Summary of the consultation about the draft documentation of the auction procedure to be announced for the entitlements of frequency use of the 900 MHz and 1800 MHz frequency bands

Published: 8 October 2020

The National Media and Infocommunications Authority (hereinafter referred to as NMHH or the Auctioneer) published the draft documentation of the auction procedure to be announced for the entitlements of frequency use of the 900 MHz and 1800 MHz frequency bands (hereinafter referred to as the Draft Documentation) and an invitation to the consultation on 15 September 2020. The NMHH is preparing an auction procedure that targets the reutilisation of the entitlements of frequency use of the 900 and 1800 MHz frequency bands, expiring on 7 and 8 April 2022.

The NMHH’s primary objective with the reutilisation of a total of 60 MHz frequency in the 900 MHz band and 120 MHz in the 1800 MHz band is to take into account consumer interests, that is, ensuring service continuity, facilitating the deployment of networks supporting 5G services in the long term by expanding the possibilities of broadband use, promoting network development, improving coverage as well as supporting innovation and business development.

Coherent with Article 40/A(4) of Act C of 2003 on Electronic Communications, the Auctioneer held a consultation with the attendance of market participants at 10 AM on 29 September 2020. Having regard to the pandemic situation, the consultation was organised in a hybrid format that was different from the previous procedures. This format made on-site participation possible to a limited number of people, while also accepting online participation in the event. The event saw the representatives of 4 service providers participating in personal and more than 70 participants attending the event online.

Participants of the consultation were greeted by the chairperson, Dr László Pados, who presented the agenda and the most important information. In the first part of the event, the staff of the Auctioneer provided information regarding the parameters of the available spectrum, the circumstances of usage, the procedures of the auction and the implementation of the ascending clock auction.

Presentations were opened by Dr Péter Vári, Deputy Director-General of the NMHH. (The presentation of Péter Vári is available here). After describing the background of the procedure, he presented the peculiarities, usage rules and current use of each frequency band, and reviewed the ongoing EU harmonisation, mentioning possible broadband applications, in particular 5G, in the frequency bands at issue. He touched on the maximum amount rules of frequency acquisition. Then he closed his presentation by describing the coverage obligations related to the acquisition of the entitlement of frequency use as well as the general and special rules of user block formation. When showing user block formation, he presented examples to help interpretation, where he stressed that it was not possible to showcase each possibility during the presentation and that the examples were not to be construed as analysis forecasting real results. The examples were intended only to help illustrate and explain the rules.

This was followed by The overview presentation of Dr. Károly Karl, Head of Department, about the legal environment of the auction procedure as well as the structure, details and scheduling of the authority procedure. He announced that the auction procedure was an administrative case, which officially launches on the day the final documentation and the notice are published, that is, as proposed by the NMHH in the Draft Documentation, on 16 October 2020. Registration is open from this date until the application is submitted.

Registration is not a prerequisite for application, but the possibility of submitting written questions and being informed about the answers to the collected questions and about the possible amendment of documents are provided only to those who register.

Based on the Draft Documentation, the application may be submitted between 9 AM and 12 PM on 10 November.

This will be followed, in November and December, by the opening of applications, the inspection of their formal validity and the rectification of deficiencies. Registration in the auction registry may be completed in December or early January, depending on the procedural steps discussed earlier.

Participants registered in the auction registry will be entitled to become familiar with the operation mechanism of the bidding in a trial auction at the time indicated in the advance notice.

The Authority will issue an order to inform the participants about the date of the first initial bid and bidding at least 8 days before the auction.

In his presentation, Dr Károly Karl specifically addressed the significance and means of electronic communication. Contact is based on using the company gate and the office gate. The Authority will send official documents to the company gate of the applicant/participant, who will be required to fill in the form for submitting general Authority submissions (NMHH_A01 „Általános űrlap beadványok” (General Form Submissions)) and, after attaching the required document, to submit it to the Authority’s office gate using the National Tax and Customs Administration’s general program for filling forms (called ÁNYK).

