2017 Jun Macquiare Bank Global View On Spectrum PDF

GLOBAL
4G vs 5G spectrum
A Global View of Spectrum
Diamonds in the Sky
Spectrum holds the key to satiate data demand and pursue 5G a common
challenge faced by carriers globally. Three key questions remain: 1) How much
capacity is needed to support rising data consumption? 2) As global standards for
5G develop, will it introduce disruptive technologies and change the relevant
spectrum bands? 3) Which carriers are best positioned for 5G with a diverse range
of spectrum holdings? We explore these issues with our global team including:
Source: Macquarie Research, June 2017 Australia, ASEAN, Canada, China, Europe, Japan, South Africa, and the US.
Global data traffic will grow ~10x from 15 levels through 20

Inside
The need for spectrum is greater than ever 2 Consumer demand for data is clearly rising, driven by data-hungry apps and the
Auctions around the globe 5 wave of unlimited plans, most recently in the US. Canada is likely to follow and while
Europe: A very different market 9 Australia has not yet shifted to unlimited, Telstra expects a 5x increase in traffic by
Canada: spectrum dynamics 13 20 and Vodafone expects 40-70% growth p.a. South Africas mobile traffic is
Japan: government-controlled spectrum forecasted to increase ~5.8x from 17-20. According to MIIT, Chinas data traffic was
allocation 15 only 976MB/sub at 16 vs. a global average of 1,614MB, leaving room for growth.
South Africa: The WOAN 16
Australia: More auctions to come? 19 Bridging the gap from 4G to 5G
ASEAN: Top three mobile operators
typically hold 100MHz+ of spectrum 20 4G is in the 7-8th inning with likely another decade to run; for instance, deployment is
Bridging the gap between 4G and 5G 21 ~70-75% in the US and ~75% in South Africa. Carriers are already focused on 4G
Spectrum for 5G: High frequency and extensions, low latency networks, and 5G. Meanwhile, 5G mobile standards are still
mmWave 30 being set with 3GPP likely to announce these sometime in 18.
Analyst(s) 5G makes a case for high-band and a shift in spectrum value

Macquarie Capital (USA) Inc.
Amy Yong The biggest change that 5G brings is the use of a diverse set of assets including
+1 212 231 2624 amy.yong@macquarie.com high-band spectrum aka mmWave (30-300GHz), fiber, and Wifi; this has shifted the
Rachel Arrowood
+1 212 231 8034 rachel.arrowood@macquarie.com
value of spectrum. During the most recent auction in the US, low-band spectrum was
Alessandra Gonzalez valued at ~US$1.25/MHz-PoP in the top 40 PEAs. We expect a 600MHz auction in
+1 212 231 1859 Canada in 18, while HDS spectrum may come to market in 18-19 in South Africa.
alessandra.gonzalez@macquarie.com
Macquarie Securities (Australia) Limited We note that different types of spectrum come with different characteristics. For
Andrew Levy, CFA
+61 2 8232 5165 andrew.levy@macquarie.com instance, mmWave can support higher data volumes as it provides 10x more
Macquarie Capital Limited bandwidth than 4G bands. But, propagation characteristics are weak and only reach
Allen Chang
+852 3922 1136 allen.chang@macquarie.com a few kilometers with performance impacted by factors including rain/humidity.
Macquarie Capital Securities (Japan) Limited
David Gibson, CFA Spectrum diversity is key winners around the world
+81 3 3512 7880 david.gibson@macquarie.com
Macquarie Equities South Africa (Pty) Ltd In the US, AT&T and Sprint have solid spectrum assets but diversification is needed.
George Brits If Sprint and T-Mobile unite, the NewCo would have 300MHz+ of low/mid/high-band
+27 11 583 2223 george.brits@macquarie.com
Richard Majoor spectrum. In Canada, all carriers are well positioned, though Shaw and Quebecor
+27 115 832 225 richard.majoor@macquarie.com are advantaged. In Europe, incumbents are best positioned given their spectrum and
Macquarie Capital Markets Canada Ltd.
Greg MacDonald, CFA
FTTx platforms, especially those with FTTp plans (Orange and Telefonica). Most
+1 416 628 3934 greg.macdonald@macquarie.com have a spectrum glut and those that are short will benefit from upcoming auctions.
Macquarie Capital (Europe) Limited
Guy Peddy In China, China Mobile and China Telecom are the two winners we identify in the
+44 20 3037 4509 guy.peddy@macquarie.com coming 5G era. In ASEAN, PLDT, Singtel, TRUE and XL are key picks with good
Macquarie Capital Securities (Malaysia) Sdn. Bhd.
Prem Jearajasingam spectrum holdings in their respective markets. In South Africa, Telkom is the best
+60 3 2059 8989 positioned despite having no spectrum <1GHz. In Australia, TPG has announced
prem.jearajasingam@macquarie.com
itself as a 4th MNO, and will need to acquire additional spectrum assets over time.
8 June 2017
Please refer to page 35 for important disclosures and analyst certification, or on our website
www.macquarie.com/research/disclosures.
Macquarie Research A Global View of Spectrum
The need for spectrum is greater than ever

We collaborate with our global telecom team including analysts from ASEAN, Australia,
Canada, China, Japan, South Africa, the UK, and the US.
Key issues discussed in this report:
1) Rising data consumption around the world and the need for spectrum
2) How does 5G change the bands of spectrum used?
a. Spectrum which was originally earmarked for 4G, to be used for 5G, e.g.
Digital Dividend 2 and 3.3-3.8GHz bands (historically WiMax)
b. Spectrum >24GHz (satellite bands) in trials for 5G; however, likely future
applications limited to indoor, or stadium, with line of sight
c. Physical channel performance will become more of an issue at higher
frequencies, e.g. rain fade, jogging not vehicular speeds, more line of sight
righted, more absorption from tinted glass and dry walling
d. Use cases and constraints for mmWave
e. The role of fiber, densification, and small cells
f. Not all spectrum is created equally: the value of low-mid band spectrum is
still higher
3) What are the available sources of spectrum coming to the market?
a. Past, existing, and upcoming auctions
b. Players with existing spectrum
c. LTE-Assisted Access
d. TV White spaces
4) The best positioned carriers will have a diversified portfolio of spectrum
a. Australia: Telstra, TPG, and Vodafone
b. ASEAN: PLDT, Singtel, TRUE and XL
c. Canada: Shaw and Quebecor
d. China: China Mobile and China Telecom
e. Europe: Orange and Telefonica
f. Japan: SoftBank
g. South Africa: Telkom
h. US: AT&T and Sprint
8 June 2017 2
Global mobile data traffic is expected to increase more than ~2.5x from 15 levels of
approximately ~3.7 exabytes/month to ~9.9 exabytes/month by 17. In the US, mobile data
traffic has doubled every ~18 months. In Australia, Telstra expects a 5x increase in traffic by
20 and Vodafone expects 40-70% growth p.a. Additionally, South Africas mobile traffic is
forecasted to increase ~5.8x from 17-20.
Fig 1 Global mobile data traffic from 15 to 20 (in exabytes per month)
EB
35
30.6
30
25
21.7
20
14.9
15
9.9
10
6.2
5 3.7
0
2015 2016E 2017E 2018E 2019E 2020E
Source: Company Data, Macquarie Capital (USA), June 2017
According to MIIT, Chinas data traffic was only 976MB/sub at 16 vs. a global average of
1,614MB, leaving room for growth. In China, data traffic was up 144% YoY in Apr. alone.
Fig 2 Data consumption in China reached 1,537 kTB in Apr. 17
kTB
1,800
1,537
1,600 1,425
1,400 1,240
1,152 1,168
1,200
980 1,025
1,000 860
776 820
800 690 710
620 630
540 559
600
400
200
-
Source: MIIT, Macquarie Research, June 2017
With smartphone penetration comes a rise in mobile video

Much of this increase in data demand is a result of data-hungry applications, mainly video.
We expect the mobile video trend will continue to rise as smartphone penetration moves
further above current levels of ~80% in the US (as shown in the chart below), people watch
more and longer videos on their mobile devices, and video ads continue to grow.
8 June 2017 3
Fig 3 US smartphone penetration continues to rise, expected to reach 84% in 18
90% 80.5% 82.0% 83.5%

78.0%
80% 74.9%
70% 65.2%
60% 54.0%
50%
40%
30%
20%
10%
0%
2012 2013 2014 2015 2016E 2017E 2018E
Smartphone Penetration
According to AT&T, data traffic in its network grew more than 150,000% from 07 to 15,
largely driven by mobile video, which accounted for ~60% of 15 data usage.
In our view, spectrum including low-mid band is important for video extension. Higher-
frequency bands like 2.5/2.6GHz are not as critical. Other large drivers of data consumption
in upcoming years will include developments in IoT, low latency platforms, and virtual reality.
Unlimited plans will strain the networks

Additionally, unlimited plans are becoming more prevalent. Unlimited is now ubiquitous
across all US carriers and is already driving increased data traffic. In the table below, we
outline current promotions among the Big-4.
Fig 4 Current Big-4 Promos (US)

T-Mobile Verizon AT&T Sprint
US$75 US$90 US$110 US$120 US$130 US$150 US$85 US$100 US$120
2 Lines
2GB 4GB 8GB 10GB 16GB 25GB 6GB 12GB 24GB
N/A 40 40 40 40 40 40 40 40 40
Price for 2 lines
Price per GB 17.5 12.5 8.8 8.0 5.6 4.4 7.5 5.0 3.3
3 Lines
N/A 60 60 60 60 60 60 60 60 60
Price for 3 lines
Price per GB 17.5 12.5 8.8 8.0 5.6 4.4 7.5 5.0 3.3
4 Lines
N/A
Price for 4 lines 80 80 80 80 80 80 80 80 80
Price per GB 17.5 12.5 8.8 8.0 5.6 4.4 7.5 5.0 3.3
5 Lines
N/A 100 100 100 100 100 100 100 100 100
Price for 5 lines
Price per GB 17.5 12.5 8.8 8.0 5.6 4.4 7.5 5.0 3.3
US$70/mo for 1 line
US$60/mo for 1 line
US$100/mo for 2 lines
US$80/mo for 1 line US$90/mo for 1 line US$100/mo for 2 lines
US$140/mo for 3 lines
US$140/mo for 2 lines US$145/mo for 2 lines US$130/mo for 3 lines
UNLIMITED DATA US$160/mo for 4 lines
US$160/mo for 3 lines US$165/mo for 3 lines US$160/mo for 4 lines
*All fees included
US$180/mo for 4 lines US$185/mo for 4 lines Limited time promo: 4 lines for
*Now offering 2 lines for
US$90/mo
US$100
We expect Canada will follow the US with a 1-2 year lag. Australia has not yet shifted to
unlimited plans, but operators are still expecting rapid traffic growth.
8 June 2017 4
Auctions around the globe

Spectrum is a scarce resource where availability comes from auctions, re-farming, and
carrier-carrier transactions.
US: the broadcast incentive auction

The ~US$19.8bn raised in the recent 600MHz auction was roughly one-third of our initial
expectations, indicating that the number of big spenders and their respective budgets
dwindled.
AT&T and Verizon likely drove the shortfall, as their focus shifts to mmWave spectrum, driven
by 5G initiatives. The biggest surprises included Dishs US$6.2bn shopping spree and on the
low end, Comcast who spent US$1.7bn (US$1.2bn net of NBCU proceeds from the reverse
auction).
We highlight major auction winners below:
Fig 5 Spectrum winners across our coverage

Bidders Adjusted Gross Payment (US$bn)
T-Mobile $7.99
Dish $6.21
Comcast $1.72
NBC proceeds from the reverse auction $0.48
Comcasts Net Basis $1.24
AT&T $0.91
Source: Company data, Macquarie Capital (USA), June 2017
We note the majority of spectrum will be made available to all auction winners in late 19/early
20 after a 39-month repackaging process. However, we expect some it will be made
available well before then; comments from T-Mobile CEO Legere suggest the carrier will
begin deployment of a portion of the 31MHz it won in the auction starting in 17.
Other sources of spectrum: Dish!

