Trends in One-time Initial Authorization Fees

TRT-PN-M2-366

 

Trends in One-time Initial Authorization Fees

 

Editors’ Note:

The following is excerpted from Chapter 4, “Licence Fee Practices:  Historical Perspectives and New Trends,” ITU Trends in Telecommunications Reform – 2004/05:  Licensing in an Era of Convergence (Geneva:  ITU, 2004).  The authors of Chapter 4 are Lynne Dorward and Clayton Rogers.

 

4.1                   Licence Fees, Past and Present

Between about 1993 and 1998, licence fees remained relatively unchanged and stable -- with a few notable exceptions, such as Brazil and the United States.  In some countries, there were beauty contests in which no licence fees were paid at all.  During this period, most of the attention was focused on mobile rather than fixed-line licences.

 

Over the past five years, however, licence fees have gone through “ups and downs” reminiscent of a carnival roller coaster ride.  Rapidly changing expectations for 3G wireless technologies, the popping of the “bubble” in global capital markets, and the array of various licensing approaches adopted around the world have resulted in large deviations in licence fees. 

 

One feature of recent developments is that the biggest volume of licence awards has gone to wireless operators, while fixed-line operators are increasing operating under general authorizations or class licences.  Because of this trend, this chapter focuses primarily on wireless licensing and analyzes issues in four main categories:

 

§         A historical sampling of licence fees,

§         2G and 2G/3G combined licences,

§         3G licences,

§         Other licence activity. 

4.1.1               A Historical Sampling of Licence Fees

From 1993 to 1998, in particular, there was a considerable amount of wireless licensing activity, especially in South America and (to a lesser extent) in Europe.  Although beauty contests were used in some cases, the success of some early auctions encouraged other countries to adopt auction approaches in order maximize the funds raised.  Table 4.3 provides a sample of fees for some of the licences awarded.

 

Table 4.3:  Selected Licence Fees, 1993-1999

Selected countries

 

 

 

Country

 

Year

 

Population

(At time of award)

 

Licensing Methodology

Initial Licence Fee (USD)

Per licence

Number of Licences Offered

 

Type of Licence Awarded

Argentina

1993

33.5M

Beauty contest

0

2 regional

AMPS

Argentina

1994

33.5M

Direct Award

0

3 regional

AMPS

Colombia

Bogotá

Western

Northern

1994

 

14.2M

11.2M

7.3M

Auction

 

332M

138M

118M

 

2

2

2

AMPS

Ecuador

1994

11.4M

Beauty Contest with Auction

140M

2

AMPS

Belgium

1995

10.1M

Auction

298M

2

GSM

Panama

1996

2.6M

Auction

75M

2

AMPS

Austria

1996

7.8M

Auction

394M

2

GSM

Czech Rep.

1996

10.4M

Auction

200M

2

GSM

Brazil

Region A

Region A2

Region B7

Region B9

Region B10

1997

 

5.0M

18.2M

16.6M

13.5M

25.9M

Auction

 

2.5B

1.1B

313M

232M

514M

 

2

2

2

2

2

 

AMPS/PCS

AMPS/PCS

AMPS/PCS

AMPS/PCS

AMPS/PCS

Paraguay

1997

5.0M

Auction

37M

2

AMPS/PCS

Argentina

B. Aires

North

South

1999

 

Auction

 

301M

50 - 56M

43 - 46M

 

2

2

2

 

PCS

PCS

PCS

 Source: Lehman Brothers – Telecom Transaction Summary 1998.

4.1.2               2G and Combined 2G/3G Licences

The chart presented in Table 4.4, meanwhile, illustrates the wide fluctuations in 2G or combined 2G/3G licence fees over the last five years.  It also indicates a greater emphasis on beauty contests in the last two years.

