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Alfonso Silva
Carey, Santiago
asilva@carey.cl

Matías Osses
Carey, Santiago
mosses@carey.cl

 

Introduction

On 14 January 2020, the Undersecretariat of Telecomms submitted for public consultation the fundamental aspects of the technical model for the assignment of the telecoms licences that will serve to operate networks over LTE Advanced Pro, 5G, or higher (the '5G Consultation'). The consultation document proposes to award several blocks in the 700 MHz, 1,700–2,100 MHz, 3.5 GHz and 28 GHz bands through a public bid process, and was widely promoted by the Chilean government as one of the major advances for the Chilean telecoms sector. However, this consultation had to wait a long time before it was published, due to a fierce dispute among the Mobile Network Operators (MNOs), including incumbents and new market players, regarding spectrum management. This dispute ended up challenging not only the telecoms regulator’s authority but also the Antitrust Court decision, requiring Chile’s Supreme Court to rule on this highly technical and complex matter.

Since its creation, The Ministry of Transports and Telecoms through the Undersecretariat of Telecoms (both indistinctly SUBTEL) has been granted exclusive and broad powers over the telecoms sector, which includes the authority to manage and control the radio electric spectrum. For many years, SUBTEL has developed a robust and consistent project that has transformed Chile in one of the leading South American nations for mobile connectivity. First, by allowing the massive spread of fixed and mobile telephony and, afterwards, setting out the regulatory framework for the development and deployment of mobile/wireless internet, a technology which has changed the pattern of radio communications.

Nonetheless, SUBTEL’s itinerary was not exempt from regulatory and competition issues, for many reasons. The spectrum started to be considered an essential asset for MNOs, due to the unceasing arrival of new wireless services and applications. Afterwards, several legal and economic factors allowed three MNOs to share the entire local mobile market until 2015. Finally, until now, SUBTEL, has been granted with minimum effective tools to amend or reassign (refarming) the frequency bands of telecoms licences which had already been granted.

Over the last five years, both SUBTEL and the MNOs have gone through a series of legal and regulatory episodes regarding the spectrum management, which has resulted in delaying of the long expected 5G. A glimpse of light appeared in 2019 with the introduction of the ‘not yet mandatory’ new dynamic spectrum cap fixed by the Chilean Antitrust Court (pending of confirmation by the Supreme Court). This milestone gives SUBTEL a great opportunity for establishing a reliable and stable regulatory framework for the upcoming era of new wireless connections and applications.

Chile’s key spectrum issues regarding mobile services: the 60 MHz cap

As mentioned, Chile has been taking a difficult course regarding spectrum management. The first important bump in the road came in 2005 with Telefónica’s acquisition of Bellsouth (currently Movistar). The operation had to be reviewed by the Antitrust Court, which set out, among other measures, that: no MNO could hold more than 60 MHz of radio electric spectrum; and, in case such an event should occur, the corresponding MNO would have to transfer the excess of spectrum to a non-related third party. This decision required Telefónica to make a bid for the sale of one of its two 25 MHz blocks in the 850 MHz band, which ended up being awarded to Claro (América Móvil).

In 2007, while preparing the rules for the 1,700–2,100 MHz (3G) band public bid, SUBTEL made a formal consultation to the Antitrust Court as to whether it would be convenient to establish restrictive measures for the incumbent MNOs interested in participating in the bidding process, proposing the same 60 MHz cap that was already fixed for the acquisition of Bellsouth. The Court stated that it was inappropriate to exclude MNOs from the 3G public bid (by fixing the 60MHz cap). Nevertheless, the case was taken before the Supreme Court, which confirmed SUBTEL’s proposed cap in 2009. Consequently the incumbent MNOs (Entel, Claro and Movistar) could not participate in the 3G public bid, allowing VTR (Liberty Global) and Nextel (currently WOM) to enter into the market as new competitors.