The US$6.2bn spent in the auction positions Dish with ~100MHz of fresh spectrum. We
expect Dish can put this to good use by leasing it to a third party, building out to meet FCC
requirements, or selling to a carrier. Recent news suggest Dish may be looking to partner with
Amazon to deploy its spectrum holdings. With enough spectrum to build a 5th nationwide
network, we believe Dish could attract other players including those in Silicon Valley.
Spectrum transactions in the US

Spectrum deals in the US show that the average price per MHz-PoP in FCC auctions is
~US$1.00, similar to the pricing in private transactions. However, many factors influence
spectrum values including: supply and demand, geographic location, band, and competition.
For instance, in the Broadcast Incentive Auction average price per MHz-PoP was ~US$0.88
across all regions but ~US$1.25 in the top 40 PEAs. Additionally, Verizons 14 purchase of
700MHz spectrum in Ohio from Cincinnati Bell Spectrum at an average price per MHz-PoP of
~US$1.19 can be compared to the ~US$3.18 per MHz-PoP that T-Mobile paid for the same
band (700MHz) of spectrum in Chicago last year.
Below we show a list of transactions including FCC auctions as well as secondary
transactions:
8 June 2017 5
Fig 6 US Spectrum transactions over time

Secondary Transactions
Date Transactions Geographic Area Bandw idth MHz Acq.PoPS (m ) Am ount (US$m ) Price/MHz-PoP (US$)
1 5/25/2016 T-Mobile purchases 700MHz of spectrum in Chicago Regional Footprint 700 MHz 12 11 420 3.18
2 4/7/2014 Verizon Wireless purchase of Cincinnati Bell Spectrum Regional Footprint 700 MHz 49 4 210 1.19
3 1/7/2014 AT&T purchase of Aloha II Spectrum Nationw ide Footprint AWS 49 50 NM NM
4 1/6/2014 T-Mobile US purchase of Verizon Wireless Spectrum Nationw ide Footprint 700 MHz 12 150 3,315 1.85
5 1/6/2014 Verizon Wireless purchase of T-Mobile US Spectrum Nationw ide Footprint AWS 4 55 950 4.32
6 6/28/2013 T-Mobile US purchase of U.S. Cellular spectrum Regional Footprint 1700 MHz - 2100 MHz 10 32 308 0.96
7 6/25/2013 Sprint purchase of Clearw ire Nationw ide Footprint 2.5 GHz 160 300 14,000 0.29
8 1/25/2013 AT&T purchase of Verizon spectrum Regional Footprint 700 MHz 12 42 1,800 3.57
9 7/28/2012 LEAP purchase of spectrum from Verizon Wireless Regional Footprint 700 MHz 12 11 204 1.58
10 7/28/2012 Verizon Wireless purchase of spectrum from LEAP Regional Footprint PCS & AWS 17 21 188 0.55
11 8/2/2012 AT&T acquisition of WCS spectrum from NextWave Regional Footprint WCS 5 212 600 0.57
11 12/5/2011 VZ acquisition of spectrum from Savary Island Regional Footprint 1700 MHz - 2100 MHz 10 27 172 0.63
12 12/1/2011 VZ acquisition of SpectrumCo spectrum Nationw ide Footprint 1700 MHz - 2100 MHz 20 260 3,600 0.69
13 12/20/2010 AT&T acquisition of specturm from Qualcomm Nationw ide Footprint 700 MHz NM 300 1,925 0.87
14 2/9/2008 TerreStar acquisition of spectrum from CCTV & Echostar Nationw ide Footprint 1.4 GHz 20 300 300 0.05
15 10/9/2007 AT&T acquisition of Alpha spectrum Nationw ide Footprint 700 MHz 12 196 2,500 1.06
16 7/23/2007 Crow n Castle LT spectrum lease to Telcom Ventures & Co. Nationw ide Footprint 1.67 - 1.675 GHz 5 300 155 0.10
17 3/7/2007 Clearw ire IPO Finance Regional Footprint 2.5 & 2.3 GHz 64 214 3,793 0.28
18 2/15/2007 Clearw ire acquisition of BLS 2.5 GHz spectrum Regional Footprint 2.5 GHz NM NM 300 0.18
19 9/25/2006 MSV Consolidation Nationw ide Footprint 1.3 - 1.6 GHz 28 300 1,793 0.21
20 9/25/2006 TerreStar Consolidation Nationw ide Footprint 2.0 GHz 20 300 1,151 0.19
22 7/5/2006 Clearw ire Equity Financing (July 2006) Regional Footprint 2.5 & 2.3 GHz 57 157 2,069 0.23
23 8/15/2005 ICO Convertible Debt Financing Nationw ide Footprint 2.0 GHz 8 300 850 0.34
Median $0.57
Mean $0.94
FCC Auctions
Date Auction Geographic Area Bandw idth MHz Acq.PoPS (m ) Am ount (US$m ) Price/MHz-PoP (US$)
1 5/31/2017 Broadcast Incentive Auction Regional Footprint 600 MHz 70 320 19,768 0.88
2 1/29/2015 Auction 97: AWS-3 Nationw ide Footprint 1695-2180 MHz 65 320 44,899 2.16
3 7/19/2011 Auction 92: 700 MHz Regional Footprint 698-740 MHz 24 3 20 0.29
4 3/18/2008 Auction 73: Overall Nationw ide Footprint 698-806 MHz 52 286 19,120 1.29
5 3/18/2008 Auction 73: Block A Economic Area (EA) 698-704 / 728-734 MHz 12 285 3,961 1.16
6 3/18/2008 Auction 73: Block B Cellular Market Area (CMA) 704-710 / 734-740 MHz 12 285 9,144 2.68
7 3/18/2008 Auction 73: Block C (Open Access) Regional Economic Area Grouping (REAG) 746-757 / 776-787 MHz 22 286 4,748 0.76
8 3/18/2008 Auction 73: Block D (Shared w / Public Safety) Nationw ide (Public/Private Partnership) 758-763 / 788-793 MHz 10 286 NM NM
9 3/18/2008 Auction 73: Block E Economic Area (EA) 722-728 MHz 6 286 1,267 0.74
10 3/8/2007 Auction 69: Block A & B Nationw ide Footprint 1.4 GHz 8 286 124 0.05
11 9/18/2006 Auction 66: Overall Regiona/ Nationw ide Footprint 1.7 - 2.1 GHz 90 281 13,700 0.54
12 2/15/2005 Auction 58: Broadband PCS Regional Footprint 1.85 - 1.990 GHz 120 17 2,043 1.00
13 6/13/2003 Auction 49: Low er 700 MHz - C & D Blocks Regional Footprint 710 - 746 MHz 18 116 57 0.03
14 9/18/2002 Auction 49: Low er 700 MHz - C & D Blocks Regional Footprint 710 - 746 MHz 18 201 89 0.02
15 1/26/2001 Auction 35: PCS C and F Block Regional Footprint 1.85 - 1.990 GHz 70 59 16,857 4.11
16 5/8/2000 Auction 30: 39 GHz Regiona/ Nationw idel Footprint 38.6-40 GHz 100 253 411 0.02
17 1/14/1997 Auction 11: Broadband PCS D, E & F Block Regional Footprint 1.865 - 1.975 GHz 30 253 2,517 0.33
18 7/16/1996 Auction 10: Broadband PCS C Block Reauction Regional Footprint 1.895 - 1.990 GHz 30 16 905 1.95
19 5/6/1996 Auction 5: Broadband PCS C Block Regional Footprint 1.975 - 1.990 GHz 30 253 10,072 1.33
20 3/28/1996 Auction 6: MDS Regional Footprint 2.15-2.68 GHz 78 253 216 0.01
21 3/13/1995 Auction 4: Broadband PCS A & B Blocks Regional Footprint 2 GHz Band 60 253 7,019 0.46
Median $0.75
Mean $1.00
Overall
Median $0.63
Mean $0.96
Source: Company data, Macquarie Capital (USA), June 2017
8 June 2017 6
Spectrum supply/demand is still imbalanced

In the chart below, we outline spectrum holdings across the Big-4 in the US, updated for the
most recent Broadcast Incentive Auction where T-Mobile and Dish were major winners.
Fig 7 Spectrum holdings for the Big-4

MHz
250
204
200
159
150 30
114 107 152
100
100
73 37
68
71
50 29
56 38
46 41
14 29
0
AT&T* Verizon T-Mobile* Sprint Dish*
Low Band - sub 1GHz Mid Band - 1.6GHz - 2.1GHz High Band - 2.3GHz - 2.7GHz
Source: Company Data, Macquarie Capital (USA), June 2017; *T-Mobile acquired 31MHz of spectrum;
assumes ~4MHz proportionally acquired by AT&T
The graphs below dig deeper into the spectrum holdings of the Big-4 US carriers, showing
their holdings in the top 10 and top 100 markets (pre-auction).
Fig 9 Big-4 total spectrum holdings in top 100

Fig 8 Big-4 total spectrum holdings in top 10 markets markets
MHz MHz
160 160
140 140
120 120
100 100
80 80
60 60
40 40
20 20
- -
Low Mid High Low Mid High
TMUS AT&T VZ S TMUS AT&T VZ S
Source: Company Data, Macquarie Capital (USA), June 2017 Source: Company Data, Macquarie Capital (USA), June 2017
We conclude that AT&T has a relatively strong and diversified spectrum portfolio totalling
~159MHz across low-mid-high band. Post the 600MHz auction, T-Mobile has strengthened its
spectrum position, giving it momentum to grow market share.
In the chart below, we show MHz per sub among the Big-4. We note Sprint has the most with
3.3MHz per sub while Verizon has the least with 1MHz per sub.
8 June 2017 7
Fig 10 MHz/Sub across the Big-4
MHz/sub
3.5 3.3
3.0
2.5
2.0
1.5
1.4
1.5
1.0
1.0
0.5
-
Sprint AT&T* T-Mobile* Verizon
8 June 2017 8
Europe: A very different market

