Spark expects to build 5G network within existing capex envelope

Spark expects to build 5G network within existing capex envelope. Photo: Lynn Grieveson

Spark New Zealand expects to upgrade to a fifth-generation mobile network within its current capital spending and wants to divert funds into that programme as soon as it has spectrum.

The country's biggest telecommunications provider today outlined its 5G intentions after running a pilot programme in Wellington and Auckland, and it's accelerated the groundwork for the upgrade which it sees as enabling the Auckland-based company to offer additional capacity at a lower incremental cost than 4G and 4.5G technology. Spark will start diverting spending on its network to 5G from 4G as soon as spectrum is available, and anticipates a current capital expenditure policy of 11-to-12 percent of revenue should suffice.

"Once 5G is available to deploy, we will have a strong commercial incentive to rapidly build 5G network capability as the primary means of keeping ahead of growing customer demand for more data at faster speeds," chief executive Simon Moutter said in a statement.

"The current competitive market model, in which multiple wireless network operators compete against one another to grow their customer bases through product and service innovation and pricing, represents a good blueprint for the way 5G can be rolled out in New Zealand and would provide for more investment predictability and certainty over the coming decade," he said.

The Ministry for Business, Innovation and Employment set out its early thoughts on the upgraded technology in an April discussion document, which said spectrum allocation was a core regulatory issue and that there was enough for at least three networks.

Moutter today said that allocation should be completed as soon as possible to ensure 5G is available for the 2020/21 America's Cup in Auckland.

"Spark is already making decisions that are contingent on securing additional 5G spectrum and is having to make those decisions in the absence of any clear government policy on when that spectrum will be available or in what bands," he said.

The company expects revenue from wireless connectivity to increase only moderately in the first few years of 5G deployment, matching global trends.

"From about 2023 onwards, there is potential for further upside as customer demand grows for new capabilities, rather than just more capacity and speed," Spark said.

The company outlined nine key policy considerations in the paper it released today, saying policymakers need to think about the competitive market model and take a holistic view of the investing environment. It sees transport links including fibre and wireless options as increasingly important when cell site numbers rise, while new planning practices may be needed to support new infrastructure and equipment.

Spark said different radio spectrum need to be considered in the same context rather than as separate functions.

The company expects to spend a greater share of capital spending on wireless networks to meet rising demand. By 2020, it anticipates 25-to-35 percent of capex, or about $100 million-to-$140 million a year, will be on wireless, up from $100 million for the past five years. That excludes spectrum purchases.

The shares rose 0.7 percent to $3.77 at today's open, having gained 3.6 percent so far this year.