Analysys Mason Final Published Report for the Hellenic Government (09!03!2012)

8/10/2019 Analysys Mason Final Published Report for the Hellenic Government (09!03!2012)

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Final Report for the Greek

Ministry of Transport,

Infrastructure and Networks

Property rights in UHF

and 2.6GHz spectrum

23 February 2012

Version for Public Consultation

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Contents

1 Executive summary 1

2 Introduction 7

2.1 Background to the study 7

2.2 Structure of report 9

3 Overview of the bands under study 10

3.1 The UHF band 10

3.2 The 2.6GHz band 12

4 Approach to quantifying the benefits of different uses of UHF spectrum 14

4.1

Scenarios 14

4.2 Overview of mobile and broadcast markets in Greece 19

4.3 Calculating costs and benefits of different allocation options for UHF spectrum 30

4.4 The mobile model 33

4.5 The DTT model 36

5 Modelling results for the economic impact of UHF spectrum 40

5.1 Mobile results 40

5.2 DTT results 41

5.3 Combined results 42

5.4 Modelling sensitivities 43

6 Market value of 800MHz and 2.6GHz mobile licences 48

6.1 Summary of factors affecting spectrum price 48

6.2 Comparison of spectrum benchmarks between Greece and other European countries 49

6.3 Market value of 800MHz licences 50

6.4 Market value of 2.6GHz licences 53

7 Licensing approach for DTT 59

7.1Licensing approaches 59

7.2 Frequency assignment, fees and subsidies 61

7.3 Roll-out obligations 62

7.4 DTT technology options 63

8 Conclusions from the study 64

8.1 Conclusions from the study 64

8.2 Market value of 800MHz and 2.6GHz spectrum 65

8.3 Recommendations from the study 66

Annex A

Allotment areas using DTT channels 61-66


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Property rights in UHF and 2.6GHz spectrum

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Confidentiality Notice: This document and the information contained herein are strictly

private and confidential, and are solely for the use of the Ministry of Infrastructure,

Transport and Networks.

Copyright 2012. The information contained herein is the property of Analysys MasonLimited and is provided on condition that it will not be reproduced, copied, lent or

disclosed, directly or indirectly, nor used for any purpose other than that for which it was

specifically furnished.

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Edinburgh EH12 5HD

Scotland

Tel: +44 (0)845 600 5244

Fax +44 (0)131 443 9944

[email protected]

www.analysysmason.com

Registered in England No. 5177472


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Property rights in UHF and 2.6GHz spectrum | 2

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In calculating the costs and benefits of assigning UHF spectrum to different services, we have

considered the private value, defined as the benefits that users gain from a service, minus what the

service costs to produce, plus any externalities.4Our approach to modelling private value has been to

split the calculation between consumer surplus (benefit to consumers minus the price they pay) and

producer surplus (revenue of the producers minus the costs to provide the service), plus externalities.

We have also assessed the potential market value of spectrum if the 800MHz and 2.6GHz bands

were to be assigned for mobile broadband services in Greece, based on benchmarking the prices

paid for similar spectrum in different European countries, and adapted per MHz per head of

population in Greece.

Finally, we have considered potential approaches to spectrum assignment both in terms of

typical methods of assigning property rights for mobile broadband, and for DTT as well as

providing a comparison of specific licensing approaches to DTT. We also summarise the key

issues to be considered when taking the licensing of DTT services forward, and the frequenciesneeded to operate those services.

Modell ing resul ts and conclusions

Figure 1.1 below shows the combined results of our assessment of the economic impact of

assigning UHF spectrum for difference uses, whereasFigure 1.2 andFigure 1.3 show the value

created by assigning spectrum for mobile broadband and DTT, respectively.

Figure 1.1: Total economic value of the 700MHz and 800MHz bands for mobile broadband and DTT services

[Source: Analysys Mason, 2012]

4 The economic value of using spectrum to provide a particular service is also referred to as welfare from the service,which is the sum of consumer and producer surplus, plus externalities (positive or negative).

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5

10

15

20

25

30

Base case: 470830MHz isused for DTT

Mobile uses the 800MHz sub-band

Mobile uses the 700MHz and800MHz sub-bands

EUR

(billion)

Base case Increment on base case


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Figure 1.2: Total economic value of the 700MHz and 800MHz bands for mobile broadband services [Source:

Analysys Mason, 2012]

Figure 1.3: Total economic value of the 700MHz and 800MHz bands for DTT services [Source: Analysys

Mason, 2012]

From the modelling result, we have concluded that the greatest benefits come from assigning some

of the spectrum in the UHF band to mobile broadband services and the rest to DTT. We have

found that if the 800MHz band were to be awarded for mobile use in Greece, the economic value5

5 I.e. the combined value of the switchover from analogue to digital terrestrial television in the 470-790MHz band andthe introduction of mobile services in the 800MHz band

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6

8

10

12

14

16

18

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of assigning UHF spectrum would be around EUR26.2 billion, over 20 years.6By contrast, if the

entire UHF spectrum were assigned to DTT, the economic value would be EUR22.7 billion. This

means that the incremental value of assigning the 800MHz sub-band from within the UHF band

for mobile use is around EUR3.5 billion.

We have also found that awarding both the 700MHz and the 800MHz band for mobile use in

Greece would generate a further incremental benefit of EUR1.0 billion, with total benefits at

around EUR27.3 billion, over 20 years. However, we note that awarding spectrum in the

700MHz, 800MHz and 2.6GHz bands for mobile use in Greece could result in supply of mobile

spectrum exceeding demand, since only three mobile operators are present in the Greek market.

Therefore, in our model we have assumed that the award of additional spectrum in the 700MHz

band could enable a new player to enter the Greek market with a larger amount of sub-1GHz

spectrum suitable for LTE services (e.g. 220MHz of UHF spectrum). Hence, the incremental

value we have calculated if the 700MHz band is awarded for mobile use derives largely from the

presence of a fourth operator in the Greek market.

Notwithstanding this, we have not explicitly modelled the viability of a new market entrant in the

Greek market. We have only assumed that, if viable, the entry of a new player in the Greek market

would increase competition and thus lower the prices of mobile broadband services.We have also

found that the additional network costs incurred by a new operator entering the market and

building its own infrastructure reduces the producer surplus created by the scenario in which both

the 700MHz and the 800MHz bands are assigned to mobile broadband use, compared to if just the

800MHz band is assigned. To compensate for the reduction in producer surplus, however, there is

an increase in consumer surplus as a result of a new entrant being in the market, due to the lowerARPU resulting from increased competition and lower prices.

We have also noted that the additional value of the 700MHz band over and above the 800MHz

band for existing operators is marginal if 2.6GHz spectrum is also awarded, since existing

operators are expected to have sufficient spectrum to accommodate their future mobile data

requirements using a combination of their existing 900MHz and 1800MHz spectrum, and new

800MHz and 2.6GHz spectrum.

By contrast, we have found that the allocation of 700MHz spectrum away from broadcasting

resulting in a reduction in the number of multiplexes that can be provided over the DTT platformpresents only a small decrease in the value generated from DTT services. This is because the

majority of value from DTT comes from analogue services being able to be delivered digitally,

whilst the value of incremental multiplexes over and above those required to accommodate

existing analogue services for DSO is marginal. We have found that the economic value is slightly

higher if DVB-T2 is used to accommodate high-definition (HD) programmes in one multiplex than

if DVB-T is used. The value of DTT services also increases if we assume that multiplexes are used

to provide both SD and HD services, rather than assuming all multiplexes are used just for SD.

6 The majority of this valuearound EUR15.9 billionis value generated from mobile services, whilst the remainingEUR10.3 billionis derived from the switchover from analogue to digital terrestrial television.


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Recommendations

On the basis of our modelling results, we recommend that the Hellenic Government proceeds with

allocating the 800MHz sub-band for mobile use, but do not recommend that it allocates the

700MHz band for either mobile use or DTT at the present time. We suggest that the Hellenic

Government awaits a decision at a European level on the harmonised use of the 700MHz band in

order to make a decision on whether the 700MHz band should be used for mobile services in

future. This is particularly required because the European Allocation Table does not contain a

primary mobile allocation in the 700MHz band (although this might change as a result of future

WRCs). Since there is no common allocation, there is also no harmonised band plan for 700MHz

mobile use in Europe and hence equipment manufacturers are not developing mobile products for

this band in Europe. By contrast, LTE800 equipment (for use in the 800MHz band in Europe) is

becoming increasingly widely available.

