Excluding Claro from participating in the LTE spectrum auction is counterproductive
Despite all the efforts of the Colombian ICT ministry Mintic to award LTE spectrum in December, the timescale may be ambitious considering the current debate about the participation of Claro, the country’s dominant mobile operator, in the tender. Initially scheduled for September, the spectrum auction was postponed due to concerns that Claro could extend its monopoly to mobile broadband services if it is allowed to participate in the upcoming auction. Claro current accounts for more than 60% of the mobile market and rival operators and senators claim that it should be forbidden from participating in the tender.
The government is evaluating several options for the spectrum auction bidding rules, including: an open auction for all operators to participate in the spectrum tender of AWS band (1,710-1,755MHz and 2,110-2,155MHZ); reserving some spectrum for new entrants in the 2.5GHz band; reserving spectrum in both the 2.5GHz and AWS bands; and only offering AWS spectrum to new entrants. The operators propose an open auction, with the exclusion of Claro in either the AWS or AWS and 2.5GHz bands.
However, only assigning spectrum to new entrants not necessarily will increase competition. While the government aims to promote more competition, it also has to ensure that new players are committed to investing in network infrastructure, otherwise a scarce resource will be wasted and the aims of the auction will not be achieved: Network coverage and quality are vital for attracting new customers, especially the high-end users that are likely to be the initial target. In addition, many industry regulators and competition authorities have accepted that three to four local operators are likely to be sufficient to achieve effective competition.
In order to ensure equal market conditions to compete with LTE services, the government has to impose a spectrum cap on each operator, rather than preventing Claro from participating in the auction. LTE will be the globally recognized standard for mobile technology and preventing Claro from participating in the tender would be a retrograde step for the country’s telecoms market development. Data traffic is increasing rapidly and a lack of 4G offers from Claro would have a direct impact on the quality of the services, and, as a result, on the customer experience. Additionally, it is not in the government’s interest to prevent Claro from participating in the auction, as it would substantially reduce the competition in the bidding process, limiting the fee it receives for the LTE spectrum.
Reducing mobile termination rates (MTRs) is one way to rebalance the market and reinforce market competition. The 50% reduction in MTRs approved in October 2011 was a big step in improving competition in the mobile sector.
Undoubtedly, Claro is in a strong position in the market. It has to be remembered that it started its operations with the same market conditions as its rivals, achieving market leadership in the early 2000s due to a well-implemented strategy and heavy investment in network coverage and upgrades, which were crucial for its growth.
The robust economic growth that Colombia has been experiencing in the last few years is also reflected in its telecoms industry. If the government aims to continue evolving its telecoms sector, it has to make LTE spectrum available to cope with the ever-growing demand for data services. And it has to allow all the operators to bid for the 4G spectrum.