Paris, 19 June 2015
The increasing use of the mobile internet brought about by the growing ubiquity
of smartphones and tablets, and the launch of 4G, is driving an exponential
increase in traffic on cellular networks. To be able to keep pace with this
increase in consumption, it is vital that operators be allocated new frequency
bands, and particularly bands in the lower frequencies whose propagation properties
are especially well suited to the task.
It is within this environment, and thanks to recent improvements to digital
terrestrial television (DTT) compression standards, that the Government decided
to free up the 700 MHz band and to allocate 2×30 MHz of spectrum to mobile
This band will be freed up progressively across the country, between April
2016 and June 2019. A bill on "the second digital dividend, and ongoing
upgrades to digital terrestrial television" is currently being debated
in Parliament, and will entrench the process in law.
As a result, based on the priorities set by the ministers responsible for digital
affairs, and in accordance with the regulatory objectives assigned to it by
law, ARCEP is responsible for proposing the allocation methods for these frequencies
and the terms and conditions under which mobile operators can use them. The
procedure is then set in motion by the ministers. ARCEP is responsible for putting
this procedure into place, and for allocating frequencies to operators.
Call for applications to be launched in July
Yesterday, on Thursday, 18 June, ARCEP submitted its draft decisions on the
future assignment and allocation of the 700 MHz band to the members of the Electronic
communications advisory committee, CCCE (commission consultative des communications
électroniques) for their opinion.
These draft decisions are the result of a year of preparatory work carried
out in tandem with market stakeholders and the ministers responsible for digital
affairs. They are a follow-up to the "Strategic review of spectrum for
superfast mobile" (Revue stratégique du spectre pour le très
haut débit mobile) that was submitted for consultation last December.
Once it has received the CCCE opinion, ARCEP plans on adopting its final proposal
in early July, so that the ministers responsible for digital affairs can issue
the call for applications later in the month.
Several objectives attached to the planned allocation procedure
The ministers responsible for digital affairs have set several priorities in
terms of monetising intangible State assets, regional development, investment
and the preservation of fair and effective competition.
As concerns the monetisation of intangible State assets, ARCEP
has worked with the ministers to establish a procedure that takes the form of
a multiple round ascending auction. The auction will begin with a reserve price,
set by the ministers, of 416 million euros for a block of 2×5 MHz, or
2.5 billion euros for the entire band. A detailed description of the procedure
can be found in Appendix 1.
In accordance with a request made by the ministers and Parliament during recent
parliamentary debates (on a bill on growth and business, a bill on the second
digital dividend and ongoing upgrades to digital terrestrial television, and
on the work being done by the High Commission for public postal and electronic
communications services (Commission supérieure du service public des
postes et des communications électroniques), the procedure takes
utmost account of digital regional development priorities.
The procedure therefore includes coverage obligations that are as strong as
those attached to the 800 MHz band. There are particularly strong demands for
deployment of the 700 MHz band in rural areas, in addition to 800 MHz band frequencies,
to be able to improve the quality of 4G services in these areas over time and
to prepare for the potential development of 5G services on these bands.
In addition, the call for applications includes new obligations aimed at improving
mobile data availability on-board everyday trains (TER, RER, Transilien).
These obligations will be completed by a more detailed quality of service audit
for all railway lines (including TGV high-speed trains) and underground lines,
to encourage operators to increase the quality of service they provide. Coverage
obligations are detailed in Appendix 2.
The procedure is also meant to stimulate investment, by enabling every
player to achieve a fair share of the mobile market. The band was therefore
divided into six blocks of 2×5 MHz, so that spectrum can be allocated
to a large number of candidates. These blocks can be combined to allow the candidates
to provide their customers with the highest connection speeds possible. However,
to encourage heavy use of this frequency band and to limit imbalances between
operators, a single candidate cannot acquire more than three blocks (i.e. 2×15
MHz) in the 700 MHz band, and will not be able to exceed a limit of 2×30
MHz of low frequency spectrum, i.e. in the 700 MHz, 800 MHz and 900 MHz bands
combined. Lastly, the type of auction being planned allows the candidates to
fully manage the outcome: they can choose to continue or to stop their bidding
at any point in time, knowing how much spectrum they will be allocated.
Frequencies due to be allocated before the end of 2015
Once the call for applications has been launched, candidates will have until
the end of Q3 2015 to file their applications. ARCEP plans to conduct the auction
in the fourth quarter of the year, and to award the licences to the winning
candidates before the end of 2015.