This 60 MHz cap, which was supposed to protect free competition and the consumer, has created serious controversy in the upcoming spectrum mobile service bidding process. The breaking of the LTE standard, the increase in the number of clients and the exponential growth of services and applications offered through mobile networks, demanded a much greater amount of spectrum for the MNOs.

To fit the new demands, in 2012 SUBTEL conducted a public bid on three 40 MHz blocks in the 2,600 MHz (4G) band. Due to the 60 MHz cap restriction not being applied, and the fact that mobile services market was remarkably concentrated, all the blocks were awarded to the incumbents. Two years later, new public bidding took place. SUBTEL tendered three additional blocks in the 700 MHz band for the deployment of indoor 4G networks, which also ended up being fully awarded to existing such MNOs, again without considering the 60 MHz cap.

After the 700 MHz bid, the new market conditions determined by the spectrum distribution motivated some telecom stakeholders and the National Association of Consumers (Conadecus) to file a remedy against the distribution, citing the non-compliance of the 60 MHz spectrum cap and discrimination against the new entrants in the public bidding process. The case was dismissed by SUBTEL, the Court of Appeal of Santiago, and the Antitrust Court. Nevertheless, Conadecus did not give up its fight and, in 2016, appealed to the Supreme Court to review this highly complex spectrum management issue regarding mobile services.

The 3.5 GHz band issue and the Supreme Court’s ruling on the 60 MHz cap

While the 60 MHz cap was being reviewed by the above authorities and courts, the incumbents were putting all their efforts in building a reliable 4G network. Also, in 2015, a UK-based investment fund acquired the distressed MNO Nextel and created WOM, which started providing mobile services through Nextel’s former 1,700–2,100 MHz bands.

The entrance of this new competitor, for the first time in decades, generated a rough commercial competition in the mobile services market, which drove SUBTEL to strengthen its regulatory framework in preparation for more competitors. Accordingly, SUBTEL had to reanalyse several issues regarding national roaming agreements, virtual mobile network operators, secondary market for the spectrum, telecom infrastructure sharing, mobile devices compatibility, zero rating and mobile services advertising, most of which have not yet been completely resolved. In this context, two major events took place, which acted as catalysis for the redefinition of the spectrum cap for mobile services.

First, SUBTEL found that certain 3.5 GHz band authorised operators (including the incumbents) were underutilising their wireless fixed telephony licences. Therefore, in June 2018, through a very controversial resolution, it decided to stop further authorisations to operate in most part of the 3.5 GHz band, along with suspending the operations of underutilised services, giving the affected operators the possibility to provide such services in other frequency bands. The 3.5 GHz band was well known as one of the main bands considered for 5G. The incumbents filed remedies against SUBTEL’s decision, which were withdrawn a few months later after SUBTEL amended its resolution.

In June 2018, only a few days after SUBTEL's resolution was issued, the Supreme Court resolved the Conadecus appeal remedy. In an extensive ruling, the Court recognised that: (i) the 60 MHz cap established by itself in 2009 was not limited to the 3G public bids, affecting all kind of mobile services; and (ii) the incumbents had engaged in anti-competitive behaviour by having beem awarded blocks in the 700 MHz 4G public bid. Based on the above, the Supreme Court: (i) ordered that the incumbents dispose of an equal portion of the spectrum (in any band) awarded in such bid; and (ii) incentivised SUBTEL to submit a consultation before the Antitrust Court to redefine the 60 MHz spectrum cap.

The Supreme Court’s decision caused an earthquake in the mobile services market, as a series of legal disputes were initiated between the incumbents and Conadecus, which wanted to execute the ruling as fast as possible.

The ‘almost’ definitive new spectrum cap for mobile services

Following the Supreme Court’s ruling, SUBTEL submitted a consultation before the Antitrust Court requesting the amendment of the 60 MHz spectrum cap based on the current features of the mobile services market and the future public bids that SUBTEL would have to make for 5G services. The Antitrust Court, in turn, invited several public and private stakeholders to provide supporting information or take part in a consultation procedure.

