Tender for the UMTS license

Case study

The tender for the UMTS license, organized in Warsaw in the year of 2000, was called “the tender of the century”. Obtaining a license for radio frequencies enabling the development of third generation telephony ( 3G ) was a fundamental condition for offering services based on broadband wireless data transmission, and thus further development of the activities of mobile operators. An operator that would not obtain a license for UMTS would be forced for gradual liquidation of its operations.

The introduction of services based on UMTS technology meant a breakthrough change. The standard mobile phones used mainly for making calls and sending text messages have been replaced by smartphones, offering access to high-speed mobile Internet and a huge number of so-called Value Added Services (VAS). The main advantage of the new system was the integration and standardization of information technologies, which had been subject of convergence for some time . Telecommunications and information technologies have merged into a new sector, known as Information and Communications Technology (ICT) . 

I participated in that tender on the side of Polska Telefonia Cyfrowa, the operator of the Era GSM mobile network (nowadays T-Mobile Polska). My role was to coordinate all the works related to the preparation of an extensive tender offer and to ensure that it met the strict requirements of the Regulator. It was a project of strategic importance for the company, involving all organizational divisions as well as Polish and foreign shareholders of the company. The tender documents filled a large aluminum crate, which I delivered to the Ministry of Communications, escorted by bodyguards equipped with guns and bulletproof vests. The operators’ offers were submitted in the last hours before the deadline. A lot of emotions accompanied that tender. 

Challenges

The UMTS tender was formally announced by the resolution of the Minister of Posts and Telecommunications of September 29, 2000. The deadline for submission of bids was set for Saturday, December 2, 2000. The government had high financial hopes for the sale of the licence, because in other countries the fees for UMTS licenses reached astronomical heights. Originally, five concessions were to be put up for tender. At that time, there were only three mobile operators in Poland: PTK Centertel, Polkomtel and Polska Telefonia Cyfrowa. Finally, four UMTS licenses were put up for sale.

The tender documentation describing the regulator’s requirements was purchased by 19 entities: PTK Centertel, Polkomtel, PTC, Netia, Futuro.com, 3G, 7bulls.com, Telefonika with Finnish Sonera, Turkcell, Rumeli, TIW, Tu Mobile, HSBC bank on behalf of Hutchison Whampoa and 5 law firms and the Raiffeisen bank. It was estimated that 6-7 consortia could participate in the competition, or rather fight for the concession.

The main challenge for the operators and their shareholders was to present guarantees for financing the development of 3G networks. On the one hand, they had to pay high concession fees, and on the other, to cover high costs of investment in technical infrastructure. Financing such a large undertaking required money from several sources. Part of the financing was provided by PTC shareholders, while the rest was obtained from credit lines, bond issues, bridge financing and contributions from technology providers. Investments in the development of UMTS were estimated at PTC at PLN 20 billion paid in annual instalments until 2010. Reaching the break-even point was forecasted for the years 2007-2009.

Much controversy has arisen around the national roaming , i.e. the introduction of the legal obligation to connect mobile networks. The Ministry of Communications wanted to force domestic GSM operators to make their networks available to new operators. Its use would enable them to quickly launch voice transmission services and then gradually introduce 3G services. 

Architecture of the UMTS system according to the 3GPP standard, version 1999

The UMTS system was created as a result of the development of improved versions of the GSM system, ie GPRS and EDGE technologies. It enabled global standardization, increased throughput and increased capacity of mobile telephony. Achieving these benefits, however, required high expenditures on the development of a dense network of base stations and the modernization of backbone networks. The maximum cell radius in the GSM900 system is 35 km, for GSM1800 it is 8 km, while in the UMTS system it cannot be larger than 3 km. In cities, the distances between NodeB base stations were in practice about 600 meters.

The radio interface of the UMTS system uses the EDGE technology, which enables data transmission at the level of 384 Kbps for terminals moving at a speed of up to 120 km/h. The maximum transmission rate of 2 Mbps was only achievable indoors. The only service requiring a transfer rate of over 384 Kbs was video calls. Paradoxically, the market did not show much interest in video calls.

Motorola DynaTAC 8000X

The first mobile telephony networks, i.e. 1G ( 1st Generation ), were created at the turn of the 1970s and 1980s, although the idea appeared in the laboratories of the Bell Telephone Company as early as the 1940s. The first commercial mobile telephony services were offered in the 1980s., using several competing analog technologies. Two of them gained the greatest popularity: the Scandinavian system NMT (Nordic Mobile Telephony System) and the American AMPS (Advanced Mobile Phone System), known in Europe as TACS (Total Access Communication System). 

In addition to the obvious advantage, i.e. mobility, 1G telephony had significant disadvantages limiting its wide spread. Users had to take into account a low level of security (risk of eavesdropping), lack of data transmission and international roaming, as well as lack of network compatibility, low efficiency, limited territorial coverage, heavy terminals with weak batteries and high costs of using that telephony. Due to its limitations, none of the 1G networks in the world has achieved a market penetration level above 5%.

