadband subscriptions to evolve, depending on whether and when harmonised 2.6GHz and 800MHz spectrum is released. Figure 3.1: The impact of spectrum release on mobile broadband subscriptions in KSA [Source: Analysys Mason, 2012] 60 Additional mobile broadband subscribers with 2013 release Additional mobile broadband subscribers 50 with 2018 release Mobile broadband subscribers with current 3G spectrum only 40 30 20 Subscriptions (million)Subscriptions 10 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 The assignment for mobile broadband of 140MHz of spectrum at 2.6GHz and 60MHz of digital dividend spectrum at 800MHz by 2013 is forecast to allow the total number of mobile broadband subscriptions to rise to 48 million by 2020 and to 57 million by 2025.