Europe has some very distinct differences compared to other markets, especially the US,
which means spectrum is less expensive, but also wireless retail pricing is materially lower.
The major differences to note are:
European operators are generally spectrum-rich compared to other countries for example
BT has 280MHz of total spectrum in the UK. As such, capacity is not currently an issue for
many operators, some of whom are still rolling out geographic coverage especially in
France and the UK; 700MHz spectrum (by the end of the decade), 600MHz spectrum (by 30)
and 2.3GHz and 3.4GHz spectrum are all still to be auctioned in most European markets.
Fig 11 European spectrum ownership (MHz)
300.0
250.0
200.0
150.0
100.0
50.0
0.0
Orange France
TMO Germany
O2 Germany
VOD UK
Wind
3Austria
Proximus
KPN
Tele2
O2 UK
3UK
Telenet
Masmovil
VOD Germany
TIM
Iliad Italy
VOD Portugal
Optimus
SALT
SFR
Iliad
VOD Italy
TMN
TMO Netherlands
TEF Moviles
Sunrise
A1
Orange Belgium
Bouygues
BT
VOD Netherlands
VOD Spain
Orange Spain
Swisscom
T-Mobile Austria
Austria Belgium Germany France Italy Netherlands Portugal Spain Switzerland UK

Source: Company data, Macquarie Research, June 2017
We expect wireless pricing to trend to 1/1 per GB in the long term. Current pricing is closer
to 6 per GB in Germany (one of the more expensive EU markets) and closer to 2 in the UK.
Fig 12 UK: Price per GB () Fig 13 Germany: Price per GB ()
10.0 35.0
9.0 30.0
8.0 25.0
20.0
7.0
15.0
6.0
10.0
5.0
5.0
4.0 0.0
3.0 1 2 3 4 5 6 7 8 9 10
2.0 Magenta Mobile Vodafone Red
1.0 O2 Free Yourfone
0.0 Expon. (Magenta Mobile) Expon. (Vodafone Red)

0 5 10 15 20
Expon. (O2 Free) Expon. (Yourfone)
Based on retail offers - Price = y-axis; GB = x-axis Based on retail offers - Price = y-axis; GB = x-axis
Source: Company data, Macquarie Research, June 2017 Source: Company data, Macquarie Research, June 2017
The national incumbents are driving the offer of integrated bundles, as for the first time since
liberalization on Jan.1st 98 (in most European markets), the incumbents have a potential
competitive advantage.
8 June 2017 9
5G is evolving potentially into a fixed-line technology, due to the investment into FTTx in most
countries. This is creating a fiber backbone which will provide the backhaul for small cells. In
our note European Telecoms 5G: Catalyst for change published on Mar. 8th 17 we
introduced a framework for the European operators assessing FTTx and spectrum positions.
We believe the strength of the two will determine long term market positioning.
UK - 2.3GHz and 3.4GHz auctions in 17

In 17, it is expected that Ofcom will start the 2.3GHz and 3.4GHz spectrum auctions which
were originally put on hold during the BT+ EE approval process. This spectrum is especially
relevant for ThreeUK given its paltry (5MHz paired) combined position in 800/900MHz
spectrum. Harmonized spectrum is also more valuable as equipment and handsets are more
readily available.
Fig 14 UK spectrum positions (MHz)

UK Vodafone Telefnica O2 BT EE 3UK
800MHz paired 10.0 10.0 5.0 5.0

900MHz paired 17.4 17.4 0.0 0.0
1800MHz paired 5.8 5.8 45.0 15.0
2100MHz paired 15.0 10.0 20.0 14.6
2600MHz paired 20.0 0.0 55.0 0.0
3400MHz paired 20.0
Total paired 68.2 43.2 125.0 54.6
1400MHz unpaired 20.0 20.0
2100MHz unpaired 0.0 5.0 10.0 5.1
2600MHz unpaired 25.0 20.0
Total unpaired 45.0 5.0 30.0 25.1

Source: Company Data, Macquarie Research, June 2017
The Ministry of Defense is relinquishing 2.3GHz spectrum for the operators and in total
Ofcom expects to auction off 40MHz of spectrum at 2350-2390MHz and 150MHz of spectrum
at 3410-3480MHz and 3500-3580MHz.
The spectrum lots in the auction will each comprise 10MHz in the 2.3GHz band and 5MHz in
the 3.4GHz band. Reserve prices have been set at 10m for each band in the 2.3GHz and
1m in the 3.4GHz.
The outcome of the spectrum auction will determine how operators plan their networks. This
in turn, will drive the future of network sharing in the UK and the role of passive infrastructure
providers, such as dark fiber and tower companies.
EU - 700MHz auctions in the coming years

Germany is the only major market to have auctioned off 700MHz spectrum, with Spain
possibly following in 17. Most countries are planning to auction the spectrum in 18/19. By
the end of the decade, we expect a 700MHz auction in the UK.
Spectrum caps: The EU model of equitability

Historically the EU and national regulators have sought to create equality of spectrum
ownership across the operators. However, consolidation in Austria, Germany and the UK has
created distortions. Several operators have small spectrum positions and spectrum shares,
such as Iliad (France and Italy), MsMvil (Spain) and Tele2 (Netherlands) but this reflects
their new-entrant business models.
UK specific issues
The UK has the most dysfunctional spectrum holdings with O2, the number two operator,
owning little spectrum and BT having ~41% in a four-player market. It is expected that in the
forthcoming 2.3GHz auction BT (EE) will be capped and possibly at the 3.4GHz level as well.
Given Vodafone and O2s significant ownership of sub-1GHz spectrum we would expect them
to be capped in their ability to win 700MHz spectrum.
8 June 2017 10
Fig 15 EU spectrum: Operator share in relevant markets
Strong
50% position Spectrum
45% positions
40% reflect
35% smaller
scale
30%
25%
20%
15%
10%
5%
0%
8 June 2017 11
Fig 16 European operator framework

Integrated Leading challenger
Belgium Proximus Telenet Orange Belgium Other CATV operators
Gigabit connectivity Regional FTTp Regional DOCSIS Negligible (wholesale Regional DOCSIS
DOCSIS)
Paired spectrum Very good - 82MHz Good - 76MHz Very good - 82MHz Nil
holding
Market outlook: A very constructive market. Over time we expect further consolidation of the small CATV operators and Orange Belgium to co-
invest with Proximus for FTTp. As such we expect two near nationwide Gigabit networks in the long term and three spectrum
owners.
Germany Deutsche Telekom Vodafone O2D Unity Media TeleColumbus
Gigabit connectivity Negligible FTTp Regional DOCSIS No FTTp Regional DOCSIS Regional DOCSIS
Paired spectrum Very good - 95MHz Very good - 90MHz Excellent - 115MHz Nil Nil
holding
Market outlook: With additional broadband consolidation, the market structure could improve. We expect Vodafone to pursue additional network-
based M&A in the mid-term. We expect O2D to remain focused on consumer and video. We expect DTE to increase its FTTp
coverage over time.
France Orange SFR Bouygues Iliad
Gigabit connectivity Comprehensive FTTp Regional DOCSIS Negligible (wholesale Negligible

Plan DOCSIS)
Paired spectrum Very good - 90MHz Very good - 80MHz Very good - 80MHz Inferior - 55MHz
holding
Market outlook: Orange is in an increasingly commanding position. We expect competitors to form network partnerships or consolidate in time as
the economics of rolling out 5G networks are daunting.
Italy TIM Vodafone Wind/3Italia Iliad FastWeb
Gigabit connectivity Regional FTTp Negligible (wholesale Negligible (wholesale No FTTp Regional FTTp
Enel Fibre plan) Enel Fibre plan)
Paired spectrum Good - 65MHz Good - 70MHz Very good - 83MHz Inferior - 35MHz Nil
holding
Market outlook: TIM has the opportunity to build a commanding network position. Vodafone is likely to be a solid number 2 but is likely to struggle
to generate a similar level of returns. We expect Wind/3Italia and Iliad to remain focused on consumer video.
Netherlands KPN Vodafone Ziggo T-Mobile NL Tele2
Gigabit connectivity Regional FTTp Comprehensive DOCSIS No FTTp (Wholesale No FTTp

KPN)
Paired spectrum Good - 75MHz Very good - 90MHz Good - 70MHz Inferior - 35MHz
holding
Market outlook: Over time we expect KPN to deepen its FTTp coverage to compete with Ziggo/Vodafone. We expect TMO and Tele2 to focus
predominantly on consumer video.
Spain Telefonica Orange Vodafone MsMvil Other CATV operators
Gigabit connectivity Comprehensive FTTp Comprehensive FTTp Comprehensive DOCSIS No FTTp Regional DOCSIS
(with VOD) and FTTp (with ORA)
Paired spectrum Very good - 85MHz Good - 75MHz Good - 75MHz Inferior - 35MHz Nil
holding
Market outlook: We expect consolidation of the smaller regional CATV operators in time and Orange and Vodafone to further their network
partnership, possibly extending it into the mobile space. MsMvil is likely to remain a fringe value and consumer-focused
operator in our view.
Switzerland Swisscom Sunrise Salt UPC
Gigabit connectivity Regional FTTp Negligible Negligible Regional DOCSIS

Paired spectrum Excellent - 105MHz Very good - 80MHz Very good - 80MHz Nil
holding
Market outlook: We expect Sunrise and Salt to create network partnerships in order to compete with the dominant Swisscom.
UK BT O2 Vodafone ThreeUK Virgin Media
Gigabit connectivity Negligible FTTp No FTTp Negligible FTTp No FTTp Regional DOCSIS
Paired spectrum Excellent - 125MHz Inferior - 43MHz Good - 68MHz Inferior - 35MHz Nil
holding
Market outlook: A dysfunctional market, desperately in need of network consolidation and partnerships. We expect O2 and ThreeUk to
concentrate on consumer video and IoT.
8 June 2017 12
Canada: spectrum dynamics

The Canadian market expects to auction off roughly 80MHz of spectrum in the 600MHz band
in 18/19. While smartphone penetration is similar to the US market, carriers have a little
more breathing room given the absence of unlimited plans.
Canadian carriers are relatively spectrum-rich