 

Table 4.4:  Licence Fees for 2G and Combined 2G/3G Licences

Selected countries

 

 

 

Country

 

Population

 

Licensing Methodology

Initial Licence Fee (USD)

Per licence

Number of Licences Offered

Type of Licence Awarded

Initial Duration of Licence

 

2004

Saudi Arabia

23.1M

Beauty contest

3.25B

1

GSM

25 years

 

 

Oman

 

2.8M

Beauty contest with fee component

 

62.4M

 

1

2nd mobile (1)*

 

15 years

 

Jordan

 

5.3M

Beauty contest (fixed fee)

 

6.6M

 

1

3rd

 mobile (1)

 

15 years

Algeria

31.3M

Auction

421M

1

3rd GSM

15 years

 

Pakistan

 

159.2M

 

Auction

 

291M

 

2

2nd and 3rd GSM

 

15 years

Iran

65.5M

Beauty Contest

Not published

1

2nd GSM

15 years

2003

 

Croatia

 

4.5M

 

Beauty Contest

 

26M (2)

 

1

3rd mobile plus 3G

 

15 years

 

Cyprus

 

0.75M

 

Auction

 

22.1M

 

1

2nd GSM plus 3G

 

20 years

 

Bahrain

 

0.7M

 

Beauty Contest

 

0.265M

 

1

2nd mobile 2G/3G

 

15 years

Sudan

32.5M

Direct award

177M

1

2nd GSM

15 years

Kenya

32.0M

Auction

27M

1

3rd GSM

TBD


 

Country

 

Population

 

Licensing Methodology

Initial Licence Fee (USD)

Per licence

Number of Licences Offered

Type of Licence Awarded

Initial Duration of Licence

 

2002

 

Estonia

 

1.4M

 

Auction

 

13M

 

1

3rd GSM plus 3G

 

TBD

Latvia

2.4M

Auction

12.6M

1

3rd GSM

no award

Tunisia

9.8M

Auction

454M

1

2nd GSM

15 years

Slovak Republic

 

5.4M

 

Beauty Contest

 

38M

 

1

3rd GSM plus 3G

 

no award

2001

Albania

3.5M

Auction

38.1M

1

2nd GSM

TBD

Algeria

31.3M

Auction

737.0M

1

2nd GSM

15 years

F.Y.R. of Macedonia

2.0M

Auction

28M 

1

2nd GSM

TBD

Mauritania

2.7M

Auction

28.1M

1

2nd GSM

TBD

Bulgaria

7.7M

Auction

135M

1

2nd GSM

15 years

2000

 

Romania

 

22.4M

 

Beauty Contest

 

50.M

 

1

 

3rd GSM

 

10 years

Turkey

65.6M

Auction

2.5B

1

3rd GSM

TBD

Morocco

29.6M

Auction

1.14B

1

2nd GSM

TBD

(1) Technology neutral with GSM selected by winning applicant 

(2) Announced in 2003 but no tender issued to date

Sources: ITU World Telecommunication Regulatory Database, various regulator web sites, Cellular News, press reports, EMC data base.

 

4.1.3               3G Licences

In the case of 3G licensing, the analysis will be further divided along regional lines.  This is because of the differing results of 3G licensing in the Asia-Pacific and European regions.   With the exception of Canada, there has been limited 3G licensing activity outside of these two regions.  Encumbered spectrum has delayed the auction of 3G licences in the United States, and in Latin America, specific 3G licensing processes have not yet taken place, although discussions are under way.  In all cases, the lists of licence awards are merely representative samples, not complete listings of all licence awards during the specified period. 

4.1.3.1         Asia-Pacific and Canada

Canada can be grouped with Asia-Pacific governments as generally have had fewer difficulties in distributing 3G licences.  This may be because these countries offered a choice of technologies for 3G licensing rather than requiring one specific technology and imposed less stringent rollout and coverage requirements.