After more than a year, on 4 December 2019, the Antitrust Court resolved SUBTEL’s consultation through its Resolution No 59-2019. Based on: the changes in the mobile services market’s competitive conditions since 2009, the new technologies that have emerged, the current structure of the relevant market and the penetration of mobile services in the country, the Antitrust Court decided to distribute the frequency bands in the following five macro-bands:

1. low: between 400 MHz and 1 GHz;

2. mid-low: between 1 and 3 GHz;

3. mid: between 3 and 6 GHz;

4. mid-high: between 6 and 20 GHz; and

5. high: over 20 GHz.

It also established the following spectrum caps or limits per operator for each of the macro-bands:

• low – 35 per cent;

• mid-low – 30 per cent;

• mid – 30 per cent (in connection with this macro-band the resolution also included measures for the short, medium, and long terms);

• mid-high – not applicable since the absence of allocations and assignments for mobile services so far;

• high – 25 per cent (in connection with this macro-band, the resolution also included measures for the short, medium, and long terms).

Setting out of a new dynamic cap based on percentages of the spectrum for mobile services was well received by the telecoms sector as a major advance compared to the previous 60MHz fix cap. However, some stakeholders filed appeal remedies against the Antitrust Court’s resolution arguing that some of the limits and measures set by the court still did not completely ensure free competition in the relevant market.

As a consequence, the establishment of the new spectrum caps for mobile services was once again submitted to the final decision of the Supreme Court when resolving the above remedies.

SUBTEL’s 5G consultation

With the new spectrum cap not yet defined because there are remedies pending before the Supreme Court, SUBTEL started its 5G public consultation. The document stated that the blocks are subject to public bid for the provision of mobile services in 5G as:

1. one 20 MHz block in the 700 MHz band;

2. one 30 MHz block in the 1,700-2,100 band,

3. fifteen 10 MHz blocks in the 3.5 GHz band; and

4. two 400 MHz blocks in the 28 GHz band.

During the consultation period several MNOs, manufacturers and other stakeholders filed questions, to obtain feedback for the preparation of the rules for the next 5G public bids.

The 5G consultation issued by SUBTEL contained information about new measures and requirements with which the relevant public bids must comply. The most important of these are:

1. cybersecurity requirements for the MNOs according to Chilean laws and regulations and the Budapest Convention on Cybercrime;

2. the creation of a combinatorial bidding system for the fifteen 10 MHz blocks in the 3.5 GHz band;

3. the possibility for the MNOs holders of 3.5 GHz wireless fixed telephony licences to participate in the public bids for the blocks in the same band, to the extent they dispose from all their current spectrum in such band;

4. SUBTEL’s power to amend some elements of the future licences (including the respective frequency bands) based on public interest and in qualified cases; and

5. SUBTEL's authority to change the frequency bands of the future licences in case the Supreme Court amends the new spectrum cap fixed by the Antitrust Court.

Pending matters: everyone’s commitment

As noticed, in Chile the spectrum management has been a pertinent and sensitive topic over the last 20 years. The way the mobile services market has developed, the continuous appearance of new wireless services and applications and, especially, the deployment of the long-awaited 5G networks, require a legal and regulatory framework based on clear, stable and yet flexible rules that strengthen competition and benefit consumers. The new spectrum caps, established by the Antitrust Court and reflected in SUBTEL’s 5G consultation, seems to aim at such an objective. However, we must bear in mind that the new caps are still under review by the Supreme Court on appeal and remember that future public bids conducted by SUBTEL could be subject to further challenges from MNOs or third parties. It is, therefore, paramount that SUBTEL and the relevant stakeholders collaborate. Proper collaboration from the different market players will define whether Chile keeps its leading position in regional telecoms or loses its edge. We are confident that all the players will ultimately commit themselves to the most beneficial approach for Chile.