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Chile’s Public Bid Process for 5G Services and its Key Characteristics

Monday 2 August 2021

Alfonso Silva
Carey, Santiago
asilva@carey.cl

Matías Osses
Carey, Santiago         
​​​mosses@carey.cl

Introduction

It is an undeniable truth that connectivity is becoming an everyday essential asset to humankind. In such a way, the deployment of 5G services has been chosen by governments and international entities as one of their main objectives, understanding that a swift improvement to their networks would make a huge difference in the tech race, along with allowing the community the benefits of countless new digital tools, products, and services. Nevertheless, the South American region did not have the opportunity to see the light until as recently as a few months ago.

In Chile, after several years of negotiations between the Undersecretary of Telecoms (Subtel), the mobile services operators, consumer associations, and the Courts of Justice, this year, a historic public bidding process involving granting an outstanding number of frequency blocks for the provision of 5G services has been successfully concluded. This process will allow Chile to be the first country in South America to deploy cutting edge 5G commercial services throughout its whole territory.

This article briefly shows how the 5G public bidding process came about and developed in Chile, and describes some of its key characteristics.

The call for the 5G public bidding process

In order to deliver their full potential and implement a wide variety of applications and services via 5G, operators require a vast combination of spectrum bands within different frequency ranges. When a spectrum had already become a scarce asset (due to the variety of the existing regulated telecoms services), Subtel had something of a challenge: being able to grant enough spectrum to guarantee the proper provision of 5G services and assure the equitable distribution of the same for wireless services at least among Chile’s four or five main operators.

In early 2020, the spectrum granted for wireless services was highly concentrated among three incumbent operators: Entel, Claro, and Movistar. At the same time, the whole telecoms industry was anxiously awaiting the Supreme Court of Chile’s ruling on the new dynamic spectrum cap fixed by Chile’s Antitrust Court in late 2019. Several legal and regulatory proceedings relating to spectrum use and divestment were also on-going.

Within this complex scenario, on 1 and 17 August 2020, Subtel published a call for four public bids in the Official Gazette to grant telecoms concessions that operate high-speed 5G wireless networks. These are: (1) one 20 MHz block in the 700 MHz band; (2) one 30 MHz block in the 1,700-2,100 MHz band (AWS); (3) fifteen 10 MHz blocks in the 3.5 GHz band; and (4) four 400 MHz blocks in the 26 GHz band. Fortunately, the call was well received by national and foreign operators, demonstrating a great interest in participating in the process.

Key characteristics of the process

Subtel feasibility report on current operators participating in the process

One of the innovative aspects of this public bidding process corresponded to the issuing of a pertinence report by Subtel. It reviewed the regulatory feasibility of the operators holding spectrum to participate in the public bids, following one of the complementary measures ordered by the Supreme Court in its ruling on new dynamic spectrum caps. The Supreme Court stated that, in advance of a public bid for the awarding of telecoms concessions that use radioelectric spectrum for the provision of a new service or technology, the authority (Subtel) had to assess whether it could reasonably be offered immediately by incumbent operators through their pre-existing frequencies or prior the optimisation of such networks in reasonable terms and costs. In such a case, the authority should prioritise the awarding of the tendered frequencies to entrant or smaller operators.

The feasibility report ended up excluding one incumbent from the AWS band public bidding, as Subtel concluded that the company was not sufficiently exploiting its already granted AWS concession and, therefore in practice, it would be able to implement 5G technologies by optimising its current spectrum and network in reasonable terms and costs without affecting its clients.

Public bidding terms and conditions that sought economic auctions

As required by Chile’s General Telecoms Law (GTL), the granting of concessions for the provision of telecoms services that, according to a technical rule issued by Subtel, allow only a limited number of concessions, shall be made by means of public bidding.

In this sense, the process was no different. Broadly, all the bidding terms and conditions contemplated a first stage, where the participant(s) that obtained the highest score in the technical project evaluation had the right to be allocated the concession(s). If two or more participants obtained an ‘equal conditions’ technical evaluation, and there was an insufficient number of blocks available to award all of them, the public bid had to be resolved through an economic auction.

However, the technical evaluation standards developed by Subtel were structured to seek equal conditions among two or more participants. The first-place position was not only given to the participant that obtained the highest score in the technical evaluation but also to all the others who obtained a score within four points of the highest-placed participant.

The public bidding ended up with economic auction procedures in the 700 MHz, 1700-2100 MHz (AWS), and 3.5 GHz band public bids. The first two public bids considered an economic auction mechanism of the ‘highest offer in a sealed envelope’. At the same time, the 3.5 GHz band public bid allowed participants to present various offers for 10 MHz block packages, favouring the combination of offers that maximised the fiscal collection. A set of further rules were provided in case two or more offers turned out to be equally optimal, benefiting the assignation that would have distributed the spectrum among more competitors and would have generated fewer differences between them. It was the first time in Chile that a telecoms public bidding process attracted such a huge amount of attention and interest from participants. In fact, after its conclusion, the Chilean state managed to collect in excess of US$450m, approximately 500 per cent more than the total amount collected throughout the entire history of Chilean telecoms public bids.