The presentation went on to describe some important detailed procedural rules, such as the institution and importance of guarantees, the process of initial bidding and bidding as the main event of the auction. Next, the possibility of block complementation and the two-round sale in relation to the 900 MHz frequency band were described as special legal institutions of the procedure. One peculiarity of the procedure is the possibility of deferred payment of the full auction fee. The procedure is closed with a consolidated resolution, which is based on the closing lists prepared during the auction and includes the location of the acquired user blocks within the frequency band.

The methodology of the bidding was described in detail by Péter Kollár, NMHH’s expert on economic regulation. (The presentation of Péter Kollár is available here). The auction’s general purpose was laid down. The Auctioneer sells the frequency bands one after another during the auction. Participants can bid on the number of lots they claim at the given price. The bid cannot be higher than the acquisition limit set out in the Draft Documentation, that is, the maximum number of lots that may be acquired.

The main rule behind the ascending clock auction bidding method used by the Auctioneer is that a claim or bid made in the previous round cannot be increased, only held or decreased. By disclosing the number of lots claimed by each participant after the initial bidding and each bidding round, the Auctioneer makes the procedure completely transparent, and the participants will be aware, at all times, of the number of lots claimed by each participant in each bidding round, including their price, as well as of the total number of claimed lots in the given frequency band.

The description of the general rules of the bidding was followed by the description of the special rules for the 900 MHz and 1800 MHz bidding procedures, supported by examples. At the end of the presentation, the participants were informed about the possibility to take part in the trial auction.

In the second phase of the consultation, participants were allowed to add questions, recommendations and comments.

Representing Magyar Telekom, Dr Gabriella Kövesi thanked for the high quality of the Draft Documentation and the timing of the auction procedure, which provides enough time for the service providers to get thoroughly prepared. However, in her comment, she recommended reviewing the band fees, and noted that, as opposed to the previous procedure, no band fee discounts were possible. In fact, she pointed out, band fees would increase in the future considering the recent significant expansion of the spectrum, which would excessively increase the burden of fee payment by service providers. Furthermore, in a request, she expressed her demand for two people to be able to represent each participating service provider in the on-site bidding of the auction procedure. Then she noted that further questions and remarks will be submitted in writing.

Róbert Ruzsa spoke in representation of Vodafone. He started by thanking for the professional preparation done by the representatives of the Authority regarding both the Draft Documentation of the tender and the three presentations. He went on to note that the service provider wanted to add further comments, recommendations and questions in writing. In this regard, he requested the Authority to provide enough time for the submission of written comments, and made a request to clarify the deadline for asking questions.

Digi Távközlési és Szolgáltató Kft. was represented by Miklós Hoffer. He indicated that the service provider wanted to submit their official comments to the Authority in writing, within the legal deadline. He went on to say that a significant part of their comments were related to procedural conditions regarding participation, specifically the system of personal criteria and other conditions that, according to their perspective, directly or indirectly affect their possibility to participate in the procedure. It was their view, he said, that the Authority wanted to use a system of criteria regarding, among other things, personal conditions, bank guarantees or coverage obligations, that was significantly stricter than the one used earlier in similar procedures. Furthermore, they expressed the view that the Authority wanted to enforce the safety of services as an objective at the expense of another objective, which was boosting competition. They would ask the Authority, they went on, to revise those provisions in the Draft Documentation that, according to their opinion, narrowed down the possibilities of participation and boosting competition, as objectives of the procedure.

Thereafter, online participants of the consultation were allowed to make comments and ask questions. In spite of having been offered the possibility, none of the online participants requested to use the Teams platform. The following questions and answers were provided during the consultation.

Question: If someone pays the ful auction fee earlier, before 2022, will the Authority release the performance security earlier?

Answer of Károly Karl: Yes, naturally. It is regulated by the Decree on the rules of auction or tender, and when the legal basis for holding the performance security ceases to exist because the full auction fee is paid, we are going to release the security.

Question of Károly Fiala (Spektrum Advice): Was the value of the frequencies determined based on international benchmarks or another method was used?

