We are closely following the unfolding of the process that will result in the expansion of access to connectivity and in the implementation of the fifth generation (“5G”) technological standard in the country, which will promote countless benefits for the society and the national economy as a whole. And to make these advances possible, the National Telecommunications Agency (“ANATEL”) will be leading the largest bidding in its history, in which radio frequencies (“RFs”) will be auctioned in the 700 MHz, 2.3 GHz, 3.5 GHz and 26 GHz bands.
According to the Ministry of Communications, this bidding procedure will be important to eliminate the Brazilian “digital desert”, i.e., the lack of connectivity that affects 40 million citizens across the country. In addition, there is a great expectation that 5G will enable the emergence of different new business models, many of which are not even known at this time, since the future creation thereof will be dictated as the technological development proves to be effectively viable.
According to ANATEL, 5G will make it possible to meet the most diverse kinds of needs and demands due to its characteristics, to wit: (i) Enhanced Mobile Broadband (or "eMBB"), with a focus on high download and upload speeds, aimed at the new needs of the conventional user; (ii) Ultra Reliable Low Latency Communications (or “URLLC”), intended for applications sensitive to delays and errors, such as, for example, use in autonomous cars and remote control of machinery; and (iii) Massive Machine Type Communications (or “mMTC”), connecting a large number of Internet of Things (“IoT”) devices.
It is true that the definitive terms according to which the bidding will take place will only be known when the final version of the respective public notice is published, but based on the draft approved by the Agency in February of this year, and which is currently being analyzed by the Federal Accounting Court (“TCU”), it is possible to glimpse the general outlines that were traced for the procedure.
One of the supposedly consolidated factors that will characterize the event refers to its non-collection character. According to what ANATEL has been stating, the price to be paid for the Authorizations for the Use of Radio Frequencies of the auctioned lots should correspond to approximately ten percent (10%) of the net present value (NPV), with the remaining ninety percent (90%) of the acquisition cost corresponding to commitments that should be undertaken by the winning companies. However, on this topic, representatives of potential participants in the auction have been expressing their opinion on the need for greater detail on the several obligations that are provided for in the draft, in addition to feasible prices.
As summarized in previous articles of our series on the subject of this bidding, the auctioned spectrums will be divided into different provision areas and types of lots, with the commitments to be undertaken varying according to such division.
The specific terms enforceable with regard to each of the lots will be reflected in the Coverage Commitments, which in turn will be part of the respective Term of Authorization for the Use of Radio Frequencies; and failure to comply with such obligations, to wit, might result in the execution of the relevant guarantees, as well as in the application of the sanctions provided for in the public notice and in the applicable regulations.
It is also worth noting that the winning bidders should establish, in their telecommunications networks and services, procedures and conducts in accordance with the provisions contained in the Regulation of Cyber Security Applied to the Telecommunications Sector (ANATEL’s Resolution No. 740/2020).
However, based on the current draft of the public notice, not all the bands auctioned will be bound to specific obligations, since no commitments of this nature, to be undertaken by the winning bidders of the lots referring to the band from 24.3 GHz to 27.5 GHz (Types G, H, I and J), have been foreseen. Notwithstanding, in general terms, it has been specified in the wording approved by ANATEL that the use of this band should occur in line with the terms of the same Agency’s Resolution No. 742/2021 and the applicable technical requirements. In addition, the winning companies should ensure that their radio communication systems do not cause harmful interference to stations operating in adjacent bands, being responsible for the costs of resolving such interference, if necessary.
In common with the 700 MHz, 2.3 GHz and 26 GHz bands to be auctioned, as outlined in the public notice under analysis, the winning bidders should, as of January 1, 2026, make available a public offer for the right to use RFs related to the sub-bands of the applicable lots, in all municipalities in which there is no use thereof, thus enabling the use on a secondary basis by interested third parties, in accordance with the Regulation of Use of the Radio Frequency Spectrum (ANATEL’s Resolution No. 671/2016). The same is also required in relation to RFs from 3,300 MHz to 3,700 MHz, but such availability should take place within 2 years from the dates defined by the public notice for the beginning of the respective sub-bands’ use.