We strongly recommend that, to maximise value from the allocation of 800MHz UHF spectrum formobile use, the Greek government assigns spectrum in the 800MHz band in accordance with the

harmonised European band plan defined by EC Decision 2010/267/EU7. This will require migration of

military systems in Greece from the upper part of the 800MHz band to an alternative band.

We note that one possibility to release 800MHz spectrum for mobile use might be to migrate military

systems to the 700MHz band. However, this may preclude the 700MHz band from being used for

mobile services in the future. We estimate that the impact of the 700MHz band not being available for

mobile use (i.e. the loss of value from the entire 700MHz band not being available for mobile services

as a result of military systems occupying part of this band) is around EUR1.6 billion 8. The reduction in

value from the DTT model if the 700MHz band is not available (e.g. if 700MHz is used for military or

other systems) is smaller, at around EUR326 million, or 1.2% of the total value already shown in

Scenario 2b (EUR26.3 billion).

We have also estimated the market value of an 800MHz licence in Greece based upon benchmarks

of 800MHz auction prices in different European countries. Taking a conservative view, a

210MHz licence might have a market value of up to EUR97.8 million, suggesting a total value

(for the entire 800MHz band) of EUR 291.5 million. Assuming a 15-year licence duration, this

would be equivalent to EUR6.5 million per annum per a 10MHz paired licence.

In terms of the 2.6GHz band, we have estimated using benchmarks of the prices paid for 2.6GHz

spectrum in other European countries that the total revenue that the Greek Government might expect to

obtain from each 20MHz paired licence would be up to EUR20.8 million, if all of the available

spectrum were to be assigned, but could be only EUR11.3 million if a more conservative benchmark

price is used. This is equivalent to an annual value of EUR0.7 million per 20MHz paired licence

(assuming a 15-year licence duration). It is also noted that there might not be sufficient demand for

7 Commission Decision of 6 May 2010 on harmonised technical conditions of use in the frequency band 790-862MHz

frequency band for terrestrial systems capable of providing electronic communications services in the EuropeanUnion: http://www.erodocdb.dk/docs/doc98/official/pdf/2010267EU.pdf

8 This is the difference in economic impact between scenarios 3a and 3b, as described in Section5.1.


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mobile spectrum within the current Greek mobile market for the entire 2.6GHz band to be sold. This is

because of the relatively limited competition in the Greek market and the fact that, with a total of

270MHz of paired spectrum is available in the 2.6GHz band, all of the spectrum would be sold only if

individual operators demand more than 220MHz of spectrum each. Based upon demand exhibited in

other European auctions, this is very unlikely.

In terms of award options, we recommend that 800MHz and 2.6GHz spectrum is assigned in

Greece for mobile services through a market-based process such as an auction. We also

recommend that the Hellenic Government should proceed as soon as is practically possible with

the award of rights to access and use spectrum in the 470698MHz band for DTT, to accelerate the

migration from analogue to digital terrestrial television and analogue switch-off (ASO). In terms

of the approach to licensing DTT, our analysis shows that assigning frequencies by multiplex is

the method most commonly used, rather than assigning frequencies by individual DTT

programming channel, or by DTT transmitter. The former approach enables multiplex operators to

plan the DTT network within the available frequencies assigned to the multiplex, in accordance

with the agreed co-ordination parameters (i.e. as defined within the ITU-R GE-06 Agreement and

Plan9and the associated bilateral agreements with neighbouring countries).

9Results of the ITU Regional Radio Conference 2006: http://www.itu.int/ITU-R/terrestrial/broadcast/plans/ge06/index.html.


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2 Introduction

Analysys Mason Limited (Analysys Mason) has been commissioned to provide advisory support

to the Greek Ministry of Infrastructure, Transport and Networks (YME) in the assessment of the

best-available options for the management of the rights on selected bands in the national frequency

spectrum.

This document is the final report of a series of deliverables produced by Analysys Mason for the

YME in the context of this project, in order to inform YMEs policy decisions on the award of

property rights in the UHF and 2.6GHz bands in Greece.

The purpose of the study has been to assess the benefits to Greeces economy of assigning UHF

spectrum for different candidate uses, namely to mobile broadband systems, or digital terrestrial

television (DTT) systems. The study has also considered the possible proceeds to the Government from

assigning 2.6GHz spectrum for mobile broadband systems, and how spectrum in each bands might be

licensed, based upon benchmarks of similar spectrum awards in other European countries.

The estimation of the economic value or welfare of UHF spectrum is based upon a model that

considers a range of scenarios for assignment of different amounts of spectrum for mobile

broadband and for DTT, in order to identify the scenario that achieves maximum benefits.

The estimation of the likely proceeds from sale of 2.6GHz spectrum is based upon benchmarks of

auctions for similar spectrum obtained in other European countries, adapted to give a comparableprice per MHz per capita of population in Greece. We have also considered the suitability of

different assignment methods for both UHF and 2.6GHz spectrum for mobile broadband (in both

bands) and for DTT (in the UHF band), and contrasts methods used for both bands in selected

other countries in Europe, based upon a series of case studies.

2.1 Background to the study

Until 2007, it was assumed that spectrum in the UHF Bands IV and V would be used for digital

TV services in line with the International Telecommunications Union (ITU-R) GE-06 agreement

or, potentially, mobile TV (using technologies such as DVB-H).

However, in 2007, the ITU World Radio Conference (WRC-07) allocated the 790862MHz band

(or parts of it in some countries) to mobile services on a primary basis in a number of countries

within ITU Region 1, including all European Union countries. This is in accordance with footnote

number 5.316A of the ITU Radio Regulations. The EC subsequently put forward a decision

2010/267/EC to harmonise use of the 790862MHz band for electronic communications systems

such as mobile broadband. Consequently, many European countries have now renegotiated or

are in the process of renegotiating DTT/mobile TV multiplex plans with neighbouring countries

(i.e. based upon the frequency plan provided by the ITU-R GE-06 agreement). This will allow therelease of the 790862MHz band for use by mobile services. This would mean that DTT services


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will be constrained to the remainder of the UHF spectrum (470790MHz), with the 790862MHz

band (referred to as the 800MHz band) being re-allocated for mobile use. This release of spectrum

is often referred to as the digital dividend.

This decision has not been formalised in Greece; one of the key objectives of this study is

therefore to confirm the future use of the UHF bands IV and V in Greece. This consideration

includes whether the 800MHz band should be used for broadcasting or for mobile services.

We have also been asked to consider whether the adjacent spectrum (698790MHz, referred to as

the 700MHz band) should be retained for DTT use, or released for other uses such as electronic

communication systems (e.g. 3G/4G mobile services).

Finally, we have been asked to identify award options for the 2.6GHz band (25002690MHz),

which is a band also intended for mobile broadband use according to EC Decision 2008/4776/EC.

A number of studies (including a number by Analysys Mason) have been conducted into the

relative benefits to Europes economy of different allocation options for the UHF spectrum

released from switchover from analogue to digital TV. These options have tended to consider a

variety of possible configurations of spectrum allocated to mobile and DTT networks. In each of

these studies, the objective has been to identify the appropriate apportioning of spectrum between

mobile and DTT in the UHF band in order to maximise overall welfare10

.

For mobile network operators, the main benefit of having access to more UHF spectrum is that it

would allow the deployment of new mobile broadband technologies over a wider area, with better

quality and to more consumers than would be possible using higher-frequency spectrum.Specifically, UHF spectrum would allow the deployment of networks using Long-Term Evolution

(LTE) technology, the successor to the UMTS standard for 3G services.

For the broadcasting sector, the benefits of having access to UHF spectrum lie in the potential to

provide viewers with new high-definition (HD) channels over DTT, as well as to increasing the

take-up of DTT platforms compared to other methods of viewing digital TV, such as via satellite

or fibre-based networks11

.

Identifying the appropriate balance of UHF spectrum assignment between mobile and DTT

requires modelling of the costs and benefits of deploying mobile broadband and DTT networks, in

order to identify the net benefits of different amounts of spectrum between the two services, and

the impact of various sensitivities within the model upon the net benefits predicted.

