An Industrial 5G Spectrum Policy for Europe Vodafone Public Policy Paper November 2019 Written with expert input from Vodafone Foreword Executive Summary Chapter 1: Chapter 2: Chapter 3: Chapter 4: Market and Regulatory Analysis of Industrial Policy Analysis of Spectrum Policy Proposed Policy Approach Context Contents Vodafone Foreword 2 Executive Summary 3 Chapter 1: Market and Regulatory Context 5 Market Context 5 Regulatory policy context relevant to spectrum set-aside 7 Chapter 2: Analysis of Industrial Policy considerations relevant to spectrum set-aside 10 Licensed Spectrum Case Studies: e.GO (Germany) ABB (Italy) Shell (Netherlands) Vienna International Airport (Austria) Deutsche Fußball Liga (Germany) Boliden (Sweden) Finavia (Finland) The National BVLOS Experimental Centre (UK) Ericsson (Estonia) Steveco (Finland) Emilio Moro (Spain) Unlicensed Spectrum Case Study: Ocado (UK) Spectrum Leasing Case Studies: StrattoOpencell (UK) Workspace (UK) Chapter 3: Analysis of Spectrum Policy considerations relevant to spectrum set-aside 17 Analysis of the German 5G spectrum auction 17 Chapter 4: Proposed Policy Approach for Spectrum Authorities considering spectrum set-aside 19 References 23 Appendices 24 Annex A: Case studies developed by Arthur D. Little 25 Annex B: Economic study by Compass Lexecon 57 1 Vodafone Public Policy Paper An industrial 5G spectrum policy for Europe Vodafone Foreword Executive Summary Chapter 1: Chapter 2: Chapter 3: Chapter 4: Market and Regulatory Analysis of Industrial Policy Analysis of Spectrum Policy Proposed Policy Approach Context A Note from Joakim Reiter, Vinod Kumar and Johan Wibergh In the race for economic prosperity and sustainable Our report demonstrates that set-aside policies will lead to a development across the globe, digital is quickly becoming significant consumer welfare loss, reducing the incentive for a new engine of economic growth. Policymakers investment by distorting competition, inflating the costs of recognise that Gigabit connectivity propels the digital spectrum licences and limiting the ability of operators to build transformation of both industry and society. A successful the best 5G networks possible for everyone. rollout of 5G across Europe is a necessary condition for Regulators considering setting spectrum aside for local use this European digital transformation. should be required to justify policies that move away from Vodafone is playing its part in this transformation. We have established market-based solutions, particularly as national already invested around €5 billion in 5G spectrum across the operators are already delivering innovative 5G and 5G-ready EU, rolling out 5G services in 100 European cities across seven connectivity to a range of industrial partners across the Member States. We are actively developing the innovative continent. This innovation cuts across a variety of sectors, services and applications that will realise the benefits of 5G including manufacturing, transport, energy, agriculture, logistics for all. Given the profound impact of 5G on the industrial and and mining, as exemplified by the case studies in this report. business sectors in particular, we are working closely with our With a series of important European 5G spectrum auctions set business customers across a range of sectors as they embark to take place in the near future, this approach is vital if Europe on this digital journey. is to achieve its Gigabit Society vision. Our ability to deliver on our commitment is determined by the conditions for investment set by governments and regulators. Investors, such as Vodafone, need to operate at efficient scale to earn the return that enables their investment Joakim Reiter in the first place. Consistent and predictable regulation is Group External Affairs Director, critical, supported by policies that promote development and Vodafone Group Plc tackle fragmentation. Despite this, there is an ongoing regulatory discussion on the issue of whether internationally harmonised cellular spectrum should be ‘set aside’ for private localised use instead Vinod Kumar of auctioned to whoever is able to create the largest value to CEO, society, including nationwide public networks. Vodafone Business Set-aside results in less spectrum remaining available for deployment in national networks, giving marginal potential benefits to a narrow set of stakeholders at the expense of all other 5G users, society and the wider economy. Johan Wibergh Group Chief Technology Officer, Vodafone Group Plc 2 Vodafone Public Policy Paper An industrial 5G spectrum policy for Europe Vodafone Foreword Executive Summary Chapter 1: Chapter 2: Chapter 3: Chapter 4: Market and Regulatory Analysis of Industrial Policy Analysis of Spectrum Policy Proposed Policy