Canadian carriers have a similar spectrum refarming opportunity to US carriers, and a
600MHz auction is currently expected in 18. Historically, the Canadian wireless industry has
tended to follow US band plans, so we expect 80-100MHz of spectrum will be offered. Finally,
spectrum sales are still possible, notably from Quebecor which has 10MHz of AWS spectrum
in Ontario and 10MHz of 700MHz spectrum in Ontario/Western provinces (not reflected in the
chart below).
On the whole, Canadian carriers are relatively spectrum-rich. This includes new entrants
Videotron (Quebecor) and Freedom (Shaw), both of which have the highest MHz/sub metrics
in North America. In our view, Canadian carriers are well prepared for 5G on both spectrum
and supporting infrastructure and as such have relatively low wireless capex risk over the
next 3-5 years. In their plans, launch timelines are mainly a function of standards which they
believe will start to be clarified this year though they dont expect these will come until 20.
In the chart below we highlight spectrum holdings across major Canadian carriers:
Fig 17 Canadian carriers spectrum assets
Low Band sub 1GHz Mid Band 1.6GHz-2.1GHz High Band 2.3GHz-2.7GHz
MHz
200
160 155
160 40
40
45
120 100
95 20
80 76
75 50
40 70
45 45 50
35
0 10
Rogers
Telus
(Freedom)
BCE
(Videotron)
Quebecor
Shaw
* Spectrum represents average holdings in major markets where carriers compete
A spectrum auction would attract a higher price per MHz-PoP

Three unique features in the Canadian market structure suggest a spectrum auction would
attract a greater per MHz-PoP value: 1) spectrum-rich disruptors like Quebecor and Shaw are
likely to shift to unlimited plans in the future; 2) restrictive regulation limits M&A options for
incumbents; and 3) a high probability of set-asides for new entrants in the next auction. The
US auction attracted only one-third of the bid value we expected at ~US$1.25/MHz-PoP (in
the top 40 PEAs), but in Canada we would expect a value closer to C$2-3/MHz-PoP.
However, we note that Canadian small-cap fixed broadband provider Terago has recently
rallied in response to a material bid to reflect the value of its high-band spectrum holdings.
This is a potential limiting factor to the higher-priced spectrum we expect in the upcoming
auction.
8 June 2017 13
Spectrum auctions facilitate market entry, particularly if they are designed to promote
competition and favor new entrants over existing players. For example, Singapore recently
held auctions in which only new entrants could participate and incumbent mobile operators
were excluded; 2degrees/NZ Communications attained early spectrum rights below market
value. In addition to facilitating market entry, ownership of spectrum is also critical for
operators looking to keep unit costs low in the long term. We expect successful operators will
acquire north of 100MHz of spectrum to be able to compete efficiently in a data-centric world,
suggesting further spectrum acquisitions are likely for operators such as TPG in Singapore
and Australia, Quebecor and Shaw in Canada, as well as Free in Italy.
The table below highlights spectrum assets of new entrants globally:
Fig 18 Spectrum assets of new entrant operators

600/700 MHz 850/900 MHz 1.8 GHz 2.1 GHz AWS 2.3 GHz 2.5/2.6 GHz Total
2degrees (NZ) 2x10 MHz 2x10 MHz 2x25 MHz 2x15 MHz 120 MHz
Telkom Mobile (SA) 2x12 MHz 2x15 MHz 60 MHz 114 MHz
Free/Iliad (FR) 2x10 MHz 2x5 MHz 2x15 MHz 2x5 MHz 2x20 MHz 110 MHz
Videotron (Quebec) 2x5 MHz 2x35 MHz 2x10 MHz 100 MHz
uMobile (MY) 2x5 MHz 2x15 MHz 2x15 MHz 2x10 MHz 90 MHz
'3' (AU) 2x10 MHz* 2x15 MHz 2x15 MHz 80 MHz
Free/Iliad (IT) 2x5 MHz 2x10 MHz 2x10 MHz 2x10 MHz 70 MHz
TPG (SG) 2x10 MHz 40 MHz 10 MHz 70 MHz
Wind (CA) 2x25 MHz 50 MHz
Digitel (PH) 2x17.5 MHz 2x10 MHz 55 MHz
TPG (AU) 2x10 MHz 2x5 MHz** 2x10 MHz 50 MHz
Comcast (US) Auction?
* '3' Australia: 850MHz, spectrum held in Melbourne/Sydney only; 2.1 GHz, 2x15MHz in Melbourne/Sydney only, 2x10MHz in other capital cities.
** TPG: Regional only: Darwin, Sth Qld, Northern NSW, Canberra, Sth NSW, Regional Vic, Regional SA, Tasmania, plus 2 x 5 MHz in Adelaide and
Western NSW.
Source: Macquarie Research, June 2017
8 June 2017 14
Japan: government-controlled spectrum

allocation
In Japan, the Ministry of Internal Affairs and Communications (MIC) controls the allocation of
spectrum based on fair and efficient use. Operators usually raise the need for additional
spectrum before the MIC commences the discussion process; the MIC then drafts a
frequency band allotment policy based on usage plans submitted by operators seeking an
allotment.
Then, it gathers public comments from operators, manufacturers, users, and academic
specialists based on a proposed allotment policy and discusses it with other regulatory bodies
including the Radio Regulatory council. Once finalized, applicable entities must apply and
undergo examination before they are issued an official radio license from the MIC.
Annual fees & allocation

The official radio license holder pays an annual spectrum fee based on the allocation. The
spectrum fee is revised every three years based on where the government plans to invest;
the next revision is planned to take effect in Oct. 17. Spectrum is currently not tradable in
Japan and is awarded at a low-priced license fee paid to the MIC. Most carriers have similar
amounts of spectrum to maintain a fair and balanced market.
Fig 19 Spectrum allocation among telecom operators in Japan
Source: KDDI, June 2017
The most recent allocation was 40MHz of 3.5GHz (band 42) spectrum awarded to each of the
three telecom groups in Dec. 14. This spectrum is being used to enhance network
capabilities. The government is currently working on the basic spectrum plan for the Tokyo
20 Games as they will need to allocate specific spectrum for this.
Additionally, it is looking to assign additional spectrum for the National Strategic Special
Zones; this spectrum is allocated to promote a fast license approval process for experiments
and trials using spectrum. As ongoing global discussions about future spectrum allocations
continue, we expect that Japanese operators will receive additional allocations in the coming
years.
8 June 2017 15
South Africa: The WOAN

South Africa is a global outlier; this is in part inspired by the Mexican and Rwandan
governments efforts to create wholesale open access networks (WOAN) as well as a factor
of domestic political actors calling for radical economic transformation in the industry. Until
recently, mobile operators were facing the threat of spectrum nationalization.
However, a recent industry-government agreement will allow operators to hold onto their
licences until expiration in 28. The government has stated no licenses will be
renewed/reauctioned at that time, and will instead be added to the wholesale open access
network (WOAN), which will then transition from a seventh operator to a network monopoly
(relegating other operators to MVNOs). Mobile operators are expected to commit to purchase
either 30% or 50% (in rural areas) of capacity in the WOAN if they wish to receive any of high
demand spectrum (HDS) i.e. 700MHz, 800MHz, 2.6GHz themselves. They are hence
underwriting the business case of a competitor, although one could make a case that
Vodacom is already forced into such an arrangement through its roaming agreement with
WBS.
A study will be undertaken to determine how much spectrum the WOAN will require until 28.
In our view, this is a Sisyphean task that is sure to generate lengthy debate as to what
speeds the WOAN should offer and where the coverage boundaries should fall (or more to
the point, which competitors it will overlap with the most). Presuming a satisfactory business
plan can be assembled, the remainder of the 700MHz, 800MHz, and 2.6GHz will be assigned
to the six current mobile operators by the regulator ICASA.
The mobile operators are employing tactics to avoid double-paying both for wholesale
capacity on the WOAN (likely with a sunset clause) and in a spectrum auction. The
advantage of the WOAN is that it collapses aspirant competitors into a single vehicle. Hence,
in theory the remaining spectrum can be administratively divided and assigned directly or else
a reserve price will be set.
Smaller operator Telkom is lobbying for spectrum in the <1GHz band to be set aside for it to
compensate for its lack of 900MHz. Vodacom, having built a single RAN with 2.6GHz radio
heads, is anxious for ICASA to assign the 2.6GHz spectrum which unlike 700/800MHz is
not dependent upon the announcement of an analogue switch-off date.
Although operators today may complain about the costs of network densification, the reality is
that the promise of 5G is built precisely upon such dense networks. This presumes that one
considers 5G an eventuality.
Fig 20 SA mobile operator spectrum assignments Fig 21 SA mobile operator spectrum assignments
8 June 2017 16
ICASAs workaround Dynamic Spectrum Access

The WOAN concept is driven by the government, however it is opposed by the regulator who
lost a High Court interdict in Oct. 16 against the Minister of Telecommunications. Since then
ICASA has continued to push a long-term agenda (supported by non-mobile, wireless
operators) promoting Dynamic Spectrum Access (DSA) i.e. the usage on a secondary basis
of a primary licensees spectrum in areas where the holder of the rights is not making use of
such spectrum.
The first application of DSA in South Africa will be fixed wireless links in the TV White Spaces
band. South Africa has for the last 5-6 years been learning from the UKs experiences; trials
have been carried out using a geo-location database (with Google and Microsoft as technical
partners). ICASAs longer term objective is to make DSA possible in all licensed spectrum
bands, which will somewhat diminish the value of licensed spectrum.
MTN & Vodacoms workaround LTE over WiFi spectrum

MTN and Vodacom have both carried out LTE-U trials in the WiFi band, with MTN recently
demonstrating LTE-Licenced Assisted Access (LTE-LAA) technology. LTE-LAA makes use of
license-exempt spectrum, and hence will not require any special privileges from ICASA.
(Although license-exempt spectrum is most commonly used for WiFi, there is no restriction of
what technology it can be used for, provided power control limits are adhered to).
In 16 the global standards body, 3GPP, standardized LTE-LAA for downlink operation in
Release 13 and is currently working on specifying the technology for uplink operation in
Release 14 (expected to be completed in Jun. 17). The technology is hence in its nascent
phase and it will take a few months for vendors to start shipping end-user devices with the
standard incorporated, and a few years more for such devices to reach a sufficient level of
penetration to be able to assist mobile operators.
The supply & demand imbalance is too complicated to determine

It is impossible to determine from the level of detail given to analysts, the degree to which a
network is full or out of capacity. This is because firstly there is not one but three access
networks i.e. 2G, 3G and 4G. For example, Vodacom previously stated that while their 3G
network is congested, their 4G network is comparatively lightly loaded.
When lobbying before the regulator, operators often adapt to make their case using the metric
of data subs/MHz (Figs. 22-23). (Note that we exclude Telkom Mobiles 2.3GHz spectrum
used for fixed wireless and associated metrics from this analysis). However this approach is
technically incorrect, as one can in theory build more base stations i.e. the action mobile
operators are attempting to avoid by acquiring more spectrum.
We form a rough comparison of network loads in South Africa using a formula of active data
subs/MHz/base station in Fig. 24 Such an analysis reveals how the smaller operators are
comparatively efficient as they have fewer subscribers (and thus revenues) on fewer towers.
Fig 22 SIMs/mobile MHz (000) Fig 23 Data SIMs/mobile data MHz (000)
8 June 2017 17
However, Fig. 24 doesnt account for the fact that the subscribers of each operator have
different average monthly usage. In Fig. 25 we multiply data subs x MB/month to estimate
traffic/MHz/base station. This produces an interesting result, where the smallest operator
Telkom Mobile is carrying the most traffic per MHz per base station. Colloquially this would
make Telkom Mobile the most technically efficient operator. Such a result is hardly surprising
given Telkom Mobiles lack of 900MHz spectrum, and also that Telkom Mobiles products are
data-centric, i.e. on-net voice is free, as opposed to the other operator. (Cell-C not included
as they dont provide average usage stats).
Fig 24 Data subs/mobile data MHz/Site Fig 25 Traffic (GB) / mobile data MHz / Site
8 June 2017 18
Australia: More auctions to come?