In addition, before the beginning of the RFs’ effective use, the public notice draft provides that the use of RFs, band, or channel of RFs might be authorized, on a secondary basis, against payment, also in accordance with the terms of the abovementioned Resolution No. 671/2016. Furthermore, should after the service of a municipality by an authorized third party, the winning bidder decide to serve the same municipality with the use of such sub-band, it should make network capacity available to the interested third party present in the municipality, in an isonomic and non-discriminatory manner and in remuneration conditions not rendering the previously adopted business model unfeasible. However, it is important to point out that the existence of an authorization for an authorized third party does not exempt the winning bidder from the liability for complying with its obligations.
Many of the specific commitments that ANATEL intends to see included in the scope of the bidding have been the object of in-depth analysis and questioning by the TCU and, therefore, until the final wording of the public notice is published, there is room for changes. However, the outline of other commitments appears to be better defined.
In addition, some adjustments might also be necessary, for example, depending on the date of the bidding procedure. The exact date when the auction will take place has not been defined, but the Brazilian Minister of Communications recently expressed his expectation of proceeding with the bid in the month of August; this represents a delay in relation to the original ministerial forecast, in the sense that the auction would still be held in the first half of 2021. However, it is worth emphasizing, scheduling of the applicable date will depend, in part, on TCU’s analysis.
In general terms, regarding the 700 MHz band, according to the provisions included in the public notice draft, the winners of Lots A1 to A15:
- Must comply with the provisions of the Regulation on the Conditions of Use of Radio Frequencies in the Band from 698 MHz to 806 MHz (ANATEL’s Resolution No. 625/2013, or another which might eventually replace it);
- If necessary, should adopt solutions against harmful interference in accordance with the so-called Regulation on Conditions of Coexistence between Sound and Image Broadcasting and Television Retransmission Services of the SBTVD [Brazilian Digital Television System] and the Radio-Communication Services Operating in the Band from 698 MHz to 806 MHz (ANATEL’s Resolution No. 640/2014); and
- In case already holding an Authorization for the Use of Radio Frequencies in the sub-bands from 718 MHz to 748 MHz and 773 MHz to 803 MHz, might request the realignment of the blocks won in the future auction, aiming at their grouping, bearing the respective costs.
The government also intends to see included in the scope of this bidding other specific commitments for this band’s winning bidders, which were provided for in the draft. Thus, winners should offer voice and data connections, with the implementation of Radio Base Stations ("ERBs") enabling the offer of personal mobile service ("SMP") by means of a technological standard equal to or higher than the Long Term Evolution – LTE Advanced release 10 of 3GPP (“4G technology”), in order to:
(i) Provide services, until December 31 of the years 2023, 2024 and 2025, respectively, to at least 40%, 70%, and, in the last-mentioned period, 100% of Brazilian locations which currently do not have an offer of SMP by means of 4G technology, to be duly specified in the final version of the public notice; and
(ii) Provide coverage, with SMP, until December 31 of the years 2023, 2024, 2025, 2026, 2027 and 2028, respectively, for at least 10%, 20%, 50%, 70%, 90% and, in the last-mentioned period, 100% of roads or road sections to be specified in the final version of the public notice.
Regarding these requirements, as provided for in the current wording of the draft, the winning bidders should submit to ANATEL, on a yearly basis, in October, a report on which commitments have already been met and which ones will still be met by the end of the applicable year. However, the Agency might also request this information at any time.
In addition, the public notice draft sets forth that the values offered by the winning bidders exceeding the minimum prices of each Type A lot will be converted into additional obligations, so that such companies should then serve, (i) by December 31, 2026, 100% of the Brazilian locations which do not have an offer of SMP by means of 4G technology to be identified in the public notice, and that have been associated with the authorization to use RFs resulting from such conversion procedure; and (ii) by December 31, 2029, 100% of the highway sections equally to be specified in the public notice final version, and which have been associated with the authorization to use RFs resulting from the aforementioned conversion.
A location will be deemed served, to wit, upon the implementation of at least 1 ERB in the polygon of its census sector (this being a part of the national territory, considering the political-administrative division and other territorial structures, which allows the collection of statistical information in a given collection period), according to the Brazilian Institute of Geography and Statistics (“IBGE”), with a capacity installed at the S1 interface equal to or greater than 50 Mbps. In the service for highways and sections of highways, in turn, the winner will be able to use its own ERBs, agreements allowing visiting users, virtual operation or spectrum sharing (“RAN sharing”) with other operators already having coverage in the applicable sections.