 

Table 4.5:  3G Licence Results: Asia Pacific and Canada

Selected countries

 

 

 

Country

 

Population

 

Licensing Methodology

 

Number of Licences Offered

 

Number of Licences Awarded

Initial Licence Fee

USD

per licence

Initial Duration of Licence

 

2002

 

Taiwan, P. of China

 

22.4M

 

Auction

 

5

 

5

220M - 302M

 

16 years

 

Malaysia

 

22.2M

Beauty Contest plus Fixed Fee

 

3

 

2

 

13.2M

 

15 years

2001

 

Singapore

 

4.3M

Beauty Contest plus auction

 

4

 

3

 

50M

 

20 years

Hong Kong, China

 

7.2M

 

Auction (3)

 

4

 

4

Var. annual royalties (1,2)

 

15 years

 

Australia

 

19.4M

 

Auction

 

6 (3)

 

6

4.6M - 96.4M

 

15 years

 

Canada

 

30.0M

 

Auction

 

5

 

5

11.4M - 720.5M

 

20 years

2000

Japan

126.8M

Direct Award

none

3

3

N/A

New Zealand

 

3.9M

 

Auction

 

4

 

4

10.3 - 16.7M

 

20 years

Korea (Rep.)

 

47.9M

Beauty Contest plus Fixed Fee

 

3

 

3 (4)

 

1.1B

 

15 years

Notes:

(1)     Government expected 6 bidders for 4 licences but this did not occur, so awarded licences based on minimum reserved price

(2)     Royalties (revenue sharing) with pre-established minimum payments for 15 years

(3)     Two national and four regional licences

(4)     Government initially awarded 2 licences and deferred award of third licence until 2002

Sources: ITU World Telecommunication Regulatory Database, various regulator web sites, 3G Americas, Cellular News, press reports.

 

4.1.3.2         Europe

The problems European regulators encountered in 3G licensing began when expectations soared after the results of auctions in the United Kingdom and Germany.  Many regulators expected the high licence fees paid in the United Kingdom and Germany to spill over into other markets.  But a series of factors resulted in many of the European 3G tenders’ failing to meet expectations (see Section 4.5 for a more detailed analysis of these factors).

 

Table 4.6:  3G Licence Results: Europe

Selected countries

 

 

 

Country

 

 

 

Population

 

 

Licensing Methodology

Number of Licences Offered

Number of Licences Awarded

Initial Licence Fee

USD

per licence

Initial Duration of Licence

 

2003

Luxembourg

0.4M

Direct award

1(1)

1

0

15 years

Norway

4.5M

Auction

2

1

8.2 M

12 years

2002

 

Luxembourg

 

0.4M

 

Beauty Contest

 

4

 

3

 

0

 

15 years

 

 

Ireland

 

 

3.8M

Beauty Contest with fee component

 

 

4

 

 

3

 

11.5M - 40M

 

 

20 years

Slovak Republic

 

5.4M

Beauty contest with fixed fee

 

3

 

2 (2)

 

33.7M

 

15 years


 

 

Country

 

Population

 

Licensing Methodology

Number of Licences Offered

Number of Licences Awarded

Initial Licence Fee (USD)

Per licence

Initial Duration of Licence

 

2001

 

Belgium

 

10.3M

 

Auction

 

3

 

3

139.6M - 139.8M

 

20 years

 

 

 

 

 

 

 

 

France

 

59.5M

Beauty Contest plus Fixed Fee

 

3

 

2 (3)

 

570M

 

20 years

Greece

10.6M

Auction

4

3

125.6M

20 years

 

Denmark

 

5.3M

 

Auction

 

4

 

4

 

118M

 

15 years

 

Slovenia

 

1.9M

 

Auction

 

2

 

1

 

87.5M

 

20 years

Czech Republic

 

10.3M

 

Direct Award

 

3

 

2 (4)

97M - 106M

 

20 years

2000

Liechtenstein

32528

No contest

4

3

0

TBD

 

Spain

 

40.M

Beauty Contest plus Fixed Fee

 

4

 

4

 

110M

 

20 years

 

Finland

 

5.2M

 

Beauty Contest

 

4

 

4

 

0

 

20 years

 

