Swiss Road to 4G: Construction Ahead

June 15, 2009

In late May, Switzerland’s Federal Communications Commission, or ComCom, renewed the mobile licenses of the nation’s three main operators, Swisscom, Orange and Sunrise, through 2013. In doing so, it laid some groundwork for the migration to 4G services over the next five to 10 years. But questions remain regarding exactly how Switzerland’s move to 4G will proceed.

The original licenses, which had been granted for a 10-year period in 1998 for the provision of GSM services, had already been extended until late 2009. As a result of the license renewals, the Swiss spectrum map has been reshuffled, with Orange acquiring an equal share of 900MHz spectrum in exchange for scaling back its stake in the 1800MHz band. The 900MHz, 1800MHz and 2100MHz spectrum bands in Switzerland are now split equally among Swisscom, Orange and Sunrise. A fourth operator, In&Phone, continues to operate on a limited basis in the 1800MHz band under a 10-year license awarded in 2003.

To begin migrating the market to 4G services, ComCom plans to reallocate all spectrum that will become available in 2013 and 2016 by auctioning it off in 5MHz blocks as early as 2010 or 2011. The auction will include mobile licenses across both the existing frequencies and the 790-862MHz “digital dividend” band, better known as the UHF band currently used by terrestrial television broadcasters.

The redistribution to 3G UMTS of spectrum currently used for GSM services is a growing trend across the European continent. Aside from Switzerland, the UK, France and Germany have also launched lengthy consultations into reallocating existing spectrum holdings among a greater number of operators. Switzerland has so far fared relatively well in its endeavors compared with the UK and France, where “refarming” debates are complicated by legacy holdings and potential new operators.

Switzerland’s goal with last month’s reshuffle was to divide the GSM spectrum bands equally until 2013 and 2016, when the digital dividend frequencies will become available. The reallocation of the digital dividend may be complicated by neighboring Italy’s insistence on using UHF upper bands for television broadcast post-2015. The move is aimed at freeing up frequencies for growing mobile data services. By year-end 2009, Pyramid Research expects Switzerland to have 9.2m mobile subscriptions, equating to a mobile penetration rate of roughly 119% of the population. While we expect a decline in fixed and mobile voice service revenues, demand for data will grow to represent 35% of total telecom revenue by 2014. Mobile data, which we estimate will account for just 12% of the total in 2009, will grow to more than 16%, or $1.6bn, in 2014 — a CAGR of 5.7%. Fixed-line data services revenue, meanwhile, will grow much slower. For more, see our Communications Markets in Switzerland report.

ComCom’s decision paves the way for the deployment of 4G services. With 3G already making up more than half of subscriptions by 2011, we expect that LTE 4G will become commercially available by 2012, attracting 38,000 subscriptions that same year. The regulator has already written technology neutrality into all mobile licenses, meaning that up to 72MHz of the digital dividend spectrum can be used for 4G services along with higher-frequency spectrum. ComCom has indicated that an auction proceeding would be the best way, in terms of transparency and efficiency, to reallocate the spectrum that will become available in 2013 and later.

May’s spectrum reallocation may be complicated by the rumored merger of France Telecom’s Orange and Sunrise, aimed at creating a viable competitor to the national incumbent Swisscom. As of the end of 2008, Swisscom had more than 61%of mobile subscriptions and 59% of service revenue in Switzerland, while Orange and Sunrise had 18% and 21% of subscriptions respectively. If the rumors hold true, the newly expanded Orange will control two-thirds of the 900MHz and 1800MHz bands. However, the acquisition is unlikely to derail ComCom’s refarming plans, since the regulator has already made clear that future auctions will begin with a clean slate, with no preference given to existing operators or previous licensees.

— Andrei Tchadliev, Analyst, EMEA

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