10 In other words, economic benefits that can be expected to be generated by increased availability and use of mobile

broadband networks and/or DTT

11 For example, via IP-TV


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2.2 Structure of report

The remainder of this document is laid out as follows:

Section3provides an overview of the bands under study in this project

Section4 describes the approach to modelling economic benefits of assigning different

amounts of UHF spectrum for mobile and DTT systems

Section5 summarises the results generated by the mobile and DTT models in relation to the

economic benefits of both services

Section6 considers the value of 2.6GHz spectrum for mobile broadband use in Greece

Section7 considers licensing approaches for DTT

Section 8 presents the conclusions and recommendations from this study, relevant to the

YMEs consideration of assignment ofproperty rights in both bands.

The report the following annex containing supplementary material:

Annex A illustrates Greeces allotments in the GE-06 plan in the 800MHz sub-band (DTT

channels 61 to 69).


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3 Overview of the bands under study

This section provides a brief overview of the two frequency bands under study namely the UHF

band (470862MHz) and the 2.6GHz band (25002690MHz)

3.1 The UHF band

Historically, the UHF band has been allocated entirely to the broadcasting service, for use by

terrestrial TV broadcasting services. In many European countries, UHF spectrum is also used on a

secondary basis by services ancillary to broadcasting, often referred to as programme making and

special events (PMSE).

To reflect the development of technology to broadcast terrestrial TV digitally, the UHF band wassubsequently re-planned for DTT as a result of the ITU Regional Radio Conference held in 2006

(RRC-06). The output of this conference, referred to as the Geneva-06 Agreement (GE-06), sets out co-

ordination principles and a frequency plan for digital terrestrial broadcasting (including DVT-T, DVB-

H and T-DAB) across ITU Region 1, of which Europe is a part. It is still possible for PMSE systems to

use spectrum within the GE-06 frequency plan, on a co-ordinated basis with DTT.

Subsequent to this, the ITU WRC held in 2007 (WRC-2007) considered a number of issues

relating to the identification of spectrum for future mobile services.12

As a result, it decided to

allocate parts of UHF Bands IV and V for mobile services on a co-primary basis with broadcasting

services, to provide further opportunities for the growth of mobile broadband services. The

following allocations were made to mobile services:

790862MHz in Regions 1 and 3

698862MHz in Region 2 and parts of Region 3.

The decision to allocate some spectrum for mobile services in UHF Bands IV and V reflects two

key market developments:

DTT broadcasting is more efficient than analogue TV broadcasting. Digital networks can

therefore provide an equivalent number of channels using less spectrum than an analoguenetwork. The lower spectrum requirement of DTT broadcasting allows the release of surplus

spectrum when networks are migrated from analogue to digital, which is referred to as the

digital dividend.

Spectrum below 1GHz has particularly good propagation characteristics and is generally

considered highly desirable not just for broadcasting, but also for electronic communications

services. In mobile networks, spectrum below 1GHz is particularly useful for achieving wide-area

coverage in less densely populated areas and also for achieving indoor coverage in urban areas.

12 Referred to within the ITU as International Mobile Telecommunications, or IMT.


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The identified spectrum for mobile services within ITU Region 1, from 790862MHz, comprises

the top eight channels of the UHF band, as illustrated below.

Figure 3.1: UHF Bands IV and V 800MHz band [Source: Analysys Mason, 2012]

Following the WRC-07, the EC conducted a study on a co-ordinated approach to the digital

dividend, to consider the benefits of European countries re-planning their digital TV services to

allow the release of channels 61 to 69.13

Thereafter, the EC published a decision (2010/267/EU)14

recommending that EU Member States make the sub-band of channels from 61 to 69 at the top of

the UHF band (i.e. from 790862MHz, hereafter referred to as the 800MHz band) available for

electronic communications services. The ECs decision recommends that the 800MHz band is

allocated to mobile services in a harmonised band plan, comprising 60MHz of spectrum divided

into two 30MHz paired block, as illustrated below.

Figure 3.2: Harmonised European band plan for the 800MHz band [Source: Analysys Mason, 2012]

It is possible that a future WRC might make further changes to allocations in UHF spectrum. In

particular, there is a possibility that a decision might be taken to align the mobile allocation in ITU

Region 1 with the rest of the world, which would result in a wider sub-band, from 698862MHz

band, being allocated for mobile use. This would introduce the possibility of a further sub-band for

mobile use: the 700MHz band, from 698790MHz. However, since this decision has not been

13 Available at http://www.analysysmason.com/Consulting/Services/Strategy-consulting/Spectrum-management/Digital-

dividend/Exploiting-the-digital-dividend--a-European-approach/?journey=3592.

14 European Commission Decision of 6 May 2010 on harmonised technical conditions of use in the 790862MHz frequencyband for terrestrial systems capable of providing electronic communication services in the European Union.

22 2321 25 26 27 28 29 30 31 3224

34 3533 37 38 39 40 41 42 43 4436

46 4745 49 50 51 52 53 54 55 5648

58 5957 61 62 63 64 65 66 67 6860

69

470 478 486 494 502 510 518 526 534 542 550 558 566MHz

566 574 582 590 598 606 614 622 630 638 646 654 662MHz

662 670 678 686 694 702 710 718 726 734 742 750 758MHz

758 766 774 782 790 798 806 814 822 830 838 846 854MHz

854 862MHz

FDD downlink FDD uplink

791 821 832 862MHz


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taken yet, there is no 700MHz mobile allocation within the European frequency allocation table at

present, and no harmonised European band plan for mobile use of the 700MHz band.

Note that decisions to allocate spectrum in the 700MHz and 800MHz bands for mobile services

will preclude those parts of the UHF band being used by PMSE. However, within our model, we

have not considered the economic impact of PMSE not having access to the full amount of

spectrum to which it has access currently.

It is expected that, if a decision is taken at a future WRC to create a 700MHz sub-band for mobile use

in Europe, further detailed study will follow in CEPT to develop a suitable harmonised band plan.

In the absence of this, and for the purposes of this study in order to estimate the value of 700MHz

spectrum, we have needed to make assumptions on how much paired bandwidth might be

available in the 700MHz band. The assumption we have therefore made is it might be configured

in a similar way to the 800MHz band i.e. two blocks paired spectrum with an 11MHz duplex gap.Whilst not confirmed at this stage, a possible configuration might be:

Uplink 698-738 and downlink 749-789MHz

Duplex gap 738-749MHz

Guard band 789-790MHz

3.2 The 2.6GHz band

The 2.6GHz band comprises 190MHz of spectrum between 2500MHz and 2690MHz. At an

international level, the band is allocated to mobile services in all three ITU regions, and wasidentified for use by IMT systems the ITUs definition of 3G/4G technologies at the WRC in

2000 (WRC-2000). The band sits alongside the 2.4GHz Industrial, Scientific and Medical (ISM)

spectrum, used extensively around the world for licence-exempt wireless systems such as WiFi; at

2690MHz, it is adjacent to an international radio astronomy band.

At a European level, CEPT and EC decisions on the harmonised utilisation of spectrum within the

band 25002690MHz have been published as ECC Decision (05)05 and EC Decision

2008/477/EC,15

respectively.

EC Decision 2008/477/EC recommends that Member States issue licences in the 2.6GHz band in

accordance with the harmonised band plan described in ECC Decision (05)05. This band plan

divides the spectrum into 14 paired blocks of 5MHz, separated by 120MHz, with the sub-band

25702620MHz divided into ten 5MHz blocks of unpaired spectrum. This is illustrated below.

15 Commission Decision of 13 June 2008 on the harmonisation of the 25002690MHz frequency band for terrestrial

systems capable of providing electronic communications services in the Community ((2008/477/EC). Available athttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2008:163:0037:0041:EN:PDF.


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Figure 3.3: Harmonised European band plan for allocation of the 2.6GHz band [Source: Analysys Mason, 2012]

In accordance with the European band plan, the 2.6GHz band is suitable for both FDD and TDD

technologies, since the band plan comprises of combination of paired and unpaired spectrum.

Although spectrum is nominally divided as paired and unpaired 5MHz blocks, the EC Decision

allows regulators to award spectrum in lots of 5MHz multiples, which has resulted in some

regulators in Europe deciding to offer 2.6GHz spectrum in 10MHz, or larger, blocks.