Annex 1 - Description of the French 700 MHz band allocation
The 700 MHz band will be allocated through a multi-round ascending auction,
1. Main auction
Six 2×5 MHz blocks will be auctioned at the same time with a single unit
price. Throughout the procedure, ARCEP, as the auctioneer, will gradually increase
this unit price.
At the beginning of the first round, ARCEP asks the bidders about the amount
of blocks they are willing to buy at the reserve price (416 million euros each).
At the beginning of each subsequent round, ARCEP increases the unit price for
each 2×5 MHz block by 5 million euros (1). The bidders then submit the
number of blocks they are willing to buy at this price. They can either maintain
their demand, relative to the previous round, or reduce it by one block. Bidders
are not allowed to increase their demand, or reduce it by more than one block
at a time.
Throughout the auction, bidders are subjected to a spectrum cap:
- they are not allowed to bid on more than three blocks ;
- their demand, should it be satisfied, cannot lead them to hold more than
2×30 MHz of lower band spectrum (700 MHz, 800 MHz and 900 MHz).
When the aggregate demand (i.e. the sum of all the bidders' demands) reaches
six, the auction ends and the blocks are allocated at the round price.
- The demands of the bidders evolves as follows :
o Bidder A is bidding on three blocks at 416 million euros each. At 421
million euros, it is still bidding on three blocks. And so forth until the
price reaches 486 million euros for each block, at which point bidder A
reduces its demand to two blocks.
o Bidder B is bidding on three blocks at 416 million euros. At 426 million
euros, it reduces its demand to two blocs. At 501 million euros, it is bidding
on just one block.
o Bidder C is bidding on three blocks at 416 million euros. At 446 million
euros, it reduces its demand to two blocs. At 486 million euros, it is bidding
on just one block.
o Bidder D is bidding on three blocks at 416 million euros. At 466 million
euros, it reduces its demand to two blocs.
- As a result:
o At 416 million euros for each block, aggregate demand is 12.
o At 426 million euros, it decreases to 11.
o At 446 million euros, it decreases to 10.
o At 466 million euros, it decreases to 9.
o At 486 million euros, it decreases to 7.
o At 501 million euros, it reaches 6.
- Bidder A wins 2 blocks. Bidder B wins 1 block. Bidder C wins 1 block. Bidder
D wins 2 blocks. All bidders pay 501 million euros for each block they won.
In the unlikely event that the demand should decrease below 6 (which would
mean several bidders reduced their demand on the same round), an ad-hoc tie-breaking
mechanism allows the determination of the winners. All 6 blocks will be allocated
at the end of the auction.
2. Positioning auction
After the main auction, the winners, their respective allotment and the final
price of the blocks are all known. However, even though ARCEP guaranties contiguous
allocations, the positioning of the winners within the band must be determined:
leftmost, rightmost, in the middle…
In order to do so, ARCEP runs a single round sealed bid positioning auction:
each winner submits a list, in order of decreasing preference, of positions
within the band and a price it is willing to pay to get its preferred position
within the band. ARCEP then sorts the winners in order of decreasing bid first
and meets their preferences if possible. The winners pay the amount they submitted
if they get their preferred position and nothing if they get their last choice.
Should a winner get an intermediate choice of positioning, it pays an intermediate
For instance :
- The main auction results are as follows: Bidder A wins 2 blocks. Bidder
B wins 1 block. Bidder C wins 1 block. Bidder D wins 2 blocks. Consequently,
there is a total of four possible positions within the band, numbered from
1, for the leftmost position, to 4, for the rightmost position.
- The winners submit the following bids :
o Bidder A bids 50 million euros for the following positioning list: 1,
then 2, then 3, then 4.
o Bidder B bids 40 million euros for the following positioning list: 2,
then 1, then 3, then 4.
o Bidder C bids 30 million euros for the following positioning list: 1,
then 2, then 3, then 4.
o Bidder D bids 20 million euros for the following positioning list: 1,
then 2, then 3, then 4.
- The result of the positioning auction is as follows :
o Bidder A gets position 1 for 50 million euros.
o Bidder B gets position 2 for 40 million euros.
o Bidder C gets position 3 for 10 million euros (a third of what it bid).
o Bidder D gets position 4 and pays nothing for this position.
3. Frequency payment
Winners pay, for a 20 years license, the sum of the amount bid on the main
auction and the amount resulting from the positioning auction. This total amount
is paid in four equal instalments: the first is paid at the license delivery;
the subsequent three are paid annually. Licensees will also be required to pay
annually an amount equal to 1% of the turnover attributable to these frequencies.?
Annex 2 - Coverage obligations
T1 = license delivery date
(1) This amount needs to be confirmed, it is chosen here in order to illustrate