Spectrum holdings by Australian mobile network operators are summarized in the table
below. TPG is the newest entrant and is yet to launch mass-market mobile products, with its
current ambition being to complete the roll-out of a network with 80% population coverage by
~20.
Fig 26 Australian Mobile market spectrum holdings (MHz)

Band Telstra Optus Vodafone TPG Telecom Expiry
700MHz 40 20 10 20 2029
800MHz 20 20 2028
900MHz* 16.8 16.8 16.4 Rolling renewals
1.8GHz 35 30 55 10**** 2028
2.1GHz 30 40 45 2032
2.3GHz** 98 2030
2.5GHz 80 40 20 2029
3.5GHz*** 65-100 2030
*Holdings in the 900MHz band are being reviewed on the basis that a re-distribution (into 5MHz blocks) could
prove more efficient.**TDD. ***TDD, ~98 MHz in Melb, Syd and 65MHz in other capital cities. ****Holdings
across regional markets
Going forward, there are a number of prospective spectrum auctions being considered by
ACMA. Key bands being considered are summarized below. Generally speaking, spectrum in
lower frequency bands has more favorable propagation characteristics than in high-spectrum
bands, and will likely attract higher prices.
Fig 27 Mobile spectrum auctions/re-allocations currently being considered by

ACMA
Band Comments
850MHz Currently there is 2x10MHz of spectrum at 850MHz owned by each of Telstra (nationally) and
Vodafone (in capital cities), expiring in '28.
The re-configuration of the 800/850MHz block could release an additional 2x15MHz of
spectrum that would be available to mobile operators. It is unlikely that this spectrum will be
available for use in its entirety before '24, although it is possible that some parts could be freed
up sooner.
900MHz The ACMA is currently conducting a review into arrangements for the 900MHz spectrum band.
One key objective of the review is to re-allocate spectrum into 2x5MHz blocks, in order to
promote spectrum efficiency for LTE use in this band.
The ACMA estimates the value of this spectrum is between A$1.00-1.36 per MHz-PoP based
on recent auctions, although notably this price range was set prior to the residual 700MHz
spectrum auction, in which TPG ended up paying the equivalent of A$2.71 per MHz-PoP for a
2x10MHz block. That aside, at the mid-point of the ACMA range, the total value of the 900MHz
spectrum block on re-auction would be around A$1.45bn.
3.5GHz 3.5GHz (3.4-3.7GHz): In conjunction with the 1.5GHz review, the ACMA is currently reviewing
options for available spectrum at 3.6GHz, given the global shift toward introducing 5G
standards that will incorporate this range. The ACMA is currently preparing for public discussion
papers on these spectrum bands, with mobile operators most pressed on allocation for this
range.
Vodafone has noted NBNs ownership of 3.5GHz spectrum in regional areas for fixed wireless
services, which it argues needs to be reconsidered in light of the global shift toward using this
spectrum for 5G.
Telstra and others are lobbying for auctions in this space as soon as practical to allow planning
for 5G services once standards are finalized (~'19-2'0).
Optus currently has close to 100MHz of this spectrum in Melbourne and Sydney and 65MHz in
Brisbane, Perth, Canberra and Adelaide, out to Dec. 30.
600MHz 600MHz spectrum has recently been auctioned in the US and is a potential asset for mobile
network operators in the future.
1.5GHz In planning papers, the ACMA has flagged that 2x35MHz of FDD spectrum or up to 90MHz of
unpaired mobile downlink spectrum could be released from the 1.5GHz band for mobile
broadband services. The ACMA is undertaking an initial investigation into the future allocations
of this spectrum.
Source: Macquarie Capital (USA), June 2017
In addition, there are a number of high-frequency bands that are being considered for mobile
broadband services in the future as international 5G standards evolve.
8 June 2017 19
ASEAN: Top three mobile operators

typically hold 100MHz+ of spectrum
Fig 28 Spectrum holdings of key Asean telcos
MHz
400
350
300
250
200
150
100
50
0
Low band <1 GHz Mid band (1.7-2.1GHz) High band >2.3GHz
Within Asean, the larger mobile operators (top three), typically hold 100MHz+ of spectrum
each, with a decent mix of low, mid and high band frequencies. While in the larger
geographies of Philippines, Thailand, and Indonesia, telcos would typically have more than
100k subs per MHz of spectrum, indicating that the networks are not exactly overwhelmed. In
fact, the two Philippine operators, PLDT and GLO have holdings in excess of 200MHz each,
driving very efficient network roll-outs in our view. The operator who sees the greatest risk
from a spectrum standpoint in Asean is DTAC in Thailand. ADVANC in Thailand and
Telkomsel in Indonesia could do with more spectrum, but substantial cash flows allow both to
densify their networks to provide sufficient capacity to their large subscriber bases.
8 June 2017 20
Bridging the gap between 4G and 5G

4G is still in the 7-8th inning
Based on peak penetration rates and coverage in most regions, we believe 4G has another
decade to run, given historically when penetration and coverage peaked in most regions. 4G
deployment is ~70-75% deployment in the US, ~75% in South Africa, and ~90% in Australia.
However, carriers are already looking for 4G extensions, low-latency platforms, fixed wireless
strategies, and 5G. Currently, 5G trials are leveraging high-frequency spectrum including
mmWave (30-300GHz) and WiFi. Meanwhile, 5G mobile standards are still being set with
3GPP likely to announce these sometime in 18.
Below are a few techniques currently in use to boost spectral efficiency and increase
capacity:
Carrier Aggregation can combine up to five separate carriers to create wider channels
boosting bandwidth and capacity. Sprint launched two-carrier aggregation in ~237 markets
and three-carrier aggregation in Chicago and Kansas City. It also confirmed that the iPhone 7
supports this and could reach speeds of up to 200Mbps. In Australia, Telstra has already
launched theoretical 1Gbps speeds in key capital cities using ten data streams across 3x20
MHz carriers.
MIMO and Beamforming optimize data speeds and control the amplitude of signals,
respectively. MIMO uses multiple antennas as the source and destination of data
transmission while beamforming controls the direction of signal/receptions.
Multiple Access distributes available spectrum bandwidth across multiple users in order to
share a finite amount of spectrum. Techniques include Frequency Division Multiple Access
(FDMA), Time Division Multiple Access (TDMA) and Code Division Multiple Access (CDMA).
Modern cellular techniques have sought to use soft degradation (similar to crowding a room)
as opposed to the hard limits of earlier systems (similar to seats on a bus). Technically, this is
achieved by spreading a signal over more bandwidth than an individual signal would require.
A number of 5G air interface protocols are currently being considered for 5G networks.
In the US, densification sets the stage for 5G

With latency/capacity more important than voice, densification is a game changer, increasing
speed/capacity by leveraging fiber, Ethernet and backhaul. The focus is on propagating more
radios via small cells at the expense of macro base stations; small cell deployment will likely
help carriers achieve the greatest capacity per km2. This will increase the need for backhaul
technologies, to the advantage of major cable providers.
Furthermore, densification is building a heterogeneous network that will require customized
solutions varying by location. Urban, suburban, and rural markets all have different needs, so
the execution risk is higher. Urban markets are the prime location for densification due to
heavy user concentration, but municipal approvals could be lengthy due to permits and
zoning. Suburban areas need more towers vs low populated areas. Different strategies will
dictate indoor/outdoor coverage.
Setting the timeframe for 5G

In the chart below, we outline the Big-4s commentary around their timelines for 5G:
8 June 2017 21
Fig 29 5G Timeline
2016 2017 2018 2019 2020 2026
WRC (possible
5G trials 3GPP Release 14 3GPP Release 15 global allocation of
Key 5G Events 600 MHz for mobile) 5G Finalized Deployment of
5G
3GPP Release 16
Final licenses
Former licensees
issued after
cease operations
600 MHz Auction repackaging
600 MHz Auction Carriers likely to deploy spectrum (New

Repackaging period (39 months)
(in progress) licensees must build out 40% of pops
FCC concludes
proceedings on 5G Repackaging period (39 months)
spectrum; may lead
mmWave to a mmWave
auction Repackaging period (39 months)
Announces 5G
roadmap and trials Expects 5G Expects full
AT&T begin; during trials in standards to be development of 5G
Austin, it has seen developed standards
speeds of 14Gbps+
Launches 5G Forum
and begins trials;
has seen speeds of Expects to begin 5G
Verizon
1Gbps+ at 500 yards deployment
or less. Now moving
trials to field
Begins 5G trials; will

partner with Expects 5G
T-Mobile Samsung for lab and standards to be
field trials in the developed
20GHz band
Begins 5G trials at
Expects 5G
the Copa America
Sprint tournament; delivered
standards to be
developed
speeds of 4Gbps+
The Big-4s 5G Status

#1 Verizon has been the most vocal about its path to 5G; its strategy includes small cells, in-
building solutions, and DAS.
Verizon is targeting dense suburbs to trial fixed wireless services on its 28GHz and 39GHz
bands. If successful, this would require fiber only be built within 200-1,000ft of a house, with
high-speed wireless as the final mile. The downside is that propagation is only line of sight.
#2 AT&T is committed to innovating around mobile-first video services.
In addition to an enterprise fixed-line trial, AT&T will be testing DirecTV Now over 5G in
Austin in 1H17. Small cells, carrier aggregation, and LTE-License Assisted Access will not
only enhance its 4G network, but also set the stage for 5G. Finally, its win of the FirstNet
contract will provide AT&T with an additional 20MHz of spectrum.
8 June 2017 22
#3 Sprint is building a 5G ecosystem around 2.5GHz. Sprints 204MHz of spectrum and