FDD uplink FDD downlinkTDD

2500 2570 2620 2690MHz


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4 Approach to quantifying the benefits of different uses of

UHF spectrum

In this section, we consider the results of a cost-benefit assessment of the value of allocating UHF-

band (470862MHz) spectrum for different usesspecifically mobile broadband versus DTT.

Within this section, we summarise our approach to modelling the costs and benefits of assigning

different amounts of UHF spectrum to mobile, and to DTT, as well as describing the scenarios we

have developed in order to compare benefits between the two services.

We start with a description of the mobile and DTT markets in Greece, followed by an overview of

the modelling approach used to calculate the economic value for both services, and the key

sensitivities for each.

For both mobile broadband and DTT, economic value is defined as the benefits that users get from

a service minus what this service costs to produce, in additional to wider social benefits, and is

often split between consumer surplus (benefit to consumers minus the price they pay), producer

surplus (revenue of the producer minus the costs to provide the service) and external benefits.

4.1 Scenarios

In order to calculate the relative value of different spectrum allocations, we designed a series ofscenarios each of which assumed a different split of spectrum between DTT and mobile broadband

services. For DTT services, we have assumed that multiplexes can either be used to accommodate

standard-definition programmes (SD), or high-definition programmes (HD). Although in practice a

multiplex can accommodate a mix of SD and HD channels, to simplify our model we have

compared value from multiplexes being used either for SD, or for HD. Within our base case we

have assumed 6 SD programmes can be delivered per multiplex or 3 HD programmes.

These scenarios are outlined in Figure 4.1 below. The underlying assumptions within each

scenario in relation to the spectrum allocated to mobile and to DTT use are illustrated inFigure 4.2

toFigure 4.7.


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Figure 4.1: Modelling scenario descriptions [Source: Analysys Mason, 2012]

Scenario Option DTT Mobile

1Base case:

470830MHz is

used for DTT

16

1aDTT multiplex

broadcasting in SD

1a10

multiplexes, SD

programmes

In the absence of available

800MHz spectrum, 900MHz

re-farming is accelerated1bDTT multiplex

broadcasting in HD

1b10

multiplexes, HD

programmes

2Mobile uses

the 800MHz sub-

band

2aThree mobile operators

are each assigned 25MHz

of 800MHz spectrum;

(remaining spectrum is used

by the military)

2a8

multiplexes, SD

programmes

2a25MHz per operator

2bThree mobile operators

are each assigned 210MHz

of 800MHz spectrum;

(military is transferred to

other spectrum)17

2b8

multiplexes, mix

of SD and HD

programmes

2b210MHz per operator

3Mobile uses

the 700MHz and

800MHz sub-

bands

3aThree mobile operators

are each assigned

210MHz of spectrum in

2013 (800MHz band), and

25MHz of spectrum in

2016 (700MHz band); in

addition, a fourth mobile

operator enters the market

with 220MHz of 700MHz

spectrum in 20161819

3a5

multiplexes, SD

programmes

3a210MHz per operator

(three operators) in 2013

(800MHz band), an additional

25MHz of spectrum in 2016

(700MHz band); plus 220MHz

of spectrum for a new entrant in

2016

3bThree current mobile

operators are each assigned

210MHz of spectrum in the

800MHz band, and

subsequently (in 2016),

25MHz of spectrum in the

700MHz band. Military

systems are also migrated

from the 800MHz to the

700MHz band to use the

remaining 700MHz spectrum

3b5

multiplexes, HD

programmes

3b210MHz per operator

(three operators) in 2013; an

additional 25MHz per operator

in 2016

16 Military systems currently use 32 MHz of UHF spectrum from 830-862MHz (i.e. four 8MHz channels)

17 From discussions with YME as part of this study we have noted that it is likely Greek military systems can be

migrated from using the 800MHz band to using spectrum in the 600700MHz range, at no additional cost. We havetherefore performed a sensitivity analysis on Scenario 2b to assess the impact on DTT of military systems using the600700MHz range, in view of the resultant loss in capacity to DTT. We have also considered the impact on theDTT results in Scenario 2b DTT of a mix of SD and HD programmes being broadcast, rather than all SD. This isdescribed in Section 5.4.4.

18 In this scenario, military systems could use duplex gaps in the 700MHz and 800MHz bands, plus a further 25MHz

that is un-allocated in the 700MHz band, assuming it is possible for the military systems to use non-contiguousspectrum (which has not been confirmed within this study).

19 It is noted that the result of an auction of 700MHz and/or 800MHz spectrum could result in a spectrum distribution

that is different to our scenarios i.e. there is no guarantee that existing operators would acquire the same additional

spectrum and they could each acquire different amounts. Our model has assumed an equal distribution for thepurposes of estimating the welfare benefit.


19/75


Ref: 18600-502 .

Figure 4.2: 471-862MHz band plan overview today [Source: Analysys Mason, 2012]

Figure 4.3: 471-862MHz band plan for Scenario 1a & 1b [Source: Analysys Mason, 2012]

Figure 4.4: 471-862MHz band plan for Scenario 2a [Source: Analysys Mason, 2012]

Military 830-

862MHz

(30MHz)

EC-recommended 800MHz

band 791-862MHz (72MHz)

700MHz band 698-790MHz

(92MHz)

Terrestrial television

698-790MHz (92MHz)


791-830MHz (40MHz)


470-698MHz (228MHz)

Digital terrestrial television

698-790MHz (92MHz)Digital

terrestrial

television

790-830MHz

(40MHz)




(92MHz)

UHF TV band 471-698MHz

(228MHz)


471-698MHz (228MHz)

Military 830-

862MHz

(30MHz)


698-790MHz (92MHz)




(92MHz)

Mobile broadband

2x5MHz (x3 operators, 791-

806MHz and 832-847MHz

Unused spectrum 806-821MHz

and 821-832MHz (duplex gap)


(228MHz)


471-698MHz (228MHz)Military

847-

862MHz

(15MHz)


20/75


Ref: 18600-502 .

Figure 4.5: 471-862MHz band plan for Scenario 2b [Source: Analysys Mason, 2012]

Figure 4.6: 471-862MHz band plan for Scenario 3a [Source: Analysys Mason, 2012]

Figure 4.7: 471-862MHz band plan for Scenario 3b [Source: Analysys Mason, 2012]

Note: For each scenario, except Scenario 1a, some or all of the current military use from 830-

862MHz would need to be migrated to alternative spectrum. In our scenario 2a, if the GreekGovernment decides to award only 15MHz of paired spectrum in the 800MHz band, rather than


699-790MHz (92MHz)



Proposed 700MHz band 699-

790MHz (92MHz)

Mobile broadband

2x10MHz (x3 operators),

791-821MHz and 832-

862MHz

Duplex gap


(228MHz)


471-698MHz (228MHz)

Mobile broadband


and 2x20MHz (one

operator), 699-734MHz

and 750-785MHz


(228MHz)


471-698MHz (228MHz)

Mobile broadband


791-821MHz and 832-

862MHz

Duplex gap




790MHz (92MHz)

Unused spectrum 734-739MHz

and 785-790 MHz (i.e. 2x5MHz),

plus duplex gaps 739-750MHz

and 821-832MHz (could be used

for military)

Duplex gap

Mobile broadband

2x5MHz (x3 operators), 699-

714MHz and 750-765MHz


(228MHz)


471-698MHz (228MHz)


790MHz (92MHz)

Mobile broadband


791-821MHz and 832-

862MHz

Duplex gap



Duplex gap

Unused spectrum 714-

738MHz, 765-790MHz and

duplex gaps 738-749MHz

and 821-832MHz

Military 765-

791MHz

(26MHz)


21/75


Ref: 18600-502 .

the full 30MHz paired, there is the possibility of the military retaining 15MHz of its current band

(i.e. from 847862MHz), and it could also use the remaining un-used spectrum from 806-

832MHz. In other scenarios, replacement for the entire bandwidth of the 800MHz block currently

used by the military use would be required.