The fastest development of the 1G telephony was observed in the 1990s in Finland and Sweden. The first Polish mobile network was launched in 1992 by PTK Centertel. The same like in the Scandinavian networks, it used the NMT technology. After introducing to Poland 2G mobile telephony, the PTK Centertel changed the name of its network to Idea and focused on developing services in the GSM system. In the following years, after its ownership changes, the company also changed its name to Orange Polska.

The Dyna Motorola TAC 8000X analog telephone was the first portable terminal offered in 1G telephony. The mass production of this device began in 1983. The first copies went on sale in the following year. The interest in this phone, as well as in mobile telephony, was huge at that time.

Nokia 1011

2G telephony was established in Finland in 1991. Its essence was digital transmission, which, compared to analog 1G networks, allowed to increase network capacity and range, increase flow stability, improve call quality, reduce the negative impact of telephones on health, and introduce new services such as SMS, mobile Internet access, fax, teleconferencing and subscriber identification by SIM card.

2G telephony used GSM (Global System For Mobile Communications) technology. It was originally intended to serve in twelve EEC (European Economic Community) countries, but soon appeared in over two hundred countries. Polish GSM900 networks were established in 1996. Their operators were Polska Telefonia Cyfrowa (Era GSM) and Polkomtel (Plus GSM). In 1998, PTK Centertel (Idea GSM) joined them, using the GSM1800 (DCS) technology. In the second half of the 1990s, GPRS and EDGE technologies appeared as extensions to the GSM standard. Their implementation was defined as 2.5G and 2.75G telephony.

GPRS was the most commonly used standard for mobile data transmission, providing a speed of 30-80 Kbps. The SMS service (160 characters) created the basis for the MMS service offering the sending of long texts and multimedia files. The EDGE technology, also known as EGPRS, offered a transfer speed of 296 Kbs, which enabled the implementation of such the services as: access to e-mail and intranet, surfing the Internet, using multimedia services and simple games, using the telephone as a modem or Internet messenger, and also for streaming video and using localization tools.

The first phone supporting the GSM standard was the Nokia 1011.

 

Nokia 6650
Nokia 6650 integrating standards GSM and UMTS

UMTS technology was the first technical standard that assumed the possibility of full access to the Internet in mobile networks. UMTS treated voice and data transmission equally. It was developed as a system integrating all telecommunication systems – ICT, radio and television. 3G networks offered the ability to make voice calls, video calls, send text messages and transfer data.

UMTS technology was conceived as an extension of the 2G network. Many elements of both networks remained common, e.g. digital switchboards for establishing voice calls (MSC). The backbone network remained unchanged , but a new radio access network (UTRAN) with a WCDMA interface was needed. Smaller cells required multiple base stations (NodeB), different from BTS stations in GSM networks. 2G and 3G networks could work together. The development of the 3G network had a significant impact on fixed-line telephony services, which began to lose their popularity.

However, UMTS technology did not turn out to be as revolutionary as originally assumed. The capacity of the network was quickly depleted as the number of users who needed constant, wireless access to the Internet grew. High license fees and the costs of expanding the 3G infrastructure meant that dreams of creating a platform connecting people, computers and other devices did not come true. It turned out that the forecasts regarding profits from 3G telephony were greatly exaggerated. It was assumed that the so-called killer application bringing high revenues will be Videocall. However, market interest in this service turned out to be negligible.

3G networks based on UMTS technology offered transfer speeds of up to 386Kbs. The use of HSDPA and HSUPA technologies (software modifications in base stations and controllers) made it possible to increase the transfer rate to 14.4 Mbs, and thus increase the network capacity and resistance of radio transmission to atmospheric disturbances. Such upgraded networks were referred to as 3.5G.

HTC MAX 4G – the first 4G smartphone 

4G telephony is the next stage in the evolution of mobile telephony, enabling wireless data transmission at an average speed of 225 Mbs. The first commercial 4G network was launched in 2009 in Scandinavia. The main difference between 3G and 4G networks is speed. The basic advantages of the 4G network are: fast transfer without downtime and interference (ten times faster response time compared to 3G), improved radio interface, packet switching on the IP protocol and a simplified structure of the backbone network.

The implementation of LTE enabled access to advanced multimedia services and online games, but it was associated with the need to incur significant costs for the modernization of the radio interface and the replacement of telephone sets. The LTE air interface uses OFDM for downlink transmission and  SC-FDMA (DFTS-FDMA) for uplink transmission . This is one of the most visible differences from UMTS technology, which is based on the WCDMA interface. 

The 4G cellular network uses the aggregation of radio bands, which allows for a greater range and support for more devices, as well as the operation of one receiving device (smartphone, modem) on several frequencies simultaneously. The quality of using the 4G network is determined by the distance from the transmitter, terrain, parameters of the receiving device, as well as the number of active users connected to the same base station.

