Telstra and Optus, Australias two largest telcos, along with TPG, have walked away with spectrum in the 700MHz and 2.5GHz bands paying a total of AU$1.96bn (£1.28bn).
This is AU$1bn below the Governments anticipated revenue target, with a third of the lots remaining unsold. Key players, including Optus, publicly called the reserve price “unworkable” before the auction got underway in April. Vodafone and 3s JV in the country, Vodafone Hutchinson Australia (VHA) backed out during the bidding process.
Telstra picked up the bulk of the spectrum, buying a mixed lot of 2x20MHz of the 700MHz spectrum band across Australia, as well as 2x40MHz pairs in the 2.5GHz spectrum band for AU$1.3bn. Optus bought 2x10MHz of spectrum in the 700MHz band and 2x20MHz pairs of spectrum in the 2.5GHz band for AU$649m. TPG, formerly an MVNO running on Optus mobile services, now owns its own 4G infrastructure, picking up 2x10MHz pairs of spectrum in the 2.5GHz band for a total of AU$13.5m.
Vodafone Hutchinson backs out
Stefan Zehle, CEO of telco consultancy firm, Coleago Consulting, called the auction a failure and said he believes it was the extremely high reserve prices set by the Australian Communications and Media Authority (ACMA) that discouraged other bidders.
But VHA, a JV between Vodafone and 3 in Australia, has cited a lack of interest in investing in the kinds of spectrum on offer. A spokesperson explained that the 2500MHz spectrum would not give the same coverage benefits as its 1800MHz 4G urban network and that as 700MHz is not extensively used for 4G internationally at present, it would limit device options for the carrier.
Asked if the company would be keen to buy the remaining 2x15MHz of 700MHz spectrum, a company spokesperson said: ” Our investment focus is on a network experience that our customers can benefit from as soon as possible. We have a multi-billion dollar program to build, upgrade and expand 900MHz, 2100MHz, 850MHz and 1800MHz that offer a comprehensive set of 2G, 3G and 4G options for our customers.”
As the only carrier with 20MHz of spectrum in all capital cities across the country, which is well-suited for densley populated areas, VHA said it already has one of the stongest spectrum holdings for 4G. “Building another network on another spectrum band would incur significant costs with limited improvement to customer experience for our customers for the foreseeable future,” the spokesperson said.
Stefan Zehle, CEO of Coleago Consulting, comments:
“The switchover from analogue to digital frees up spectrum to be reallocated for mobile broadband and was estimated to deliver a net benefit to the Australian the economy of between AU$7bn (£4.6bn) and AU$10bn (£6.5bn) back in April 2009.
“Of course this estimate assumed that all of the spectrum will be allocated to mobile. In the event, one third of the APT band plan 700MHz spectrum remains unsold whereas 100 per cent of the cost of freeing up the spectrum has been incurred. Therefore potentially several billion dollars of benefit to the economy has been lost as a result of setting reserve prices above the level where weaker operators can earn a normal return of capital employed.
“The damage the ACMA has inflicted on the Australian economy does not end there. Since VHA ended up without spectrum it will further weaken their relevance in the market. Since competition is likely to have been weakened this will reduce the consumer surplus from the digital dividend i.e. the benefit consumers would gain in form of lower prices.
“Of course the most direct impact is the lower auction revenue for the Government. The Australian government budgeted in revenue from the auction at least equal to the total reserve, i.e. AS$ 2,894m. In the event the auction raised only AU$ 1,964m, i.e. 32 per cent below the target.
“The ACMA’s failure could hardly be more complete. Yet, it was widely predicted that with these high reserve prices spectrum would remain unsold, in fact Vodafone said it would not bid unless the reserve prices are lowered. The outcome says a lot about politicians lack of understanding of how investment decisions are made and also demonstrates an unwillingness to listen to the industry.”
Earlier this year, the UK government cheekily counted £3.5bn proceeds from its 4G auction before it had even taken place, while Ofcom had set a £1.2bn reserve. The auction actually raised £2.34bn.