There are various options that the Hellenic Government could consider and we have shown some

examples in the diagrams above. For example, it might be feasible to migrate the military to a

similarly sized block of 32MHz in the 700MHz band (as illustrated by Scenario3b, where a

contiguous 26MHz block is indicated for possible military use. Since the military requires 32MHz

of spectrum, a further 8MHz would be required in this scenario. This could be accommodated if

the military uses the 700MHz duplex gap, or the unused spectrum indicated in the diagram below,

in addition to the 26MHz block identified). In Scenario 3a, where the majority of the 700MHz

(and the 800MHz) band is assumed to be used for mobile systems, the remaining spectrum is in

un-contiguous blocks, from 734750MHz, 785790MHz and 821832MHz. We understand from

our discussions with YME that the military has confirmed that use of non-contiguous blocks is

viable option.

We have also considered the impact on DTT of military systems using the 700MHz band in

Scenario 2b, which would result in loss of capacity for DTT. We have modelled this as a loss of

one multiples on DTT.

It is also noted that, if military systems use the duplex gaps in the 700MHz and 800MHz bands, it

precludes those gaps from being used for other commercial services, such as mobile systems using

technology based on unpaired spectrum (i.e. time division duplex, or TDD), or programme making

and special events (PMSE). We have not accounted for the impact of PMSE having more or less

spectrum in the UHF band as part of our modelling.

Finally, if no other option exists, it may be possible to move the military systems out of the UHF

band entirely to another core military band.

For each of the modelled scenarios as illustrated above, we considered the impact on the model

drivers (both revenue and cost) and adjusted accordingly.

In addition to these scenarios, we modelled a series of sensitivity tests to assess the impact of some

of the key drivers being either substantially higher or lower than expected. These sensitivity tests

and their impact on the model are outlined in Section5.4below.


22/75


Ref: 18600-502 .

4.2 Overview of mobile and broadcast markets in Greece

4.2.1Demographic and geographical profile

Greece had a gross domestic product (GDP) of just over EUR230 billion in 2010, and a population

of 11.3 million, suggesting a GDP per capita of 20 371 (see Figure 4.8 below). Its population

density was 87.6 persons per square metre. Greece covers a land area of 129.6 square kilometres,

and has a land area per capita of 11.4 thousand square metres.

Figure 4.8: Greek demographic information [Source: Analysys Mason, 2012]

GDP

(billions)

Population

(millions)

GDP per

capita

Population

density

Households

(millions)

Land area Land area

per capita

EUR230.3 11.3 EUR20 371 87.6/sq km 4.0 129.6 sq km 11 400 sq m

The 11.3 million Greek inhabitants are distributed over 4 million households, with an average of

2.8 occupants per household. As Figure 4.9 shows, most households are located within urban

areas, with the split remaining fairly constant over the last few years. Owing to current economic

conditions, a migration of population towards the countryside has been suggested, however, this

impact is likely to be reversed as the countrys economy recovers, and the overall split is not

expected to change significantly in the long term.

Figure 4.9: Greece

Historical and forecast

urban and rural

household distribution,

20052013 [Source:

Euromonitor, 2011]

4.2.2Mobile market

There were 12.1 million mobile subscribers in Greece at June 2011, which represents a population

penetration of 109.9%. As Figure 4.10 shows, mobile penetration exhibited rapid growth until

2009 (124% penetration), but declined sharply in 2010 (106% penetration at year end). This was

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005

2006

2007

2008

2009

2010

2011

2012

2013

Percentageofhouseholds

Urban Rural


23/75


Ref: 18600-502 .

largely due to the reduction in the number of prepaid subscribers (8.6 million to 7.2 million)

which, in turn, resulted from new government regulations to register prepaid users.

Figure 4.10: Greece

Historical mobile

penetration (active

subscribers), 2000

2011 [Source: Analysys

Mason, 2012]

Mobile operators

At June 2011, the mobile market was contested by three operators. COSMOTE, the mobile

subsidiary of the Greek incumbent OTE, dominated the market with a 51.3% share of total

subscribers (seeFigure 4.11). Prior to 2007, Q-Telecom was also an active mobile operator in the

Greek market but subsequently merged with WIND, its parent company.20

Figure 4.11: Greece -

Mobile market shares

(active subscribers),

June 2011 [Source:


20 Source: Analysys Mason, 2011

0%

20%

40%

60%

80%

100%

120%

140%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

1H

2011

Percentageofpopulation

51%

28%

21%

COSMOTE Vodafone WIND


24/75


25/75


Ref: 18600-502 .

Spectrum band COSMOTE Vodafone WIND Figure 4.13: Greece

Spectrum allocations by

mobile operator [Source:

PolicyTracker Global

Spectrum Database,

2011; Analysys Mason,

2011; TeleGeography,

2011, YME]

Paired

900MHz 210 215 210

1800MHz 235 225 215

2.1GHz 215 220 210

Total paired (MHz) 260 260 235

Unpaired (MHz)

2.1GHz 5 5 5

Total unpaired (MHz) 5 5 5

Total spectrum (MHz) 125 125 75

GSM, W-CDMA and HSPA technologies are used by COSMOTE, Vodafone and WIND.

COSMOTE has also conducted trials of LTE in Athens and announced in October 2010 its successof achieving up to 100Mbit/s on its pilot mobile broadband network.

22However, no commercial

deployment has yet been made.

Figure 4.14: Greece Technologies used by mobile operators [Source: Analysys Mason Wireless networks

tracker, 2011] *Trialled in 2010

900MHz 1800MHz 2.1GHz

COSMOTE GSM, GPRS,

UMTS900, LTE*

GSM, GPRS, LTE* W-CDMA, HSPA, HSPA+ 64 QAM

Vodafone GSM GSM W-CDMA, HSPA, HSPA+ 64 QAM,

HSPA+ with MIMO, Femtocells

WIND GSM, GPRS, EDGE GSM, GPRS, EDGE W-CDMA, HSPA

The mobile market leader, COSMOTE, has extensive 2G and 3G networks, with the former

providing coverage to 99.8% of the population and the latter 97.4% at September 2011 (source:

TeleGeography, 201123

). Launched in July 2009, COSMOTEs HSPA+ network is estimated (by

TeleGeography) to have reached over 60% of the Greek population by September 2011.

Vodafones 2G network provides the same extent of coverage as COSMOTEs: 99.8%. In

September 2011, its 3G network reached 95% of the population. Like COSMOTE, Vodafone

launched an HSPA+ network in July 2009 which, at September 2011, provided coverage for over

50% of the population22

.WIND provided 99% 2G population coverage at September 2011. At the

same point, its 3G network provided coverage to 80% of the Greek population22

.WINDs HSPA+

network is expected to be launched in the second quarter of 2012.

22 Source: TeleGeography, 2011

23 http://www.telegeography.com/products/globalcomms/data/country-profiles/we/greece/wireless.html
http://www.telegeography.com/products/globalcomms/data/country-profiles/we/greece/wireless.htmlhttp://www.telegeography.com/products/globalcomms/data/country-profiles/we/greece/wireless.html


26/75


27/75


28/75


Ref: 18600-502 .

Mobile data use is increasing in Greece and non-voice service revenue stood at almost 18% at the

end of June 2011. The mobile operators are increasing their efforts in mobile broadband provision

in order to drive additional revenue. For example, a variety of mobile broadband tariffs for laptop

users and iPhone 3G-based tariffs are being offered.

Mobile broadband pricing

Several strategies for increasing mobile broadband adoption have been implemented by the operators.

COSMOTE, for example, initially focused on modem users, subsequently also promoting data

usage via 3G handsets and other devices, by offering packages that enabled users to share their

capacity across different mobile devices.

Vodafone was successful in its mobile broadband provision, and, in April 2011, also promoted

mobile data over handsets, through an unlimited web-surfing offer for EUR1 per day.

Mobile broadband is offered in a variety of packages and for a range of tariffs by the Greek mobile

operators, with an average of EUR0.0248 per MB. When compared to the EU average of

EUR0.0083 per MB, this is deemed still high.

Demand forecasts

The prevailing economic downturn in Greece has affected the development of the mobile market

in several ways, as discussed throughout this section of the report.

Mobile penetration

Figure 4.19 shows the development of mobile penetration in Greece. Between 2009 and 2012,

penetration saw a period of decline, resulting from prepaid SIM registration requirements and the

economic downturn. Forecasts suggest that following this downturn, growth in mobile penetration

from 2013 is expected to recover to its pre-2009 growth levels.