Approach Context Executive Summary 5G is an important new technological innovation that has the This study sets out Vodafone’s views on whether such potential to transform the European economy by enabling the spectrum ‘set-aside’ is justified, through analysis of both digitisation of a wide range of sectors. the industrial policy and spectrum policy considerations. By ‘industrial policy’, we primarily mean issues relating to In practice, there will be a number of considerations relevant to innovation, economic growth, scale, security and coverage. businesses seeking to harness 5G connectivity. These include By ‘spectrum policy’, we mean considerations relevant to their understanding of the availability of the different solutions, ensuring efficient spectrum allocation while enhancing the capabilities and cost of each solution and how these will competition in the market. In developing and/or applying meet the needs of their core business. licensing policies, the relevant authorities (Spectrum Access to 5G connectivity and solutions will also to a large Authority) will need to take into account both industrial extent depend on the policy approach to 5G, in particular policy and spectrum policy considerations. how spectrum is licensed. Governments, national regulatory To evidence the industrial policy considerations, we have authorities, public network operators, operational technology asked the consultancy Arthur D. Little (ADL) to investigate and (OT) companies1 and business end-users all have a voice in this document a range of business case studies across the EU to important policy debate. When setting policy in this area, it is examine whether there is a business requirement that national important to take into account the wider impact that 5G will licensing or alternative technical approaches cannot address. have on the economy. So, in practice, the impact of ‘industrial’ ADL’s research concluded that: 5G policy (for example, developed with industrial automation in mind) will also be felt across many sectors, impacting the y the mobile industry is well placed to deliver the economy as a whole. innovation, scale, enhanced security and coverage required by many businesses; and Some stakeholders are arguing that internationally harmonised cellular spectrum needs to be set aside for y business requirements can be addressed under the localised licensing so that they are able to manage their own current national licensing regime, combined with 5G network. This approach means moving away from market- alternative technical approaches where required based allocation of spectrum. (e.g. use of unlicensed spectrum) and policy alternatives such as spectrum leasing. While some Spectrum Authorities2 appear sympathetic to this argument (in Germany a quarter of the 3.5 GHz 5G spectrum The qualitative evidence that has been gathered by ADL is set band was reserved for localised services), other Spectrum out in full at Annex A. Authorities have considered the wider implications of setting To evidence the spectrum policy considerations, we have aside 5G cellular spectrum for local licences. For example, the asked the consultancy Compass Lexecon to develop a policy UK Spectrum Authority promoted spectrum leasing and made framework to assess a set-aside policy and examine the other non-mobile bands available for sharing instead of setting economic impact of the recent German 5G spectrum policy aside spectrum. This was done in order to deliver very similar and auction. Compass Lexecon estimates that the costs to policy objectives to those identified by the German Spectrum German society of set-aside are significant, while any benefits Authority as the basis for setting aside spectrum. are likely to be marginal, especially taking into account the We can now learn from experience in Member States where benefits that can be delivered through both the technical and 5G spectrum has already been awarded. With auctions for the policy alternatives. Specifically, it finds that: remaining 3.4-3.8 GHz spectrum expected in 17 Member States y there is no evidence that a policy of spectrum set-aside over the next two to three years, there is much still at stake. is justifiable from a spectrum policy perspective. There is insufficient evidence of market failures that would justify a departure from a market-based award mechanism and there are less costly policy alternatives that a Spectrum Authority could adopt that would deliver most if not all of any identified benefits; 1 An operational technology company deals with the hardware and software that detects or causes a change through the direct monitoring and/or control of physical devices, processes and events in the business. 2 In practice, the government (e.g. Ministry) and national regulatory