HPUE optimization technology (which increases 2.5GHz band coverage by 30%+) are set to
strengthen its position in 5G. Currently ~70% of LTE PoPs are covered with 2.5GHz, carrying
more LTE coverage on this band than on any other.
Additionally, small cells are front and center as the most efficient way of addressing network
pain points particularly as the number of municipality permits double. Management reiterated
their commitment to keeping capex low as they tout benefits from new technologies.
#4 T-Mobile is also running 5G trials. Most recently the company announced they will be
using some of the 31MHz of 600MHz spectrum they bought in the auction (in addition to their
28/39GHz band holdings) to build a nationwide 5G network. However, the company expects
standards will not be until 19/20, and is targeting a nationwide 5G rollout by 20.
The next capex cycle is set on 5G

High speeds and capacity with lower latency
Will include a mix of macro sites and densification
Leverages high-frequency spectrum including mmWave
In the chart below we show capex across the Big-4 with AT&T and Verizon comprising the
largest portion.
Fig 30 Big-4 total capex

US$bn
60
50
40
30
20
10
0
2015 2016 2017E 2018E 2019E
T VZ TMUS S
We expect capex intensity will remain relatively stable through 18, around ~13% for AT&T,
Verizon, and T-Mobile with Sprint closer to ~20%.
Fig 31 Big-4 total capex intensity
30%
24%
25%
20% 20%
20%
16%
15%
15% 13%14% 13%14%13%13% 14%14% 13%13% 13%13%
12% 12% 12%
10%
5%
0%
2015 2016 2017E 2018E 2019E
T VZ TMUS S
8 June 2017 23
Europe: 5G spectrum - 6GHz and above

It was originally thought that 3.4GHz spectrum would be used for 5G services, but with the
advancements in 4G, the expectation is now that new 5G spectrum will be above 6GHz
(possibly up to 50GHz). The entire spectrum below 3.4GHz will be backward compatible.
Fig 32 5G solutions backwards compatible and step forward
See 5G radio access

Source: Ericsson, Macquarie Research, June 2017
Canada venturing into 5G

Due to the existence of foreign investment restrictions and slower penetration ramp, all three
incumbent carriers in Canada (BCE, Telus and Rogers) have historically been fast followers
of US carriers when rolling out network technology upgrades.
However, generally higher spectrum positions, network sharing deals between Telus and Bell
Canada, and higher backhaul investments in conjunction with 4G network upgrades, position
the Canadian carriers quite well going into a 5G upgrade cycle. All carriers started making
some early 5G investments starting last year, and Bell Canada has already had trials. Both
Bell and Telus are board members of the Next Generation Mobile Networks consortium.
Also influential, the Ontario Government entered into a partnership with Huawei last year,
which will see the company spend C$300m over five years to develop 5G solutions in
Canada. No doubt this will accelerate network investment at least for one or two of the
carriers.
#1 BCE (Bell Canada) executed the first Canadian 5G trials in collaboration with Nokia in July
16, demonstrating speeds of 2.3Gbps, roughly 7x 4G, using spectrum in the 73GHz range.
This is phase 1 of a multi-year strategy to validate radio performance, optimize network
architecture, and develop 5G apps. The next few phases for network development will
continue to focus on backhaul deployment, which highlights the marginal shift from 4G, to
4G+, and finally 5G.
Bell also announced this past Dec. that it is testing AT&Ts Open Source ECOMP Platform.
The companys rationale is driven by a growing view that software-defined networks (SDNs)
will be more flexible in response to changing customer demands. While it is still the early
days, this distinction speaks to Bells growing focus on commercialization as it plans for the
impact of IoT. Judging by the communication so far, BCEs strategy looks most like AT&Ts in
the US.
#2 Telus R&D strategy to date has been more focused on Heterogeneous Networks (HetNet)
given the work being done with Huawei in their Vancouver-based 5G Living Lab. In addition,
Telus and Huawei have enabled a C-RAN across multiple 5G Lab sites in Vancouver and
now operate the largest C-RAN deployment in North America. Fiber infrastructure to support
backhaul and small cell deployment are a key focus for Teluss 16/17 capex. Worth noting,
Telus has conducted network tests on high-band spectrum and achieved speeds of roughly
29Gbps.
#3 Rogers has one of the richest spectrum positions globally and as such has considerable
strategic flexibility, including ample low/mid/high band spectrum. Worth mentioning, Rogers is
8 June 2017 24
the only national carrier without a national network-sharing deal. In our view, there is a good
possibility that Rogers could eventually strike a network-sharing agreement with Shaw in
Ontario and the West, much like it has with Quebecor in Quebec. We now think it is highly
likely that Bell and Telus will expand their network sharing arrangement to 5G.
Other important issues to consider on the Canadian 5G risk profile

1) Currently, there is no tower industry in Canada, with all carriers still owning their own
towers. In our view, this gives the industry options to sell and lease back towers should capex
risk inevitably grow; 2) following the Shaw acquisition of Wind Mobile in late 15, all wireless
carriers are now also wireline carriers (either cable or telecom). We think this will lower the
risk of a rogue wireless broadband price war.
Japan: 5G trials commence among the carriers

The three main telecom carriers in Japan plan for a nationwide commercial deployment of 5G
in 23. NTT Docomo, KDDI, and SoftBank will commence partial operation of 5G in 20 ahead
of the Tokyo Olympics and Paralympics. NTT Docomo plans to roll out 5G nationwide within
three years. Although 5G trials have been carried out by the carriers, they are still waiting for
the international 5G standards to be set before increasing capital investments. The
deployment of 5G will use spectrum allocated by the MIC.
Carriers plan to invest a total of about 5 trillion for the deployment of 5G which is lower than
the 6 trillion invested in the 4G/LTE deployment. Lower investments are driven by the ability
to share the base stations located nationwide with other carriers, an initiative prompted by
NTT. NTT, the parent company of NTT Docomo, has approached KDDI and SoftBank to
share base stations for the deployment of 5G in order to cut costs. Each firm will commence
R&D capital investments for the machinery in FY19 (expected to take about one year to
complete) and should begin deployments in 20.
With limited mobile sub growth, the deployment of 5G has focused on alternative network
uses including autonomous driving, IoT and content distribution. 5G is expected to have
speeds 100x faster than 4G and the ability to connect more devices to the network. There is a
high focus and demand in the contents distribution area, driven by high speed streaming of
4K and 8K video, and a new form of viewing live sports.
#1 SoftBank announced the use of 2.5GHz band for the joint development of 5G technology
with Sprint and Qualcomm, in order to provide commercial services and devices in late 19.
No further details have been announced, however, SoftBank is currently using beamforming
through Massive MIMO to expand spectrum capacity for use in a 5G network. We believe that
Softbank will use its 2.5GHz deployment in the US to push for the standardization of this
spectrum in Japan.
#2 NTT Docomo prefers to use lower high-band frequencies and ideally will have spectrum
close to the current 3.5GHz band in use today, but they are running trials on much higher
bands as well including in the 28GHz/70GHz spectrum bands. NTT Docomo is also actively
deploying small cells and flexible cell arrangements to boost network quality.
In a 5G network, the company believes they can use phantom cells, which will allow them to
split the control/user (c/u) planes so that smaller cells using higher frequency bands can
provide the data connection to the end user while the macro cells with their wider range can
oversee resource control. The idea would be for the macro cells to use lower frequencies on
existing RAT and the small cells to use the new RAT. Phantom cells can also be called
macro-assisted small cells.
#3 KDDI has announced several initiatives utilizing the 28GHz band to provide capacity and
latency for 5G using beamforming and a multi-element antenna. In a trial, KDDI and Nokia
were able to produce speeds in excess of 1Gbps inside apartment blocks near Tokyo using
pre-5G technology.
8 June 2017 25
Australia: 5G will bring new opportunities for mobile players

5G opens up new markets and uses for mobile networks
5G will open up new markets, as the world of connected devices grows rapidly. Australian
operators have referenced remote medical procedures, self-driving cars, and autonomous
drones among new applications in a 5G world. While not a service available today, remote
working through devices such as the Telstra Nighthawk (can connect up to 20 devices and
deliver speeds of up to 300Mbps in Telstra 4GX coverage areas) will be enabled with 5G.
Increased investment is required on wireless access points, backhaul and
spectrum
While 5G will open up new markets, it will come at a cost to operators that will need to
upgrade networks to deliver these services. This includes investment in additional wireless
access points, backhaul, and spectrum. While standards are yet to be set, some of this
investment is being made as operators upgrade through 4.5G and provision networks for
expected increases in capacity over time.
Telstra has noted that it expects a 5x increase in capacity requirements for all its networks by
20 and has allowed A$3bn in additional capex over the next three years, a large part of which
is dedicated to upgrading its core network. As part of these investments, each operator has
been partnering with global hardware providers to test 5G technologies. Telstra has partnered
with Ericsson, Optus with Nokia and Huawei, and Vodafone with Nokia.
Fixed to mobile substitution
Given the potential change in network capacity and speeds, there is scope for 5G to increase
the level of fixed to mobile substitution. The most direct impact here would be for fixed
network owners, which in Australia and New Zealand will ultimately be NBN, Chorus and a
number of small NZ local fiber companies. However, the magnitude of this substitution is not
yet clear as the network enhancements will likely be met with a simultaneous increase in
demand. For example, NBN already assumes 14% of households will use wireless for voice
and data in the long term.
Timeline/spectrum
Telstra has provided the most details around its 5G timeline, as shown below in Fig. 33. The
company expects 5G will be available by 19/20. Meanwhile, Vodafone has stated that it is
aiming for 5G by 20. However, none of the three telcos has provided much detail on
expected spectrum requirements for 5G. Optus has announced plans to test an early 5G
prototype in its 3,500MHz band in Australia (in connection with Nokia) in 17. Telstra has
simply noted it expects more spectrum to become available in the future, and that the
acquisition of additional spectrum will partly depend on the types of services that become
popular on 5G.
Fig 33 Telstras 5G timeline

Timeframe Event
FY17-19 Capex/sales will increase to 18% of sales (before reverting to 14%) and Telstra will spend $3bn of capex on its network. Part of this
spend will be to enhance core services and network infrastructure to lay the foundation for a 5G network.
2018 Telstra will hold a 5G trial in the Gold Coast
Until ~2019 Telstra expects global 5G standards to be set by ~2019. Telstra will participate in and intends to be heavily involved in the process.
By the end of 2019 Telstra plans to deliver speeds of 1GBps (across its 4G network) in CBD locations and other high-traffic areas, using technology
that lays the foundations for 5G.
~2019/2020 Telstra expects to launch and roll out 5G 'from around 2019/2020'. Vodafone have stated they are aiming for 5G by 2020. Telstra
believes that up to 50 billion devices and systems could be connected worldwide by 2020
From 2020 beyond Telstra will start to build scale around 5G. Telstra's 3G network will be shut down, with network assets re-used for 5G.
Source: Company sources, Macquarie Research, June 2017
8 June 2017 26
China: Current spectrum holdings are not indicative of success in

