Complex Motives Behind 5G Frequency Allocation Among Three Major Telecoms [Cha Min-young's PostIT]

Eyes on Frequency Allocation Fees + α

On the 4th, at The-K Hotel in Yangjae-dong, Seoul, the Ministry of Science and ICT held a public discussion on the 'Draft Mobile Communication Frequency Allocation Plan'. Photo by Cha Min-young

[Asia Economy Reporter Cha Min-young] #. As the government firmly states that it will proceed with the auction for additional allocation of some 5G frequency bands as scheduled in February this year, the three mobile carriers have mixed feelings. LG Uplus, which is likely to receive the additional allocation, claims that "we are just now standing at the same starting line," but competitors SK Telecom and KT are opposing it, saying, "It will distort fairness by allocating frequency bands that only a single operator can use." This is because the additional allocation of frequency bands can immediately affect the competition in 5G quality.

The Ministry of Science and ICT, the competent authority, plans to expand the frequency allocation plan within January and announce the plan by February. Next month, it will accept applications for frequency allocation and conduct the auction. The target is the 3.5 GHz band with a 20 MHz bandwidth (3.40?3.42 GHz) 5G frequency allocation plan. Previously, the government operated a research group 15 times since last year, gathering expert opinions and preparing a draft government proposal.

The key point is that "the government plans to calculate the minimum competitive price for this auction by considering the past 5G frequency allocation fees and reflecting factors that increase frequency value." The Ministry of Science and ICT explained that the 7-year usage value of the 20 MHz bandwidth frequency subject to this auction, calculated by applying an increase factor (α) to the 2018 first-stage auction winning bid for 280 MHz bandwidth frequency (usage period 10 years, 3.0683 trillion KRW), is approximately 135.5 billion KRW.

The government's allocation condition is to achieve 100% construction of 150,000 5G base stations by the end of 2025. This includes existing 3.42?3.7 GHz frequency base stations and base stations jointly constructed by the three telecom companies. Additionally, the frequency usage plan must include measures to enhance the stability and reliability of the mobile communication network. The frequency usage period is set to end on November 30, 2028, the same as the expiration date of the already allocated existing 5G frequency usage period.

However, SK Telecom and KT have voiced opposition to this additional allocation. The frequency band allocated this time, with a bandwidth of 20 MHz (3.40?3.42 GHz), is adjacent to the existing LG Uplus usage band. Because of this, if LG Uplus wins the frequency in this auction, it can easily provide services by bundling it with the existing band, but SK Telecom and KT, which use separated bands, will have to incur considerable additional costs to use the new band even if they win the bid. Despite the government's proposal that "other telecom companies can also utilize frequency aggregation technology," the response is that "this is theoretical and does not provide an incentive to participate in the auction."

The concern that LG Uplus will gain an advantage in communication quality evaluation if it receives the additional allocation also provokes competitors. Communication quality is the result of multiplying the frequency bandwidth by the base station performance. Since LG Uplus can have an advantage in communication quality, it is expected to immediately affect competition. In fact, every year, the three mobile carriers continuously increase their investment in 5G base stations and other facilities (CAPEX) to gain an edge in speed values in the 5G communication quality evaluation conducted by the government.

The key point to watch in the future is the minimum competitive price. This is because the government has announced that it will push forward with the plan this time, saying "it can no longer be delayed," despite the opposition from telecom companies. The government currently plans to additionally reflect the value increase factor (α) to account for the rise in frequency value. Some speculate that the minimum competitive price will be about 140 billion KRW, adding 3% to the past transaction price. From the operators' perspective, if the minimum price becomes excessively high, the "winner's curse" cannot be ruled out. Kim Yoon-ho, LG Uplus's Fair Competition Manager, expressed concerns, saying, "Excessive allocation fees reduce operators' investment capacity and affect the fees for the next reallocation and new allocation."

This content was produced with the assistance of AI translation services.