Mobile population

penetration forecast,

20002016 [Source:


0%

20%

40%

60%

80%

100%

120%

140%

160%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

201

1*

201

2*

201

3*

201

4*

201

5*

201

6*

Percentageofpopula

tion


29/75


Ref: 18600-502 .

Technology evolution and penetration

With advances in technology, and more specifically the current LTE activity on the parts of

COSMOTE and Vodafone, the Greek mobile market is forecast to move rapidly from 2G to 3G

and 4G services (seeFigure 4.20). The penetration of 3G services is expected to overtake that of

2G services in 2013, and the former is likely to be the dominant mobile technology in the market

for several years in the near and mid-term future.


Technology penetration

forecast by

connections, 2008

2016 [Source: Analysys

Mason, 2012]

Services

Figure 4.21 shows that, from 2012 to 2016, the growth of mobile data is predicted to follow a

similar path as the preceding five yearsslow but steady growth. The assumed growth in mobile

data is largely driven by the increasing use of smartphones as shown below.

Figure 4.21: Greece

Mobile broadband

connection and handset

forecasts, 20082016

[Source: AnalysysMason, 2012]

0

2

4

6

8

10

12

14

16

18

2008

2009

2010

2011

2012

2013

2014

2015

2016

Connections(million)

2G 3G 4G

0

2

4

6

8

10

12

14

16

2008

2009

2010

2011

2012

2013

2014

2015

2016

Connections(million)

Basic handset

Smartphone

Mobile broadband connections


30/75


31/75


Ref: 18600-502 .

remaining sites to be transferred to digital transmission ahead of analogue switch-off (ASO) and that it

is technically and operationally possible for this migration to be completed by the end of 2013.

In August 2008, the Common Ministerial Decision (CMD) 21161 was issued based on the national law

3592, in order to describe the transition from analogue to digital TV. The transition plan also assumes

that the following digital capacity is provided:

eight multiplexes available for the areas of Athens and Thessalonika

seven multiplexes for the rest of Greece

four programmes per multiplex.

The digital multiplexes are to be broadcast using 23 sites that make use of frequency/area

allotments that have been granted to Greece within the GE-06 plan. In total, Greece has been

allocated 34 allotments within the GE-06 plan and has 357 plan assignments (across VHF and

UHF bands), which use frequencies distributed across UHF Bands IV and V (up to UHF channel

66, since the channels above this are used by the military)27

.

Note that a decision by the Hellenic Government to award frequencies in the 800MHz sub-band

for mobile use will impact those allotments granted to Greece within the GE-06 plan that use DTT

channels 61 to 66 (which will no longer be available as a result of the 800MHz band being made

available for mobile use). This will potentially affect 20 of the 34 allotment areas. Our estimate of

the areas affected is provided in Annex A.

Although digital services have now commenced in Greece, we understand that the frequency

licensing of those services is still to be confirmed.

Other than terrestrial television services, there are a number of pay TV services provided oversatellite and broadband (i.e. IPTV platforms). There are also two pay TV channels provided over

the terrestrial network, Filmnet and Supersport. There are no cable TV services in Greece. In view

of this, the Greek TV market is therefore dominated by terrestrial television viewers, at present.

Information provided by YME for this study suggests the following subscribers of pay-TV

services delivered over IPTV, bundled with different telecommunications services (double-play

and triple play):

Figure 4.23: IPTV pay-TV subscribers by package [Source: YME, 2011]

Package Double play Triple play Total subscribers

1 2 222 31 581 33 803

2 - 525 525

3 54 379 - 54 379

Total 88 707

Although migration of terrestrial services to digital is now underway, the majority of terrestrial

viewers are still using analogue services in view of the limited number of transmission sites that

have been transferred to digital transmission to date.

27 If the 800MHz band is to be used for mobile services, 316 plan assignments will remain, since the remainder are inDTT channels 61 to 66, which would not be available for DTT if the 800MHz is used for mobile services.


32/75


Ref: 18600-502 .

Across Europe, various different approaches have been taking to licensing of DTT. These are

further considered in Section 7. Many European countries have already completed digital

switchover (DSO), with others to be completed over the coming year.

A summary of DSO status across Europe is provided below.

Figure 4.24: European DSO status [Source: Analysys Mason, 2012]

Country ASO Date Status at 31/12/2011

Austria 2010 Complete

Belgium 2010 Complete

Bulgaria 2015 -

Cyprus 2011 Complete

Czech Republic 2011 Complete

Denmark 2009 Complete

Estonia 2010 Complete

Finland 2007 Complete

France 2011 Complete

Germany 2008 Complete

Greece 2012/2013 Subject to this study

Hungary 20122014 -

Ireland 2012 Completed 24 October 2012

Italy 2012 -

Latvia 2010 Complete

Lithuania 2012 Completed 29 October 2012Luxembourg 2006 Complete

Malta 2011 Complete

Netherlands 2006 Complete

Poland 2013 ASO 31 August 2013

Currently 87% population

coverage

Portugal 2012 Completed 26 April 2012

Romania 2015 ASO starts 2013

Slovakia 2012

Slovenia 2010 Complete

Spain 2010 Complete

Sweden 2007 Complete

UK 2012 Completed October 2012


33/75


Ref: 18600-502 .

4.3 Calculating costs and benefits of different allocation options for UHF spectrum

As described in the introduction to this report, the Greek Government is yet to formalise its

decision on whether UHF spectrum from 470862MHz should be used entirely for DTT or

whether a portionpotentially the 800MHz band, and possibly the 700MHz bandmight be used

for mobile broadband services. We have been asked to estimate the costs and benefits of different

allocation options for UHF spectrum in order to identify the scenario that provides the best

outcome in terms of contribution to the Greek economy.

In calculating the costs and benefits of each of our UHF spectrum scenarios, we have considered

the economic benefit in terms of private value, in addition to the wider social benefits of the

service (termed external benefits).

The private value has been calculated on an annual basis for the assumed licence period of 20

years from 2013 (the earliest potential date for operational use of the spectrum), taking the modelto 2032. This is further described below.

The annual cash flows have then been discounted at a social discount rate of 5% (applied to the

consumer surplus) and a commercial discount rate of 12% (applied to the producer surplus) to

calculate the net present value (NPV).

The 5% social discount rate is based on a study undertaken by Dr David Evans of Oxford Brookes

University in 2006.28

The base case commercial discount rate is based on the mid-point between

recent rates used by OTE and Vodafone Greece. However, given the sensitivity of the model to

this assumption, and the potential variances given the current uncertainty in the Greek market, wehave modelled the sensitivity of the results to the commercial discount rate in Section5.4 above.

4.3.1Private value

Private value is defined as the welfare benefits that users get from a service, minus what this service

costs to produce, and is often split between consumer surplus (benefit to consumers minus the price

they pay) and producer surplus (revenue of the producers minus the costs to provide the service).

Figure 4.25 illustrates the standard approach to calculating the consumer and producer surplus.

28 Dr David J Evans (October 2006), Social discount rates for the European Union . Available athttp://www.economia.unimi.it/uploads/wp/EVANS-2006_20.pdf


34/75


Ref: 18600-502 .

Figure 4.25: Private

value calculation

illustration [Source:


Consumer surplus

The consumer surplus represents the direct value to the consumer over and above what they pay

for the service.Figure 4.26below illustrates, at a high level, how our mobile model calculates the

consumer surplus for each service under each scenario. To begin with, we have projected demand,

in terms of subscribers and average spend per user, in addition to the choke price (the price at

which demand is zero), in every year of the model.

Consumer surplus is then calculated using the formula:

Consumer surplus = (Annual choke priceannual ASPU)*(year average subscribers)/2

Figure 4.26: Consumer

surplus calculation

overview, mobile model

[Source: Analysys

Mason, 2012]

Detailed inputs and calculations for the consumer surplus for each service are presented in

Sections4.4.1 and4.5.1below.

Demand

Price

Choke price

Selling price

Subscribers

Consumer surplus

Supply cost

Producer surplus

Subscribers

ASPU

Choke price

Consumer surplus


35/75


Ref: 18600-502 .

Producer surplus

The producer surplus represents the direct value to the consumer of receiving a service (reflected in

what they pay) netted off against the cost to provide the service. The producer surplus also includes any

additional economic value to the industry, but not to the consumers, for example advertising revenues.

This additional economic value is sometimes referred to as an indirect benefit.