About 99.8% of the population of Poland is within the reach of the 4G network. Increasing the capacity of the network is carried out, among others, through the so-called refarming, i.e. the use of frequencies that support 3G over 4G networks. Increasing the speed and capacity of the network made it possible to connect to wireless data transmission not only smartphones, but also TV sets, refrigerators, cleaning robots and smartwatches.

Internet rzeczy w sieci 5G (źródło: Macrovector)

The first Polish 5G networks were launched in 2020. They operate on a similar principle to 2G, 3G and 4G networks. The difference lies in the way the radio frequencies are used in the three bands (3.4-3.8 GHz, 700 MHz, 24.25-27.5 GHz). Their full implementation will allow for data transfer counted in gigabytes per second, i.e. at a speed comparable to fixed fiber optic networks. 5G networks are characterized by increased capacity, allowing for the simultaneous operation of many devices of various types, which in practice means the implementation of the concept of the so-called Internet of Things, development of Smart Cities and Virtual Reality.

The IMT-2020 standard established by the International Telecommunications Union (ITU) defines the requirements for 5G networks with downlink speeds of up to 20 Gbs and uplink speeds of up to 10 Gbs. This will enable access to high speeds also for stationary users, with the ability to support 1 million devices per 1 square km. It will be possible to download files ten times faster than in 4G networks, stream video in 4K-8K resolution, use cloud games, as well as many applications in urban infrastructure control and medicine. It is estimated that 5G infrastructure will be the driving force of the The Fourth Industrial Revolution.

5G networks coexist with and complement 4G networks. They use the Dynamic Spectrum Sharing method, based on the dynamic allocation of radio resources between the two networks, depending on the current needs of the user. When establishing a 5G connection, the user connects to the 4G network to provide control signaling and to the 5G network to enable faster connection and increase the capacity of the 4G network.

The high density of base stations in 5G networks, as well as the use of microwave radiation, raises many concerns about the negative impact on human health. There are also concerns about subjecting people’s lives to complete surveillance and control by electronic systems. Many scientific studies show links between radio radiation in mobile networks and diseases. Reservations have been made to the WHO and the UN, among others .

Another wireless communication system will be 6G networks operating at higher frequencies than 5G networks (100 GHz-3THz). This will enable data transmission at speeds of about 1 Tbps, as well as much higher throughput. The share of artificial intelligence and cloud solutions will increase in the 6G system. They are supposed to be a combination of the physical world with virtual reality and biological organisms. 6G is projected to remain the main mobile communications technology around 2030-2035. 

When wireless networks are sufficiently developed, the entire Earth will be transformed into one big brain, which it really is, because all particles are part of the one rhythmic whole. We will be able to communicate with each other instantly, regardless of the distance between us. The instruments, with which we will do this, will be immeasurably simpler compared to our phones today. A man will be able to carry them in a vest pocket.

Nikola Tesla

Effects of the tender procedure

Finally, offers for the UMTS concessions were submitted by only three domestic mobile telephony operators. The Spanish Telefonica formed a consortium to participate in the Polish tender, but did not submit an offer. It could be assumed that her decision was influenced by the issue of national roaming, to which Polish operators were skeptical. In such a situation, the Ministry of Posts and Telecommunications decided to annul the tender and extend the previously issued GSM licenses to national operators with radio frequencies for UMTS. The license fees were set at EUR 650 million (PLN 2.5 billion) for each license, and their repayment was spread over 20 years.

Interest in the UMTS tender was very high not only on the part of operators, but also on the government side. It resulted from the history of similar tenders conducted in Great Britain and Germany. The total amount of concession fees received on the islands was equal to the annual state budget. In Germany, on the other hand, more than 100 billion German marks were obtained from this. At the same time, such high concession fees raised many doubts as to the profitability of investing in UMTS. Great hopes for great profits may have turned out to be unrealistic.

These doubts also appeared in Poland, which was and is poorer than its western neighbors. Revenues from the sale of telecommunications services have been and are much lower here, while the prices of technology are the same as in the rest of the world. The costs of expanding the UMTS radio infrastructure were particularly high, requiring five times more base stations than in the GSM system. Backbone networks, loaded with much higher data transmission traffic, also required additional development.

Participation in the tender for the UMTS concession took place in the atmosphere of a fierce dispute between the main shareholders of PTC, which concerned the ownership structure of the company. The old Polish Telecommunications Law (before July 21, 2000) prohibited foreign shareholders to hold more than 49% of shares in Polish telecommunications companies. After the disposal of shares by minority shareholders of PTC in 1999, a situation arose in which Deutsche Telekom claimed the right (based on the provisions in the articles of association) to a majority stake in Polska Telefonia Cyfrowa. The dispute raged for the next 10 years in international arbitration courts in Vienna, London and even Seattle. Finally, after the shareholder settlement, PTC was renamed toT-Mobile Poland .

Ownership structure of Polska Telefonia Cyfrowa during the first tender for the UMTS license

The structure of the tender offer for UMTS, in accordance with the requirements of the Ministry of Communications