Still with regard to the fulfillment of commitments, the winning bidder should use the SMP in accordance with the respective regulations in force, but might also make use of other sub-bands in relation to which it holds an Authorization for the Use of Radio Frequencies; in addition, the use of third-party infrastructure or resources is also allowed, even if shared. However, in case of hiring of third parties, the winning bidder will remain solely liable for the applicable commitment before ANATEL.
In addition thereto is the obligation to serve, with voice and data and within the same deadlines mentioned above, visiting users of other companies authorized to provide the SMP, except where such authorized companies already have the provision of the SMP, respecting the technology standard.
Regarding the auction of the sub-band from 2,300 MHz to 2,390 MHz (Type E and F lots), in turn, the proposed public notice wording sets forth that the winning bidders should make use of the spectrum in accordance with the provisions of the Regulation on Conditions for the Use of Radio Frequencies in the 2.3 GHz Band (ANATEL’s Resolution No. 710/2019, or another which might replace it).
In addition, such companies should offer voice and data connections to serve Brazilian municipalities currently with a population of less than 30,000 inhabitants, as well as locations which do not yet have SMP services by means of 4G technology, as such municipalities and locations are specified in the public notice final version (and assigned to them within the scope of the bidding procedure), according to the following schedule:
(i) By December 31, 2023, at least 40% of the municipalities and at least 10% of the locations;
(ii) By December 31, 2024, 100% of the municipalities and at least 20% of the locations;
(iii) By December 31 of the years 2025, 2026 and 2027, respectively, at least 40%, 60% and 80% of the locations; and
(iv) By December 31, 2028, 100% of the aforementioned Brazilian locations assigned.
As described above with regard to the 700 MHz band, the values offered by the winning bidders exceeding the minimum price of each lot will be converted into an additional obligation: to serve, until December 31, 2029, 100% of certain locations to be mentioned in the public notice final version, which have been associated with the authorization to use RFs as a result of the conversion procedure.
At this point, it is important to clarify that, as determined in the public notice under analysis, when the definition of the coverage commitment to be undertaken by the winner depends on the definition of the municipality, area or location population, the latest information published by IBGE prior to the publication date of the public notice that will support this bidding procedure should be considered.
The SMP should be used to fulfill the commitments to cover the 2.3 GHz band, being allowed the use of other sub-bands for which the winning bidders hold an Authorization for the Use of Radio Frequencies, as well as third-parties’ infrastructure and resources, including with sharing. Once again, the winner will remain solely liable for the commitments in case it has hired third parties for this purpose.
In this regard, the public notice terms, as drafted, specify that:
(i) A municipality will be deemed served when the coverage area, according to the relevant technical specifications, contains at least 95% of the urban area of the municipality’s Headquarters District and of the SMP offer by means of a technological standard equal to or higher than the Long Term Evolution - LTE Advanced release 10 of 3GPP; and
(ii) A location will be deemed served upon the implementation of at least one ERB and of the SMP offer by means of a technological standard equal to or higher than that mentioned in item (i) above, and the ERB used for this purpose should be contained within the polygon of the location’s census sector, according to IBGE, and with a capacity installed at the S1 interface equal to or greater than 50 Mbps.
For this band to be auctioned, it should also be noted that, within the aforementioned deadlines, the voice and data services should be made available by the winning bidders to visiting users of other SMP authorized companies (except where they already carry out such provision, respecting the technological standard).
Finally, it is worth mentioning that the choice of municipalities, locations and highways to which lots A6 to A15, E1 to E8 and F1 to F8 refer, as provided for in the draft’s wording, will occur based on the descending order of offered price, defined by the Special Bidding Commission, with sequential rounds being carried out (limited to 5% of the total number of municipalities, locations, and highways) until all have been contemplated.
We emphasize that this article contains a very brief overview of some relevant points of the public notice draft under analysis and, therefore, it should not be understood as legal advice regarding specific aspects within the scope of the bidding procedure.
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