Figure 4.27below, illustrates how our mobile model estimates the producer surplus, at a high level, for

each service and scenario. The subscribers and ARPU forecasts established to calculate consumer

surplus are used to derive the producers revenues, from which the costs of production (COGS, capex

and opex) are subtracted. The resulting free cash flow forms the producer surplus in each year29

.

Figure 4.27: Producer

surplus calculation

overview, mobile model

[Source: Analysys

Mason, 2012]

Detailed inputs and calculations for the producer surplus for each service are presented in sections

4.4.2 and4.5.2below.

4.3.2External benefits

In addition to the private value of a service, wider societal and economic benefits may result that

should be taken into consideration. These benefits may include information dissemination,

diversity, access and inclusion.

Benchmarks for the level of external benefits that can be assumed from mobile broadband andtelevision services vary between 5% and 10%.

30For the purposes of this study, we have applied an

additional 10% in external benefits to both the television and broadband revenues.

29 Note that the calculation does not include taxes and licence fees that the producer might incur.

30 Ofcom, 2006, Digital Dividend ReviewAnnexes, p.1345.

Subscribers

ASPU

COGS

Revenue

Opex

Capex

Profit=PS


36/75


Ref: 18600-502 .

4.4 The mobile model

We have adopted the above method of calculating private value in building the mobile model. The

model is split into three sections:

mobile broadband consumer surplus

mobile broadband producer surplus

fixed broadband consumer and producer surplus.

The fixed broadband market value was modelled in order to take into account any potential losses

that might be incurred through the availability of high-speed mobile broadband services. In this

way, we can reflect the impact of each scenario on the industry as a whole.

4.4.1Mobile broadband consumer surplus

The mobile model is split into multiple segments in order to calculate the impact of additional

spectrum on revenues and costs. These categories consist of:

urban/rural

3G/LTE

mobile broadband/handset

standard value/high value.

The following figure illustrates the approach we have used to estimate the consumer surplus for

mobile broadband services.

Figure 4.28: Mobile broadband consumer surplus approach [Source: Analysys Mason, 2012]

Population (urban /

rural)

Penetration (urban

/ rural, 3G / LTE)

3G subscribers

(urban / rural,

standard / high

value)

LTE subscribers

(urban / rural ,

standard / high

value)

3G ASPU

LTE ASPU

LTE choke

price

MBB

consumer

surplus

External

benefit

Penetration (urban

/ rural, 3G / LTE)

3G subscribers

(urban / rural ,

standard / highvalue)

LTE subscribers

(urban / rural ,

standard / high

value)

3G ASPU

3G chokeprice

LTE ASPU

LTE choke

price

Handset

consumer

surplus

Total

consumer

surplus

Note: mobile broadband handset fixed broadband

Fixed broadband

penetrationFixed broadband

ASPU

Fixed broadband

subscribers

Fixed broadband

choke price

Fixed BB

consumer

surplus

3G choke

price


37/75


Ref: 18600-502 .

Key inputs to the mobile consumer surplus model include:

population trends

penetration of mobile broadband and handsets

migration from 3G and LTE, including 3G switch-off

average spend per user (ASPU)

choke price.

Each of these inputs was considered in the light of our spectrum scenarios, and trend assumptions

were adapted to reflect these scenarios. In addition, we tested base, high, low sensitivities around

mobile broadband and handset penetration, split between 3G and LTE and ASPU.

4.4.2Mobile broadband producer surplus

The producer surplus model follows a similar structure, considering four main items, namely:

subscriber revenues

cost of goods sold (COGs)

operational expenditure (opex)

capital expenditure (capex).

Please note, we have not included interconnect revenues or costs, as these are primarily passed

between the operators within a single country and as such, do not have an impact on the private

value for the country as a whole.

The following figure illustrates the approach we have used to estimate the producer surplus for

mobile broadband services.

Figure 4.29: Mobile broadband producer surplus approach [Source: Analysys Mason, 2012]

3G ASPU

3G

subscribers

LTE ASPU

LTE

subscribers

Total

revenue

Per site

costs

Per

subscribercosts

Per site

costs Capex

Opex

COGS

External benefit

3G ASPU

3G

subscribers

LTE ASPU

LTE

subscribers

Totalrevenue

Producer

surplus

Per sitecosts

Persubscriber

costs

Per sitecosts

Capex

Opex

COGS

Total producersurplus

Fixed BB

revenue

Fixed BB

EBITDA

margin

Fixed BB

producersurplus

Producer

surplus

Note: mobile broadband handset fixed broadband


38/75


Ref: 18600-502 .

In addition to the inputs used for the consumer surplus, additional inputs to the mobile producer

surplus model include:

total number of operators, split between urban and rural

total mobile sites, split between 3G and LTE, main sites and micro sites

site sharing, by technology and between operators

COGs as a percentage of revenue

site costs, new sites and radio upgrades, main sites and micro sites

staff costs

site running costs

site maintenance costs

site rental costs

marketing

bad debt

G&A.

Similarly to the consumer surplus, each of these inputs was considered in the light of our spectrum

scenarios, and trend assumptions were adapted to reflect these scenarios. In addition, we tested

base, high, low sensitivities around site sharing, and total main and microsites by technology.

In our modelling, we assume that 2.6GHz spectrum will be available to mobile operators at or

around the same time as the 800MHz frequencies. In many European countries, regulators are

planning to award 2.6GHz licences for mobile broadband use, providing mobile operators will

additional capacity suitable for delivery of high-speed data services particularly in urban areas.

With a total of 270MHz of spectrum available in the 2.6GHz band, there is sufficient spectrum in

this band for each mobile operator to acquire at least a contiguous 20MHz paired block (subject to

licence conditions that might apply in individual countries, such as spectrum caps).

Without 2.6GHz spectrum, it is likely that mobile broadband penetration in urban areas will be

slightly lower owing to the lower data speeds caused by a smaller carrier (800MHz carrier of 25

10MHz versus a 220MHz carrier within the 2.6GHz band). In addition, without 2.6GHz

spectrum, it is likely that mobile operators will need to add additional microsites in urban areas to

increase capacity of the mobile broadband service.

4.4.3Fixed broadband consumer and producer surplus

In calculating the private value from mobile use of different amounts of UHF spectrum, we have

assumed that in a scenario in which mobile operators were able to gain significant UHF bandwidth

for LTE deployment (e.g. 215MHz or 220MHz per operator, which would be possible if the

Greek Government were to allocate both 700MHz and 800MHz sub-bands for mobile use), there

would be an increase in substitution effects between fixed and mobile broadband markets. In other

words, availability of high quality, high-speed mobile broadband services might encourage some

Greek citizens to abandon fixed broadband entirely, in favour of mobile services.


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In scenarios within our model in which mobile operators gain 215MHz or more of UHF spectrum

we have therefore considered that a proportion of subscribers will transfer from fixed to mobile

broadband use. This results in a loss of value in the fixed broadband market, which we need to

account for in our model to avoid over-estimating the private value from mobile use.

The consumer surplus and revenue side of the producer surplus are calculated using subscriber,

ARPU and choke price assumptions. In order to calculate the cost side of the fixed broadband

producer surplus, we have used a benchmark of EBITDA margins. Additional capital expenditure

is assumed to be minimal.

4.5 The DTT model

We have adopted the method described above for calculating private value in building the DTT

model. The model is split into three sections:

DTT consumer surplus (both free-to-air (FTA) DTT and some pay-TV channels, assuming

that, in line with many other European countries, the DTT network in Greece might include a

mixture of FTA and paid-for content in the future)

DTT producer surplus (as above)

non-DTT, pay TV consumer and producer surplus.

The non-DTT pay TV market value was modelled in order to take into account any potential losses

that might be incurred through the availability of improved free-to-air DTT services. In other

words, the availability of improved free-to-air DTT services might result in some substitutive

effects (for example, cancellation of pay TV subscriptions).

In this way, we can reflect the impact of each scenario on the industry as a whole.

