Possible Vodafone no-show in 700MHz auction may reduce revenue for government
- 23 August, 2012 15:51
- Comments 1
Vodafone Hutchison Australia’s possible absence from the upcoming Digital Dividend auction may increase the importance of auction rules to be published this November by the Australian Communications and Media Authority (ACMA). Having only Telstra and Optus participate in the auction could reduce revenue for the Australian government, wireless industry analysts told Computerworld Australia.
The Digital Dividend auction, scheduled for April 2013, will reallocate Australia’s 700MHz and 2.5GHz spectrum. The spectrum is important to the mobile industry because it can be used for 4G LTE services. The spectrum will become available when broadcasters turn off analog service at the end of 2014.
However, Vodafone has signalled it may not participate. Hutchison CEO Bill Morrow said in late July that the company will reach a decision in the next few months. Morrow emphasised the company would be fine even if it did not bid because it already has a large amount of spectrum and could comfortably deploy 4G LTE over its 1800MHz frequencies.
A Vodafone no-show could leave Telstra and Optus as the only bidders for 700MHz spectrum. “We might expect two bidders to reduce the total gross on the basis of demand alone,” and neither Optus nor Telstra wants to pay much, said IBRS analyst Guy Cranswick. “In that playbook it may be a lower price than [the government] would want or expect.”
The possibility of only two bidders makes it more important for ACMA to set a high reserve price for the Digital Dividend spectrum, Telsyte analyst Chris Coughlan said. A reserve price is the minimum price that must be paid to win the auction. Without Vodafone, that price “is very important, because that is essentially what the spectrum will go for,” Coughlan said.
ACMA plans to publish reserve prices and other auction rules in late November, an agency spokesman said. “The ACMA won’t be releasing any estimates on potential revenue arising from the auction.”
Coughlan predicted the ACMA will set the reserve price between $1.25 to $1.50 per MHz POP. That would give the government more than $3.5 billion in revenue at the end of the auction, he said. “They really need to set the reserve price up where their expectations are,” Coughlan said.
“Auction design is a critical element” to shaping results in any spectrum auction, said Stephen Moore, managing partner of Moore Wright Associates. “You need to maximise the competitive nature of each round in the auction.” For example, the government could break the available spectrum into smaller lots to increase “competitive tension,” he said. It could also adjust the geographic boundaries and licence timeframe, he said.
Supply and demand is what could limit revenue in the Digital Dividend auction, because the government is offering more 700MHz spectrum than two telcos can take, Coughlan said. The government is selling 45MHz of the frequencies, but the auction rules cap each carrier to 20MHz each. As a result, Telstra and Optus can get what they want without engaging in a bidding war, and the remaining 5MHz could go unsold.
With three carriers potentially bidding for 45 MHz, “there was a lot of contention,” Coughlan said. “Now there’s not so much contention.” The analyst said he doesn’t expect a new entrant to bid.
“If there is adequate or more than sufficient capacity for both” telcos, low bidding is possible, agreed Cranswick. “After all, in an auction when both bidders know each other's businesses, they have very good information by which to form their bid strategies.”
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Comments
Rhys
If there is only a 5 Mhz slice left the potential value of it wouldn't be much as with such a small amount of spectrum their wouldn't be much of an increase in speed in LTE compared to Vodafone's 3G speed(if they have/do fix their network). You would really need at least 10 Mhz to make a pair of 5 Mhz channels to make it worthwhile.
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