5G
In terms of spectrum, China Mobile has the widest portfolio of 184MHz, across 2G, 3G, and
4G, followed by China Telecom at 85MHz, and China Unicom at 81MHz. However, current
spectrum holdings are not indicative of potential 5G market share gains, given the
introduction of higher-frequency bands to cope with the higher capacity requirements of 5G.
In the table below, we outline spectrum holdings among China operators:
Fig 34 China operators current spectrum holdings

Operator Uplink frequency Downlink frequency Bandwidth Subtotal of bandwidth Technology
China Mobile 885~909MHz 930~954MHz 24MHz 184MHz GSM800 2G

1710~1725MHz 1805~1820MHz 15MHz GSM1800 2G
2010~2025MHz 2010~2025MHz 15MHz TD-SCDMA 3G
1880~1890MHz 1880~1890MHz 130MHz TD-LTE 4G
2320~2370MHz 2320~2370MHz
2575~2635MHz 2575~2635MHz
China Unicom 909~915MHz 954~960MHz 6MHz 81MHz GSM800 2G
1745~1755MHz 1840~1850MHz 10MHz GSM1800 2G
1940~1955MHz 2130~2145MHz 15MHz WCDMA 3G
2555~2575MHz 2555~2575MHz
1755~1765MHz 1850~1860MHz 10MHz FDD-LTE 4G
China Telecom 825~840MHz 870~885MHz 15MHz 85MHz CDMA 2G
1920~1935MHz 2110~2125MHz 15MHz CDMA2000 3G
2635~2655MHz 2635~2655MHz
1765~1780MHz 1860~1875MHz 15MHz FDD-LTE 4G
Source: Macquarie Capital (USA), June 2017
8 June 2017 27
Below we chart Aprils 4G sub penetration rate in China:
Fig 35 China 4G subs penetration rate was 62% in April 17
80%
70% CM: 66.4%
60% CT: 62.1%

50% China: 61.6%
40% CU: 46.1%

30%
20%
10%
0%
China CM CT CU
China Mobile and China Telecom are the two winners in the coming
5G era
China Mobile has an aggressive roadmap to commercialize its 5G services in 20. The
company also enjoys the largest mobile sub base, is expanding its fixed-line broadband
market share, and has the widest spectrum portfolio. For China Telecom, we see three
advantages: 1) largest market share in fixed-line broadband; 2) highest speed in fixed-line
broadband; and 3) the largest enterprise client base. We believe upside in 5G will come
mainly from the enterprise area, which should benefit China Telecom.
China Unicom is our top pick pre-5G due to: 1) rising data consumption: Chinas data traffic
was only 976MB per user in 16 according to MIIT, vs. a global average of 1,614MB, showing
room for further growth; 2) capex savings: we expect a lower capex burden between now and
19 as carriers reap the benefits from their 4G investments, 5G is still at least two years away,
and capex is widely shared at the tower/base station levels; and 3) mixed ownership reform to
bring new business opportunities and higher operational efficiency.
We expect China Big-3s service revenues will grow at a 5%+ two-year CAGR through 19:
Fig 36 China Big-3 service revenues

Rmb bn
1,600
1,400
1,200
1,000
800
600
400
200
-
2014 2015 2016 2017E 2018E 2019E
China big 3 operators' telecom services rev in aggregate

8 June 2017 28
South Africa: Premature to talk 5G at this stage, but

With all of the focus on working to get 4G spectrum to market, it seems premature to discuss
5G at this stage. Still, operators are working with what they have.
IoT networks
Vodacom South Africa now has 3.0m IoT subs (FY17) with MTN South Africa not too far
behind with 2.4m (FY16). Vodacom launched its first IoT site using narrow band IoT
technology in May 17 using licenced 900MHz spectrum. Built at Vodacoms Midrand head
office, the IoT site takes water readings. In 16 MTN also demonstrated a water metering
solution they plan to launch in 17. DFA subsidiary, SquidNet, is deploying a national IoT
network using Sigfox (which utilizes license-exempt spectrum); while Vula Telematix is
similarly building an IoT network.
LTE-U and LTE-AA

In 16 Vodacom South Africa and MTN achieved 1Gbps speeds using LTE-U technology. In
17 MTN achieved 400Mbps on an LTE- Licence Assisted Access (LTE-LAA) test site in
Pretoria, claiming it is the first such implementation in Africa. LTE LAA is an evolution of the
LTE-U technology, which uses listen-before-talk to enable co-existence with regular WiFi
users. In the trial MTN, aggregated 10MHz of their licensed 2.1GHz spectrum with 40MHz of
WiFi spectrum in the 5GHz band. We note it will be some time before a critical mass of end
user devices support LTE-AA to meaningfully assist mobile operators in outdoor
environments.
8 June 2017 29
Spectrum for 5G: High frequency and

mmWave
Fig. 37 illustrates the positioning of 4G/5G within the electro-magnetic (EM) spectrum band.
The bulk of 5G is expected to be deployed in the Extremely High Frequency band, which has
mm wavelengths (the distance between the peaks of the EM waves) as compared to current
mobile networks with wavelengths measure in cm. Hence the association between 5G and
mmWaves.
Consequently higher frequency (shorter wavelength) 5G bounces less and get more easily
scattered by objects than lower frequencies. Think of how satellite dishes, current
applications in the 5G bands, require a line of sight. It is highly questionable as to how
mmWave 5G will perform without line of sight. (Current mobile networks support non-line of
sight). Further mmWaves dont travel well through walls or tinted glass i.e. poor outdoor-to-
indoor penetration.
Fig 37 5G will have shorter wavelengths if deployed outside of 4G bands
Source: Macquarie Research, June 2017
The GSMA segments spectrum into <1GHz, the 1-6GHz and >6GHz bands as per Fig. 38.
There is a breakpoint at 24GHz at which frequency radio waves are largely absorbed by
atmospheric water vapor (the EM wavelength corresponds with the atomic distance between
Hydrogen & Oxygen atoms). At frequencies >11GHz i.e. some 5G frequencies also suffer
from rain fade i.e. when it rains the signal deteriorates as the EM wavelength is similar to
the size of a rain drop.
Some of the bands in which operators are seeking to conduct pre-5G standard trials are
indicated in Fig. 37. Despite this, we would expect the majority of initial wide-scale
commercial deployments of 5G to actually take place in the 3.3 -3.8GHz spectrum bands
which are currently allocated (by the ITU in 15) for 4G due to superior propagation
characteristics. The European Commission is considering the Digital Dividend II (700MHz)
band for 5G, as spectrum <1GHz reaches further.
As also evident in Fig. 38, spectrum which can be allocated for 5G (3165MHz + 500MHz) is
significantly larger than current 4G allocations, circa 885MHz (of which on average 50% is
currently assigned in South Africa).
Fig 38 5G will use both mobile (<6GHz) and satellite (>24GHz) bands
Source: GSMA, Macquarie Research, June 2017

8 June 2017 30
ASEAN: Singapore will be the first to adopt 5G

Singapore
With the recent 700MHz, 900MHz, and 2500MHz spectrum auctions which just concluded,
spectrum will be less of an issue for operators in Singapore who already have the least
number of subs per MHz of spectrum. Of course, with most of that user base confined to a
small land mass, the telcos are in our view holding adequate spectrum. We expect Singapore
to be the first of the Asean markets to adopt 5G, with commercial trials expected in 19. 5G
trials have been ongoing.
Malaysia
The three incumbent mobile operators and young operator uMobile have sufficient spectrum
in our view, each sitting on 95-115MHz and carrying between 89-115k subs per MHz. We
expect refarming of the 2600MHz spectrum in late 17, to allow for these more significant
players to receive more spectrum. And in 18, the 2100MHz spectrum, currently used for 3G
services, is likely to be refarmed. This together with the eventual freeing up of 700MHz
spectrum, currently used for analog TV, should place little strain on the Malaysian telcos from
a spectrum perspective.
With a history of sanguine pricing for spectrum in Malaysia, we do not expect Malaysian
telcos to be overly pressured into acquiring new spectrum. Although we do note that the
refarming of 900MHz/1800MHz spectrum in 17 have attracted significantly higher price points
vs prior spectrum blocks.
Thailand
Spectrum auctions have been a significant driver of valuations for telcos; Thailand holds the
record for the highest priced spectrum within Asean. The most significant upcoming auction is
the 1800MHz auction scheduled for 18. Both the 1800MHz and 850MHz blocks being put on
the block are currently utilized by DTAC, which failed to secure spectrum in the 900MHz and
1800MHz bands during auctions in Nov./Dec. 15. This places DTAC in a tight spot, as failure
to secure the 1800MHz band will leave it with just 2x15 of 2100MHz spectrum to support its
24m sub base over a vast geography. A recent bid to secure the use of 36MHz of 2300MHz
does little in our view to resolve DTACs need for spectrum in the upcoming auction.
Meanwhile, ADVANC in Thailand is likely to face a tough decision in 18, when DTACs
850MHz (2x10MHz) is auctioned off. While ADVANC could do with more low band spectrum
to defend against No.2 operator TRUE, the high reserve price of Bt76bn (US$2bn) could be
detrimental, as this could lead to a further reduction in its recently reduced dividend payout
ratio.
Complicating matters in Thailand is the potential entry of non-mobile operators into the
auction process which could inflate already high reserve prices (US$2bn for 2x10MHz of
850MHz and US$1bn for 2x15MHz of 1800MHZ), and delays to the actual auction process. In
the longer term, there will be more spectrum made available to Thai telcos, but the urgency
for spectrum is greatest for DTAC.
Fig 39 NBTC spectrum roadmap as per Master Plan No 3

Spectrum made available (MHz)
Frequency (MHz) 2018 2022 2023 2025 Total
450 20 20
700 90 90
800/900 20 30 50
1500 90 90
1800/1900 90 40 130
2100 15 15
2300 70 70
2600 180 180
8 June 2017 31
Philippines
Telcos benefit from large spectrum holdings without clear expiry dates. The purchase of
spectrum from No.3 player San Miguel Corp in 16 by incumbents PLDT and Globe has left
each with more than 200MHz of spectrum. The later development of networks in the
Philippines could work to the benefit of the two players, as equipment costs have been on a
steady slide and the recent increase in spectrum holdings makes for more efficient network
roll-outs.
The regulator has 70MHz of spectrum, returned to it by PLDT and Globe when they acquired
San Miguel Corp. The key risk to the incumbents is that this spectrum could be given to a
well-capitalized foreign party in order to roll out a third network. While such an exercise would
not be cheap, it remains a threat to what would otherwise be a cozy two-player market with a
population base of 100m, low data usage (<1GB/month), and a more benign competitive
outlook.
Indonesia
Mobile operators have the most subscribers per MHz of spectrum with No.1 operator,
Telkomsel serving about 1.7m subs per MHz. While the vastness of the archipelago means
the strain on the networks is not seen everywhere, network densification is a key factor in
urban centers. 5G is likely to be a post 20 phenomenon in Indonesia where 4G adoption is
still in its infancy (15% LTE device penetration). In the near term, the regulator is looking to
put up two blocks of 2x5MHz each in the 2100MHz band and two blocks of 15MHz each in
the 2300MHz band. We believe Telkomsel will be the front runner in acquiring at least one
block in each band given its need for more spectrum and financial capability to do so.
In the charts below we show spectrum auctions in Asean and outline the subs/MHz among
the top carriers in Singapore, Malaysia, Thailand, the Philippines, and Indonesia.
Fig 40 Spectrum auctions/awards in ASEAN

