How Will Japan’s New Spectrum Auction Affect the Country’s Telecommunications Market?

A new development was announced in January 2023 by the Ministry of Internal Affairs and Communications (MIC) in Japan that a new spectrum auction system will be implemented by 2026. With this, a new structure for the auction will be set in place with considerations for several new factors, such as technology and business plans, aside from price only. As of now, no news on the format of the new auction has been decided. However, in the roadmap, MIC has included the formation of a working group with Communication Service Providers (CSPs) and the industry players to discuss the specifics of the auction. It is likely that the working group will provide recommendations for the spectrum structure and table other concerns of the MIC for the future.

The Japanese government’s decision to introduce spectrum auctions for its telecommunications sector moving forward, despite not having the practice previously, signals a big change for the industry. For the market and consumers, this change to the spectrum auction is expected to have two varying impacts. The introduction of spectrum auction as opposed to its previous practice of allocating spectrum with no costs incurred to the CSPs could enable new entrants to enter the telecommunications market. Through greater levels of competition in the market, consumers will have more choices of CSPs to choose from. In theory, it should also push incumbents to innovate to balance between providing higher quality mobile services and using their spectrum efficiently. However, the spectrum auction will require the current CSPs to bid and pay for spectrum, which may have negative effects on end users. With the spectrum auction, CSPs will need to devote a larger proportion of capital to spectrum assets. To generate sufficient Return on Investment (ROI), CSPs will need to increase prices of value-added services to their customers.

At the same time, the MIC intends to set up a research and innovation fund to boost the adoption of 5G and, at the same time, encourage 6G research. Along the same vein, perhaps the government intends for the funds from the spectrum auction to be channeled into the discussed JPY66.2 billion (US$450 million) fund.

Not much is known now about the specifics of how the government will implement this upcoming spectrum auction, but its impact is expected to be huge once implemented. A key contention for the industry that surfaced from this change is in the low frequency bands, which are crucial for CSPs. The 700 Megahertz (MHz) frequency band is key for CSPs to achieve quality 5G coverage across the country. Given that there is currently no low frequency band dedicated to 5G technology, CSPs like Rakuten Mobile and NTT DOCOMO have contended that the MIC grant them access for the spectrum within the year to enable wider coverage of their 5G networks.

The catch is that low band spectrum is frequently the most expensive spectrum to obtain and the MIC’s views toward whether the 700 MHz band should be allocated for free or at a price are unclear. The low band spectrum has the furthest range and has very limited bandwidth compared to the mid and high frequency bands, making the low band spectrum very expensive. Regardless, considering that the 700 MHz band is necessary to expand the nation’s 5G coverage, it is understandable that the CSPs would push for the allocation of this band before the new spectrum auction in 2026. If, however, the MIC decides to put the 700 MHz up for auction in 2025, CSPs may be at a disadvantage, as they will have to set aside larger sums of money for the spectrum. This will affect their flow of capital and the initiatives that they may be looking to invest in (e.g., Fixed Wireless Access (FWA), Internet of Things (IoT), Open Radio Access Network (RAN), etc.).

For Rakuten Mobile, which does not have any low band spectrum, it is crucial to contest for the 700 MHz band and “level the playing field” with the other CSPs. In particular, for Rakuten Mobile, which has the smallest market share (2.2%) and revenue of the CSPs in Japan, obtaining a low band could help it elevate its network coverage and performance to reach more consumers. However, with the spectrum auction, it may struggle to bid and pay for the same amount of spectrum as a larger CSP, such as NTT DOCOMO or KDDI. The larger CSPs have much larger established consumer bases and financial power to compete in a bidding war with Rakuten Mobile. Ultimately, the MIC’s approach toward the 700 MHz band is likely to have implications for the future of a competitive market in Japan’s telecommunication market.

This is a big upcoming change for the Japanese telecommunications market, especially considering it is one of the last few countries to implement a spectrum auction system. Nonetheless, the structure for the future spectrum auction may require CSPs to propose their plans for the efficient use of the spectrum to the MIC. This may perhaps include their rollout plans for nationwide coverage, funding and/or ROI plans, and even plans for openness and inclusivity (considering Japan is a big contender of Open RAN solutions). This creates a more holistic assessment of an important public good (i.e., radio frequency) for the country. Additionally, with the formation of the working group as stated by the MIC, it seems that the key CSPs will be allowed to give their input on the structure of the auction. With any introduction of change in a government, it is imperative for CSPs to be open about their views toward it and propose ideas and plans to contribute to the change.