Although the nation’s first 5G auction will not be concluded until its second phase ends on Feb. 21, the bids generated in the first phase of the auction — NT$138.08 billion (US$4.56 billion) in total — have sparked concerns about the future of the nation’s telecommunications industry and whether 5G services can be made available at an affordable price.
Bids quickly surged to NT$26.77 billion when the auction began on Dec. 10 and rose rapidly, prompting some industry observers to call the bidding process “a train that went completely out of control.”
The situation failed to improve even after the National Communications Commission (NCC), the agency in charge of the auction, on multiple occasions implored the five participating telecoms to stay “calm and rational.”
The Executive Yuan did not help the situation by announcing that it was considering launching a second 5G auction earlier than scheduled.
Bids in the first phase auction not only exceeded the Legislative Yuan’s budget goal of NT$44 billion, but also surpassed the amount accumulated in the nation’s first 4G auction in 2013 — NT$118.65 billion.
A former commission official, who was involved in the 4G auctions and asked not to be identified, said that the result could have been predicted soon after the rules governing the 5G auction were made public.
“There was 270 megahertz [MHz] of bandwidth in the 3.5GHz frequency band up for grabs, and the maximum bandwidth that each telecom can buy is capped at 100MHz,” he said. “The bidding was fierce because there was simply not enough bandwidth for the three dominant telecom carriers. If two of them asked for 100MHz, the third would be left with only 70MHz, which would not be enough to offer a quality 5G service.”
Another reason was the commission’s decision to change the rules of the auction, he said.
The rules had previously stipulated that telecoms that failed to secure any part of the spectrum through the auction could still form partnerships with those who did, to offer a 5G service together.
However, the commission decided to change the rules by prohibiting those who did not participate in the auction from being a 5G service carrier.
“The change forced small telecoms to join the auction as well, which in turn boosted the bids,” he said.
“The NCC should take full responsibility for the whirlwind it caused, with the seed being sown the minute it set the rules,” he said. “This government is only interested in milking these large telecoms dry so that it can use the money collected from the auction and spend it on welfare programs.”
This would place an additional financial burden on telecoms, given that they have spent more than NT$130 billion on the first 5G auction and have yet to fully recover the costs of building and managing 4G system, he said.
The NCC has tried to placate the public by saying that it would implement “administrative measures” to make sure that 5G service fees are affordable.
“What the NCC is trying to say is that telecoms should not expect to charge consumers high fees even after they have spent so much money bidding on the spectrum,” the official said. “It is a scare tactic.”
Apart from bidding on the spectrum, telecoms also need to build many base stations before they can offer 5G services, he said, adding that telecoms would have to invest a huge amount of money in 5G infrastructure before they can use the technology for more profitable applications, such as the Internet of Things.
Telecoms could want to delay the launch of 5G services, but this might not sit well with the NCC, as it would require telecoms to gradually raise their service coverage rate based on the timeline stated in their business plans, he said.
Former NCC chairman Howard Shyr (石世豪) said in his column on the Web site Taiwan Digital Convergence that the fundamental reason that bidding was driven up, apart from the auction rules, was that the government released the 3.5GHz and 28GHz bandwidth too early, so there was not enough available in the frequency band below 6GHz.
Telecoms that secure bandwidth in the 5G auction can use it for 20 years — another motivating factor for telecoms to jump on the bandwagon, he said.
Bad timing and a 5G license that is valid for two decades turned the 5G auction into an “overtime” for the 4G auction that was meant to weaken the competitors’ edge, Shyr said.
It also served as a “preliminary” — a ticket that telecoms simply must secure to enter the 5G competition, he said.
Contrary to what the NCC has said, Shyr said he found that telecoms were quite rational and calm in the way they bid for the 5G spectrum.
All of them were clearly aiming for the bandwidth in the 3.5GHz frequency band, as it makes better service coverage possible, which could lower construction costs for 5G base stations, he said.
Manufacturers have already produced terminal and network equipment for the 3.5GHz frequency band, which would enable telecoms to launch 5G faster, Shyr added.
While telecoms have spent a huge amount on the 4G and 5G auctions, it might be a small price to pay to secure long-term prosperity, he said.
However, consumers might not want to migrate to 5G so soon.
“My first reaction [after hearing about the 5G bids] was that consumers would have to bear the costs. Telecoms might go out of business after the auction if they do not have deep pockets,” said Yvonne Lee (李穎芳), an engineer who specializes in mobile telecommunications.