Our modelling of the value of UHF spectrum for DTT in the base case (Scenarios 1a and 1b)

considers a ten-multiplex DTT network. In Scenarios 2a and 2b we have assumed that loss of the

800MHz band will result in a reduction from ten to eight multiplexes, and in Scenarios 3a and 3b,

the loss of the 700MHz and 800MHz band results in a further reduction in multiplexes, from eight

to five. However, we note that further optimisation of the DTT frequency plan may make it

possible to accommodate additional multiplexes (e.g. by migrating from multi-frequency networks

(MFN) to single frequency networks (SFN)). The frequency plan for DTT services has not been

evaluated as part of this study, other than to assess the estimated impact of the loss of the 800MHz

band, which is illustrated in Annex A.

For the purposes of our modelling, we have assumed that each DTT multiplex can accommodate

six programmes if used for SD programming, or three programmes if used for HD (using DVB-T).

We have also considered the impact on economic value if DVB-T2 is used for HD programming,

since using DVB-T2 for HD programming would result in an increase in the number of HD

channels per multiplex, which we have estimated to be an increase from three to five.


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4.5.1DTT consumer surplus

The DTT consumer surplus model is based on the total number of channels available for a given

number of multiplexes, which fit within the allocated spectrum for each scenario. The channels are

further split between SD and HD.

The choke price on which the DTT consumer surplus is based, is calculated using an incremental

value per channel curve, showing diminishing returns as the total number of channels increase.

High definition channels are assumed to hold higher marginal value per channel compared to SD.

The following figure illustrates the approach we have used to estimate the consumer surplus for

DTT services.

Figure 4.30:Approach to calculating DTT consumer surplus [Source: Analysys Mason, 2012]

Key inputs to the DTT consumer surplus model include:

colour TV households

pay DTT subscribers as a percentage of the total

DTT multiplexes by scenario

number of channels per multiplex

split of multiplexes between SD and HD (HD is itself split between DVBT and DVBT-2)

terrestrial television licence fees (applied to all households in Greece)

DTT customer premise equipment (CPE) costs such as set-top box, antennae and installation

pay DTT average spend per user (ASPU)

pay DTT choke price.

Number of

MUX

(SD/HD)

Channels

per MUX

(SD/HD)

Number of

channels

(SD/HD)

Choke price Subscribers

Populationcoverage

Terrestrialpenetration

DTT

consumersurplus

Subscription

and licence

fee

CPE andother cost

Average

revenue per

DTT HH

External

benefit

ASPU

Other TV platformsmarket share

Other TV platforms

consumer surplus

Subs

Total consumer

surplus

Choke price

Note: DTT other TV platforms (e.g. IPTV and satellite)


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Each of these inputs was considered in the light of our spectrum scenarios, and trend assumptions

were adapted to reflect these scenarios. In addition, we tested base, high, low sensitivities around

pay DTT as a percentage of total DTT and the number of channels per multiplex.

4.5.2DTT producer surplus

The DTT producer surplus model introduces the indirect benefit of advertising revenues to the

DTT industry.

The model is structured around five key areas:

subscriber revenues (including fees paid by Greek TV viewers through power supply bills and

purchase of set-top boxes, antennas for digital coverage and installation fees, where applicable)

advertising revenues

cost of goods sold (COGs)

operational expenditure (opex)

capital expenditure (capex).

The following figure illustrates the approach we have used to estimate the producer surplus for

DTT services.

Figure 4.31: Approach to calculating DTT producer surplus [Source: Analysys Mason, 2012]

In addition to the inputs used for the consumer surplus, additional inputs to the DTT producer

surplus model include:

total television advertising revenue

terrestrial television share of advertising

Number of

sites

Total terrestrial TV

advertising

revenue

Terrestrial

TV market

share

Network opex per

site

Network capex

per site

Programming

costs

Other costs

Number of

multiplexes

Total DTT revenue

Total COGS, opex

and capex

DTT producer

surplus

Licence fees,

subscription fees

and CPE revenue

COGS

Advertising

revenue

Other TV platforms'

market share

Other TV platforms

producer surplus

Subscription

revenue

Total producer

surplus

External benefit

Other TV platforms

revenueEBITDA margin

Note: DTT other TV platforms (e.g. IPTV and satellite)


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additional revenues from sponsorship and interactive services

CPE equipment costs

network opex per site, split between main sites and repeater sites

programming costs

other opex switchover cost of communications and marketing

upgrade to digital cost per site, split between main sites and repeater sites

upgrade cost for the distribution link per site

cost per additional multiplex

capex replacement cost.

Similarly to the consumer surplus, each of these inputs was considered in the light of our spectrum

scenarios, and trend assumptions were adapted to reflect these scenarios. In addition, we tested

base, high, low sensitivities around pay DTT as a percentage of total DTT and the number of

channels per multiplex.

4.5.3Non-DTT, pay TV consumer and producer surplus

In calculating the fixed broadband private value, we considered the impact of the improvement in

the free-to-air DTT service through the addition of extra channels on the pay TV market and the

resultant potential loss in pay TV revenues.

The consumer surplus considered a uniform ASPU and choke price across all scenarios, taking

into account differences in pay TV subscriber forecasts.

The producer surplus is calculated based on both subscription and advertising revenues, in addition to

additional revenues from sponsorship and interactive services. In order to calculate the cost side, we

have used a benchmark of EBITDA margins. Additional capital expenditure is assumed to be minimal.


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5 Modelling results for the economic impact of UHF spectrum

In this section we summarise the key results of our models in terms of the relative economic

(welfare) benefits of different assignments of UHF spectrum to mobile and DTT services, and the

key sensitivities considered.

5.1 Mobile results

Figure 5.1 below shows the results of our mobile model scenarios, split between the consumer

surplus and producer surplus, creating the total direct and indirect private value. Further to this, we

have considered the additional external benefits to find the total economic value of each spectrum

scenario.

The annual figures for each of these values have been calculated for the period 20132032 and

discounted back to 2013 at a social discount rate of 5% (applied to the consumer surplus) and a

commercial discount rate of 12% (applied to the producer surplus). We have modelled the

sensitivity of the results to the commercial discount rate in Section5.4below. The figures below

represent the net present value (NPV) of the values in 2013.

Figure 5.1: Value generated by mobile broadband services (3G and 4G) between 2013 and 2032, taking into

account the loss to the fixed market, all figures are in Euros, millions [Source: Analysys Mason, 2012]

Consumer

surplus

Producer

surplus

Total private

value

Total

economic

value (incl.

external

benefits)

Increment

on base

case

Scenario 1a 10 180 484 10 664 11 730 -

Scenario 1b 10 180 484 10 664 11 730 -

Scenario 2a 13 797 656 14 453 15 898 4168

Scenario 2b 14 806 733 15 539 17 093 5362

Scenario 3a31

16 532 335 16 867 18 553 6823

Scenario 3b 15 600 764 16 364 18 001 6270

Scenario 3a provides the highest total economic value. It is driven by i) a high consumer surplus

that results from a reduction in ARPU owing to the presence of a fourth operator in the market,

and ii) an elevated mobile broadband penetration that results from the increased competition and

lower ARPU.

31 Scenario 3a and 3b assume that the 700MHz band is harmonised for availability from 2016 onwards. Should the

spectrum not be available until 2017, the increment on the base case would drop by around 0.2% for Scenarios 3aand 3b.


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Scenario 3a produces the highest producer surplus. Take-up of mobile broadband is slightly lower

than in Scenario 3a. However, there are no costs associated with building and operating an

additional network, and ARPU erosion is not assumed to be as rapid.

We note that one possibility to release 800MHz spectrum for mobile use might be to migrate

military systems to the 700MHz band. We estimate that the impact of this (i.e. the loss of value

from the entire 700MHz band not being available for mobile services in future) is around

EUR1.6 billion, based upon the results above32

.

5.2 DTT results

As for the mobile model, the table below shows the results of our DTT model scenarios, split

between the consumer surplus and producer surplus, creating the total direct and indirect private

value. Further to this, we have considered the additional external benefits to find the total

economic value of each spectrum scenario.

The annual figures for each of these values have been calculated for the period 201332 and

discounted back to 2013 at a social discount rate of 5% (applied to the consumer surplus) and a

commercial discount rate of 12% (applied to the producer surplus). We have modelled the

sensitivity of the results to the commercial discount rate in Section5.4below. The figures below

represent the NPV of the values in 2013.

Figure.5.2: Value generated by DTT services between 2013 and 2032, taking into account the loss to the pay

TV market, all figu

Documents

Analysys Mason Final Published Report for the Hellenic Government (09!03!2012)