The origin of ‘specific features’ concept versus ‘type of service’

Generally, there has been a deep legal and regulatory discussion in Chile regarding the nature, characteristics, and classification of telecoms services. On one hand, the GTL is the only legal environment that provides a proper classification, differentiating them mainly by their purpose rather than their technology, features, capabilities, or platforms through which they are supplied. For example, the GTL defines Public Telecoms Services (PTS) as those ‘whose purpose is to satisfy the telecoms needs of the community in general’, and Intermediate Telecoms Services (ITS) as those ‘provided by third parties, through facilities and networks, aimed at satisfying the needs of telecoms concession and permit holders in general […]’. Even so, the GTL also contains provisions recognising the existence of more specific types of services, such as international long-distance telephony (as a specific kind of ITS), local telephony, mobile telephony, and data transmission.

On the other hand, a series of regulations (eg, Spectrum Plan, Telecoms Services Regulation), Subtel technical rules, and public bidding terms and conditions have broken down the nature and characteristics of telecoms services that could be provided through a specific telecoms licence.

The above legal and regulatory framework did not raise any significant issues until 2018, when Subtel suspended the operation of 3.5 GHz concessions granted to provide wireless fixed telephony services at a time when their concession holders were reviewing them, aiming to amend them to start providing mobile services through 5G technology. This conflict is currently ongoing, and is not expected to end soon due to the high importance of this band for 5G services.

In this 5G public bidding process, Subtel chose to categorise the tendered concessions only as PTS or ITS concessions that operate high-speed wireless networks (LTE Advanced Pro, 5G or superior), not limiting them to a specific feature or characteristic (eg, fixed, mobile, telephony, internet, etc). Simultaneously, the bidding terms and conditions required the participants to indicate what kind of ‘specific features’ (eg, voice, telephony, data transmission, internet) they would render to their clients, users, or subscribers. We believe that this structure might give concession holders greater freedom to manage different services through different concessions, which align with digital convergence and technology objectivities.

Requirement of a spectrum use plan for new concession awardees

As a result of the increasingly apparent spectrum shortage, the inefficient or non-use of spectrum bands by operators has become a relevant matter for the telecoms sector. However, Chile’s laws and regulations were not able to resolve this sort of situation. In this context, the Supreme Court’s spectrum cap ruling ordered those awarded concessions that use spectrum to file and comply with an effective (real) and efficient (optimum) spectrum use plan, approved and supervised by Subtel. It also stated that the plan should apply to the newly awarded and pre-existing frequencies held by the respective concession holders. Furthermore, the Court established general circumstances under which a concession holder might be compelled to divest spectrum bands if it does not use them according to the corresponding plan.

Following the Supreme Court’s ruling, Subtel included a specific chapter in its bidding terms and conditions regarding the effective and efficient spectrum use plan. It also issued a resolution which established the basic requirements with which awardees had to comply in order to file their corresponding plans. To date, Subtel has already approved the plans of the four operators which were awarded concessions during the process.

New cyber security requirements

In 2020, Subtel issued a resolution, establishing a general cyber security basis for the design, installation and operation of networks, and systems used for the provision of telecoms services. The resolution followed the need to protect infrastructure and services from malicious attacks which could compromise the entire ecosystem. Accordingly, the provisions of this resolution were explicitly referenced in the bidding terms and conditions.

In general terms, this framework seeks to regulate the reports on cyber security incidents that telecoms services concession holders and licensees must send to Subtel, either directly or through the body indicated by such authority, in order to coordinate actions aimed at alleviating the effects and impact of cyber security incidents and contributing to a timely normalisation and stabilisation of the services affected.

It further addresses aspects of risk management in matters relating to cyber security in telecoms services, identifying both the operational impact analysis and the risks and mitigating controls. Finally, it refers to risk management and controls of the lifecycle of a cyber security incident, considering the prevention, detection, analysis, notification, contention, eradication, recovery, and documentation in this regard.

Coverage in strategic locations

Due to the significant number of concessions that the public bidding process was capable of granting, Subtel incorporated three of the four bidding terms and conditions (except for 26 GHz), minimum mandatory coverage in strategic locations. Those locations considered all the regional and provincial capitals of Chile, along with government real estate (Presidential Delegations, Ministries, and approximately 200 public hospitals).

In addition, the Chilean regulator structured a complementary coverage score system to boost the technical evaluation of the participant that was willing to commit to providing services in areas of low population density and, therefore, where there are no economic incentive for operators to cover them.

In the 700 MHz band bidding terms and conditions, the complementary coverage zones consisted of approximately the 60 most travelled national highways, which in total have a length of nearly 9,000 kilometres (approximately 5,600 miles). Regarding the AWS and 3.5 GHz bands bidding terms and conditions, the complementary coverage zones comprised of airports, centres of scientific interest, universities and higher education institutions, and seaports.

Conclusion

The end of the 5G public tender process has brought enormous benefits for Chile, mainly to its population, which will soon enjoy the advantages of a next-gen wireless network. This would not have been possible without the hard work of the Chilean government and Subtel, who managed to lead a smooth and civilised process even during the worst time of the Covid-19 pandemic. Finally, we must not forget to congratulate the telecoms industry, which has at last achieved the long-awaited atomisation of the spectrum tenure and a more equalitarian distribution. The conclusion of this public bidding process has allowed the spectrum to be distributed among four main operators rather than three, after the remarkable participation of the maverick operator WOM, a concession awardee in all the spectrum bands tendered. We are confident that this process will be remembered as one of the most extraordinary, challenging, complicated and competitive processes ever seen in Chilean telecoms.