Price per PoP MHz Total price of spectrum
Country Frequency (MHz) Year (US$) (lcy mn)
Singapore 2100 2001 1.06 300

Malaysia 2100 2003 0.03 100
Malaysia 2100 2007 0.03 110
Thailand 2100 2012 0.47 41,639
Malaysia 2600 2012 0.01 90
Singapore 1800 2013 0.46 240
Thailand 1800 2015 1.12 80,700
Thailand 900 2015 3.15 152,000
Malaysia 900 2016 0.34 1,341
Malaysia 1800 2016 0.14 1,425
Singapore 900 2017 0.63 192
Singapore 700 2017 1.24 846
Singapore 2500 2017 0.31 107
8 June 2017 32
Fig 41 Singapore Subs per MHz Fig 42 Malaysia Subs per MHz
sub/MHz sub/MHz
25,000 140,000
120,000
20,000
100,000
15,000 80,000
60,000
10,000
40,000
5,000 20,000
0
0 Telekom Maxis Celcom DiGi uMobile
SingTel StarHub M1 Malaysia
Subs per MHz Subs per MHz
Fig 43 Thailand Subs per MHz Fig 44 Philippines Subs per MHz
sub/MHz sub/MHz
400,000 300,000
350,000
250,000
300,000
200,000
250,000
200,000 150,000
150,000
100,000
100,000
50,000
50,000
0 0
AIS DTAC TRUE PLDT Globe
Subs per MHz Subs per MHz
Fig 45 Indonesia Subs per MHz
sub/MHz
1,800,000
1,600,000
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
TSEL ISAT XL Axiata
Subs per MHz
8 June 2017 33
The risk on the timing of the Thai spectrum auction comes from the appointment of new
commissioners to replace current members whose terms expire in Oct. 17. So, while the
current NBTC secretary general has suggested that the auctions will be held in Feb. 18,
there is risk of delays not an uncommon phenomenon in the history of Thai spectrum
auctions.
Stocks Mentioned:
AT&T (T US, US$38.76, Outperform, TP: US$45.00)
Verizon Communications (VZ US, US$46.50, Neutral, TP: US$49.00)
T-Mobile US (TMUS US, US$65.92, Neutral, TP: US$67.00)
Sprint (S US, US$8.64, Outperform, TP: US$10.00)
BCE (BCE CN, C$60.41, Neutral, TP: C$60.00)
TELUS (T CN, C$44.76, Outperform, TP: C$49.00)
TeraGo (TGO CN, C$4.45, Underperform, TP: C$4.50)
Orange (ORA FP, 15.32, Outperform, TP: 18.00)
Telefonica (TEF SM, 10.02, Outperform, TP: 11.50)
Vodafone Group (VOD LN, 2.29, Underperform, TP: 1.70)
BT Group (BT/A LN, 3.03, Neutral, TP: 2.70)
Telstra Corporation (TLS AU, A$4.40, Neutral, TP: A$4.50)
PLDT (TEL PM, P1,873.00, Outperform, TP: P2,000.00)
SingTel (ST SP, S$3.76, Outperform, TP: S$4.32)
True Corporation (TRUE TB, Bt6.15, Outperform, TP: Bt10.30)
XL Axiata (EXCL IJ, Rp3,280, Outperform, TP: Rp4,000)
TPG Telecom (TPM AU, A$5.57)
China Mobile (941 HK, HK$85.10, Outperform, TP: HK$112.00)
China Unicom (Hong Kong) (762 HK, HK$11.46, Outperform, TP: HK$13.00)
China Telecom (728 HK, HK$3.81, Outperform, TP: HK$4.70)
Telkom (TKG SJ, R70.60, Neutral, TP: R65.35)
Vodacom (VOD SJ, R166.89, Neutral, TP: R158.00)
MTN Group (MTN SJ, R114.53, Underperform, TP: R106.00)
8 June 2017 34
Important disclosures:
Recommendation definitions Volatility index definition* Financial definitions
Macquarie - Australia/New Zealand This is calculated from the volatility of historical price All "Adjusted" data items have had the following
Outperform return >3% in excess of benchmark return movements. adjustments made:
Neutral return within 3% of benchmark return Added back: goodwill amortisation, provision for
Underperform return >3% below benchmark return Very highhighest risk Stock should be expected catastrophe reserves, IFRS derivatives & hedging, IFRS
to move up or down 60100% in a year investors impairments & IFRS interest expense
Benchmark return is determined by long term nominal should be aware this stock is highly speculative. Excluded: non recurring items, asset revals, property
GDP growth plus 12 month forward market dividend yield revals, appraisal value uplift, preference dividends &
Macquarie Asia/Europe High stock should be expected to move up or minority interests
Outperform expected return >+10% down at least 4060% in a year investors should
Neutral expected return from -10% to +10% be aware this stock could be speculative. EPS = adjusted net profit / efpowa*
Underperform expected return <-10% ROA = adjusted ebit / average total assets
Medium stock should be expected to move up or ROA Banks/Insurance = adjusted net profit /average
Macquarie South Africa down at least 3040% in a year. total assets
Outperform expected return >+10% ROE = adjusted net profit / average shareholders funds
Neutral expected return from -10% to +10% Lowmedium stock should be expected to move Gross cashflow = adjusted net profit + depreciation
Underperform expected return <-10% up or down at least 2530% in a year. *equivalent fully paid ordinary weighted average number
Macquarie - Canada of shares
Outperform return >5% in excess of benchmark return Low stock should be expected to move up or
Neutral return within 5% of benchmark return down at least 1525% in a year. All Reported numbers for Australian/NZ listed stocks are
Underperform return >5% below benchmark return * Applicable to Asia/Australian/NZ/Canada stocks modelled under IFRS (International Financial Reporting
only Standards).
Macquarie - USA
Outperform (Buy) return >5% in excess of Russell 3000 Recommendations 12 months
index return Note: Quant recommendations may differ from
Neutral (Hold) return within 5% of Russell 3000 index Fundamental Analyst recommendations
return
Underperform (Sell) return >5% below Russell 3000
index return
Recommendation proportions For quarter ending 31 March 2017

AU/NZ Asia RSA USA CA EUR
Outperform 47.26% 55.50% 38.46% 45.47% 59.09% 48.21% (for global coverage by Macquarie, 8.20% of stocks followed are investment banking clients )
Neutral 38.01% 29.31% 42.86% 48.77% 37.88% 36.79% (for global coverage by Macquarie, 8.25% of stocks followed are investment banking clients )
Underperform 14.73% 15.19% 18.68% 5.76% 3.03% 15.00% (for global coverage by Macquarie, 8.00% of stocks followed are investment banking clients)
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8 June 2017 35
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2017 Jun Macquiare Bank Global View On Spectrum PDF

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GLOBAL

Global data traffic will grow ~10x from 15 levels through 20

Analyst(s) 5G makes a case for high-band and a shift in spectrum value

The need for spectrum is greater than ever

Fig 2 Data consumption in China reached 1,537 kTB in Apr. 17

Source: MIIT, Macquarie Research, June 2017

With smartphone penetration comes a rise in mobile video

Fig 3 US smartphone penetration continues to rise, expected to reach 84% in 18

90% 80.5% 82.0% 83.5%

Source: Company Data, Macquarie Capital (USA), June 2017

Unlimited plans will strain the networks

Fig 4 Current Big-4 Promos (US)

Source: Company Data, Macquarie Capital (USA), June 2017

Auctions around the globe

US: the broadcast incentive auction

Fig 5 Spectrum winners across our coverage

Other sources of spectrum: Dish!

Spectrum transactions in the US

Fig 6 US Spectrum transactions over time

Source: Company data, Macquarie Capital (USA), June 2017

Spectrum supply/demand is still imbalanced

Fig 7 Spectrum holdings for the Big-4

Fig 9 Big-4 total spectrum holdings in top 100

TMUS AT&T VZ S TMUS AT&T VZ S

Fig 10 MHz/Sub across the Big-4

Europe: A very different market

Fig 11 European spectrum ownership (MHz)

Austria Belgium Germany France Italy Netherlands Portugal Spain Switzerland UK

Fig 12 UK: Price per GB () Fig 13 Germany: Price per GB ()

2.0 Magenta Mobile Vodafone Red

1.0 O2 Free Yourfone

0.0 Expon. (Magenta Mobile) Expon. (Vodafone Red)

UK - 2.3GHz and 3.4GHz auctions in 17

Fig 14 UK spectrum positions (MHz)

800MHz paired 10.0 10.0 5.0 5.0

Total unpaired 45.0 5.0 30.0 25.1

EU - 700MHz auctions in the coming years

Spectrum caps: The EU model of equitability

Fig 15 EU spectrum: Operator share in relevant markets

Source: Company data, Macquarie Research, June 2017

Fig 16 European operator framework

Germany Deutsche Telekom Vodafone O2D Unity Media TeleColumbus

France Orange SFR Bouygues Iliad

Gigabit connectivity Comprehensive FTTp Regional DOCSIS Negligible (wholesale Negligible

Italy TIM Vodafone Wind/3Italia Iliad FastWeb

Netherlands KPN Vodafone Ziggo T-Mobile NL Tele2

Gigabit connectivity Regional FTTp Comprehensive DOCSIS No FTTp (Wholesale No FTTp

Spain Telefonica Orange Vodafone MsMvil Other CATV operators

Switzerland Swisscom Sunrise Salt UPC

Gigabit connectivity Regional FTTp Negligible Negligible Regional DOCSIS

UK BT O2 Vodafone ThreeUK Virgin Media

Canada: spectrum dynamics

Canadian carriers are relatively spectrum-rich

Fig 17 Canadian carriers spectrum assets

* Spectrum represents average holdings in major markets where carriers compete

Source: Company data, Macquarie Research, June 2017

A spectrum auction would attract a higher price per MHz-PoP

Fig 18 Spectrum assets of new entrant operators

Japan: government-controlled spectrum

Annual fees & allocation

Fig 19 Spectrum allocation among telecom operators in Japan

Source: KDDI, June 2017

South Africa: The WOAN