Mon, Jul 01, 2013 - Page 8 News List

EDITORIAL: High cost and rough ride to enter 4G

A bidding war is looming as another four companies are today expected to join the nation’s first 4G spectrum auction. They could bring the total number of bidders to nine on the last day for applications.

Taiwan is taking up its position to rejoin the mainstream Long Term Evolution (LTE) technology and now stands at the doorway to the 4G world. The National Communications Commission is proceeding with the auction to be able to issue licenses by the end of this year, three years after the 4G LTE wireless standard was first deployed globally.

Bidders with applications in already include the nation’s big three telecom companies, led by Chunghwa Telecom Co, together with marginal player Asia Pacific Telecom and the world’s largest electronics manufacturing service provider, Hon Hai Precision Industry Co.

Yet Taiwan has a rough ride to enter the 4G era and is late in deploying a 4G LTE network. Market researcher IHS iSuppli forecast global LTE users would double to about 198 million this year from 92.3 million subscribers last year.

Taiwan has stumbled from the very start. The government made a major mistake in 2009 by auctioning the 90HMz spectrum for the deployment of the WiMAX (Worldwide Interoperability for Microwave Access) technology network, a technology initially strongly supported by US chip giant Intel and its local electronics partners, such as Acer.

However, the gambit proved a big mistake. WiMAX technology lost the technology race and is now considered a supplementary network to mainstream 3G or 4G LTE networks. Taiwan’s six WiMAX operators only have a total of about 136,000 subscribers after four years, compared with 23 million 3G users as of February.

Though one WiMAX operator, Global Mobile is one of the nine bidders expected for the 4G auction, another, Vee Telecom Multimedia Co, said it will stick to WiMAX technology, awaiting the possibilty that WiMAX operators will be able to switch to TD-LTE technology next year when the licenses are due.

The commission is expected to issue between five and seven 4G licenses by breaking the 135MHz into several blocks in a bid to boost market competition. This will lower the threshold and give new entrants easier access, with the 135MHz in several bands.

Yet numbers matter. An average of three licenses is usually issued in developed countries, such as Singapore. With each of the potential seven 4G license holders needing to build its own network, more investment in network deployment and base station construction will ensue.

For example, Taiwan Mobile, the nation’s No. 2 telecom carrier, has said it would take at least 10,000 base stations to have sufficient 4G coverage.

The end result will be that the costs of 4G license fees and huge network deployment will be passed on to mobile users and there will be no easy way to rapidly lower prices to affordable levels.

Each successful bidder will get a maximum of 35MHz under the regulations, which is insufficient bandwidth to provide speeds 10 times faster than the existing 3G network. More base stations will need to make up the shortfall, meaning more investment.

Moreover, 4G license holders will take some time to integrate and expand the bandwidth they acquire in the first-round 4G auction through mergers and acquisitions.

The government could make as much as NT$52 billion (US$1.74 billion) through the bandwidth auction. Yet for 4G license holders, it will be hard to make a profit any time soon, given huge initial costs and a slower-than-expected network. After all, Taiwan’s 3G operators only started making money in recent years, while one, Vibo, is still running at a loss.

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