Australia’s 4G spectrum auction has shattered expectations around the value of the 700MHz spectrum under the hammer. Just two-thirds of the 90MHz of low-band ‘digital dividend’ spectrum on offer was purchased; combined with a sold-out auction for a larger slice of the much cheaper 2.5GHz band, that netted the federal coffers some A$1.96 billion – around A$1 billion shy of the government’s target.
Some commentators were quick to blame communications minister Stephen Conroy for the shortfall, largely because of his personal intervention to set a steep reserve price for the 700MHz lots. But the outcome also reflects a complex interplay of other factors, including VHA’s decision to walk away from the auction completely; evolving priorities for both Optus and Telstra; and signs of a global shift in the relative values of high- and low-band spectrum, as commercial LTE networks start to gain traction.
The final result saw Telstra come out with the bulk of both 700MHz and 2.5GHz, with a total of 40MHz (20MHz paired) and 80MHz (40MHz paired) respectively, shelling out A$1.3 billion at “close to the reserve price.” Optus snapped up a total of 20MHz in 800MHz and 40MHz, likewise paired, spending A$649 million – again reflecting the reserve price. The surprise minor winner was TPG, which ventured A$13.5 million to grab a total 20MHz of paired spectrum in the 2.5GHz band. VHA, having withdrawn completely from the auction process, came away with nothing.
First in the firing line for the billion-dollar shortfall – which, unless the leftover spectrum can be shifted quicker than the minister himself has indicated, will directly impact the federal budget – was Conroy.
Early commentary noted the Minister’s decision to intervene last December to set the reserve price for 700MHz at a hefty A$1.36/MHz/pop, which Optus at the time branded “unworkable and out of line with international outcomes,” and suggested that the minister might have shot himself in the foot by pricing too high in a bid to help achieve a federal budget surplus, just before the government abandoned that particular objective.
CARRIER CONTEXT: But Conroy’s reserve price intervention, and a concurrent tweak to the competition limits, came after Vodafone told him it would not be participating in the 700MHz auction – radically shaking up the competitive structure of the process.
With CEO Bill Morrow fighting to reverse the carrier’s ailing fortunes, and a costly network upgrade already underway, VHA had more pressing capex priorities.
Even Telstra, by far the biggest spender at auction, splashed out for less than the maximum 50MHz (2x25MHz) in the700MHz band that it could have bid for under the new competition limits. And CommsDay understands that the reason for the telco aiming below the limits was simply that it believed 2x20MHz would suffice for its currently forecast need in 700MHz.
As executive director for networks and access technologies Mike Wright explained, Telstra’s 700MHz winnings will help it cover long distances for better rural coverage and also improve in-building penetration. On the other hand, the slice of 2.5GHz that Telstra bought will cater for growth, beefing up its capacity to tackle ongoing mobile data growth.
The firm had previously felt itself a little short in the higher-band spectrum stakes, but Wright told CommsDay that post-auction, Telstra was now comfortable on capacity compared to the rest of the field.
Optus, for its part, spent well short of the limit in grabbing just 2x10MHz in the 700MHz band; the company is strongly focused on shoring up capacity against the ongoing mobile data boom, and thus on higher-band spectrum. The SingTel subsidiary already has substantial assets in the 2.3GHz band, via its 2012 buyout of Vividwireless, which it will use for TD-LTE; additionally, it has yet to publicly announce plans for the 3.5GHz spectrum which also used to belong to Vividwireless.
“The spectrum Optus has acquired [at auction] in the 700 MHz band will provide stronger 4G coverage across both metropolitan and regional Australia, allowing us to expand our 4G services to more customers than ever before,” said Optus chief country officer and Consumer Australia CEO Kevin Russell. “The additional spectrum purchased in the 2.5 GHz band, when combined with our already substantial holdings in 2.3 GHz, will enable Optus to provide unparalleled network capacity for 4G data services to our metropolitan customers.”
GLOBAL SHIFT: The increasing emphasis on higher-band spectrum for LTE, offering the capacity to cope with forecast mobile data demand growth, resonates with some of the trends emerging elsewhere in the world. In the UK’s spectrum auctions, concluded three months ago, none of the winning bidders emerged with more than 2x5MHz in that jurisdiction’s low band, 800MHz – but several shelled out for larger lots of both paired and unpaired spectrum in 2.6GHz. And in the US, Verizon, which launched commercial LTE late in 2010, stumped up US$3.9 billion last year for higher-band ‘AWS’ spectrum from a consortium of cable operators – but actually sold a set of 700MHz licenses to competitor AT&T this January for US$1.9 billion.
With these examples taken in context of the Australian results, it seems the price premium for low-band spectrum may have become a somewhat harder sell than was once thought.
“During the consultation process leading up to the auction, we received quite a bit of feedback about the importance of combining the digital dividend spectrum and the 2.5 GHz spectrum in the same auction,” an ACMA spokesperson told CommsDay. “This would indicate that capacity is becoming increasingly important to telcos.”
“Both [bands] are important,” said Telstra’s Wright. “In a country like Australia, low frequencies are still very important if you’re going to operate outside the five major capitals… [while] in dense populations and high-capacity areas, the 2.5GHz or other high frequencies make a lot of sense.”
Nevertheless, for the moment, the Commonwealth is still stuck with 2x15MHz of 700MHz – and must now decide what to do with it. “We intend to return it to the market in the next two or three years,” said Conroy. “The ACMA has previously stated that it should not be assumed any unsold spectrum would be returned to market in the short term, or at a price that is lower than the reserve price set for this auction.
“I endorse that as a sensible view and intend to provide the ACMA with a formal Direction that supports that approach, following public consultation.”
Petroc Wilton
Source Article from http://www.commsday.com/commsday-australasia/behind-the-4g-spectrum-auctions