Péter Kollár responded orally. To prevent discrepancies, the answer to this question can be read in Hungarian language in the following document of the Auctioneer: Q&A – consultation about the draft documentation of the auction procedure to be announced for the entitlements of frequency use of the 900 MHz and 1800 MHz frequency bands. It is generally accepted when selling frequencies that frequencies substituting each other represent, in a certain meaning, the same value. Therefore, the benchmarking of the frequencies in the current procedure was started when we prepared the auction procedure announced for the entitlements of frequency use supporting the introduction of 5G and those related to additional wireless broadband services. The benchmarking of the 700 MHz frequency started a highly intensive process that we were able to utilise with the 900 MHz and 1800 MHz frequencies as well. During the benchmarking of the 900 MHz frequency, 55 sales were examined in 27 countries, focusing on the sale of frequencies below 1 GHz. In the case of the 1800 MHz frequency, 75 sales were examined in 24 countries. In this case, we analysed mid-band frequency sales between 1 GHz and 6 GHz using adequate weighting and correction factors. Obviously, we took into consideration the results of recent national frequency sale procedures, since these were frequency sales carried out under the current market conditions. The Auctioneer used its own methodology based on the components mentioned earlier to determine the reserved price and other pricing rules.

Further questions of Károly Fiala: Based on current information, when is the European Commission expected to prepare the amendment of the relevant 900-1800 MHz EU legislation targeting complete technology neutrality to open the possibility for the application of the 5G NR technology in these bands, in addition to 2G, 3G and 4G?

A related second question: When will this amendment of the EU legislation be implemented in the Hungarian regulatory system (NFFF)?

Péter Vári responded orally. To prevent discrepancies, the answer to this question can be read in Hungarian language in the following document of the Auctioneer: Q&A – consultation about the draft documentation of the auction procedure to be announced for the entitlements of frequency use of the 900 MHz and 1800 MHz frequency bands.

Magyar Telekom’s recommendation: In order to ensure future border-zone use of the 900 MHz and 1800 MHz frequency bands for 5G purposes, Magyar Telekom would like to request the revision, in coordination with the authorities of the neighbouring countries, of the GSM preference-based border-zone regulation, to prepare the switch from the currently preferred 2G systems to 4G and 5G systems within a few years.

The reaction of Péter Vári: In terms of the coordination agreement, thank you for the recommendation. In order to do this, we must wait until the detailed technical content of the previously mentioned harmonisation regulation is made available. After that, we will contact the neighbouring countries to revise the coordination agreements concluded so far.

National service providers will still be involved in the preparation of frequency coordination agreements and, according to the best practices, the related content elements will be discussed with the operators in the preparation phase. It remains to be seen which neighbouring countries will still be member states of the EU by 2022. Currently, we have two neighbours, Serbia and the Ukraine, who are not EU member states. As soon as we have the possibility, we will start discussions with the neighbouring countries.

Another recommendation helping the efficient use of the spectrum: Similarly to Annex 4/C, Annex 4/B should be amended with the purpose of ensuring, for the sake of band continuity, that the incumbent participant consents to the repositioning by the Auctioneer of their 1 and 2 MHz duplex block related to the entitlement of frequency use expiring in 2029, based on the bandwidth of guard bands and as part of creating user blocks, in a way that it leaves the current band allocation unchanged to the greatest extent possible and makes the two 100 MHz guard bands available for use.

The reaction of Péter Vári: I think this is a great suggestion. It certainly supports spectrum efficiency. However, I would like to ask the attendees and the experts joining us remotely to consider whether this suggestion is adequate from an operative perspective. That is, to make repositioning feasible in a wider sense during the process than set out originally in the Draft Documentation. Repositioning should be possible not only in the case included in Annex 4/C, but it should be included in Annex 4/B as well. Obviously, we should find out about the operator’s position on this issue.

Questions received in writing for the consultation as well as those received orally or in writing about the Draft Documentation during the consultation will be answered by the NMHH before 8 October 2020, as required by the law, and will be posted on its website.

After evaluating the questions and recommendations, the final documentation of the procedure is planned to be posted on the website of the Authority on 16 October 2020, and the on-site bidding may take place at the beginning of next year.