UK

 

59.6M

 

Auction

 

5

 

5

6.3B - 9B

 

20 years

 

Netherlands

 

16.0M

 

Auction

 

5

 

5

401 - 666.8M

 

15 years

 

Germany

 

83.0M

 

Auction

 

6

 

6 (5)

7.6B - 7.7B

 

20 years


 

 

 

 

Country

 

 

 

Population

 

 

Licensing Methodology

Number of Licences Offered

Number of Licences Awarded

Initial Licence Fee

USD

per licence

Initial Duration of Licence

 

Italy

 

57.7M

 

Auction

 

5

 

4 (6)

2B – 2.03B

 

20 years

 

Austria

 

8.2M

 

Auction

 

6

 

6

98M - 105M

 

20 years

 

Norway

 

4.5M

Beauty Contest plus Fixed fee

 

4

 

3 (7)

 

11.2M

 

12 years

 

Portugal

 

10.1M

Beauty Contest plus Fixed Fee

 

4

 

4

 

90M

 

15 years

 

Switzerland

 

7.3M

 

Auction

 

4

 

4

29M - 32M

 

15 years

 

Poland

 

38.6M

Beauty Contest plus Fixed Fee

 

5

 

3 (8)

 

223

 

15 years

 

Sweden

 

8.9M

Beauty Contest plus Fixed Fee

 

4

 

4

 

10,700

 

15 years

Notes:

(1) Award of licence that was previously not awarded in 2002

(2) Third licence was joint GSM/UMTS licence – no takers

(3) 3rd licence eventually awarded to incumbent GSM operator

(4) Third incumbent declined to take licence

(5) 2 licences abandoned/surrendered to regulatory authorities

(6) 1 licence abandoned immediately after award

(7) 1 of 3 licences subsequently surrendered/revoked

(8) No applicants other than incumbent mobile operators

Sources: Adapted from ITU World Telecommunication Regulatory Database, regulator web sites, Cellular News, Total Telecom, press reports

 

4.1.3.3         Other Licence Activity

In addition to the significant amount of mobile licensing activity over the last five years, there have been several fixed-line licence tenders.  The results of these tenders have been perhaps even more varied than those of the mobile tenders.  For example, there have been attempts to award Second National Operator (SNO) licences in Africa.  Some of these were not successful, for two reasons:  (1) controversy surrounding the licensing process and (2) a lack of bidders with the requisite technical and financial capabilities.  One successful example is that of Nigeria.  In 2002, Nigeria awarded an SNO licence for USD 200 million.  It then followed that success by awarding a series of fixed wireless licences to some 19 companies.  In September 2004, South Africa awarded an SNO license to a consortium.[i]

 

The interest in fixed-line licences has declined over the last five years or so.  First, most of these licences have included mandates for operators to build their own networks, incurring considerable time and costs.  Secondly, fixed-to-mobile substitution has accelerated, making it harder to justify major new investments in fixed-line networks when customer bases for those services are dissolving.  Finally, potential investors are concerned by the poor showings of some competitive fixed-line operators.

In light of this market shift, the emerging tendency outside of Africa has been to place modest licence fees for fixed network services in order to attract and encourage new market entrants.  In fact, a growing number of regulators have eliminated large one-time fees and required payment of only a small application fee.  On the wireless side, non-mobile services are increasingly licence-exempt.  The best example of this trend is the use of spectrum in the 2.4 GHz and 5 GHz bands for 802.11 (or “Wi-Fi”) WLAN services, which are licence-exempt in most countries.[ii]



[i] At the time of printing, business plan had not yet been finalised and shareholders remained to be selected.

[ii] The main exception is those countries where WLAN service providers fall under a general licensing regime that requires licensing of any operator providing public telecommunications services.  Certain countries have, however, adopted specific licensing policies with respect to WLAN services.  One example is Japan, which has adopted a specific licensing regime for WLAN services in the 2.4 GHz and 5 GHz bands.

 

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