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Telecom builds on its spectrum advantage

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Telecom has won the second 700MHz spectrum auction with a bid of $83 million for a block of 2x5MHz spectrum.

I’m sure nobody at Telecom HQ is celebrating, however, because it’s paid around four times as much as it had for the 2x15MHz block it bought last year.

READ ALSO: Analysts react to Telecom's $149m 4G spectrum splurge

Paying $66m for 2x15MHz was a reasonable amount. It wasn’t cheap, but it certainly wasn’t up there with the kinds of stupidity we saw in the UK and Europe during the 3G spectrum craze of the early 2000s.

All three mobile operators were happy enough with the $22m they paid per block.  I can’t imagine how Simon Moutter and co are feeling right now, but probably they look a bit green. $22m was OK, but $83m? That’s another matter entirely.

Telecom didn’t even want to bid on the remaining block. They argued that the last 5MHz pair should be left on the table for another round of bidding in a few years’ time when 2degrees could, presumably, afford to buy it.

That made a lot of sense. TUANZ argued against having an auction at all – each of the three network operators should have been given 2x15MHz so as to preserve the competitive market in the 700MHz space, but if we had to have one, any excess spectrum left over shouldn’t be flogged off just to raise cash. Sadly, that’s just what the government has done. Telecom was forced to take part even though it wasn’t keen because it couldn’t allow Vodafone to simply walk away with the extra spectrum. Vodafone, likewise, couldn’t let Telecom have it cheaply either, and unfortunately we’ve seen the telco equivalent of the Cold War end in a huge cost.

Worse, when you look at the overall spectrum holdings you’ll find that 2Degrees has just on 100MHz of spectrum, Telecom has double that and Vodafone has nearly 300MHz of spectrum available to it right across the managed spectrum range.

That imbalance means Vodafone and Telecom already have a huge advantage over 2degrees when it comes to the total spectrum market and that’s going to be a problem if we want a truly competitive landscape.

Should we care that Telecom has paid a fortune for the spectrum? Surely that’s its problem and good on the government for getting the best dollar for the tax payer? Well yes and no. Telecom will have to find that money somewhere and I’m guessing it wasn’t down the back of a couch. It probably will have to come either from the existing capex budget, which means something else will go by the board, or it’ll be raised from the customers.

That much money would have paid for (by my calculation) an additional 160 cellsites around the country, which would have been very nice to see in rural New Zealand. Instead, Telecom will have a nice piece of paper that says yes, it can build a cellphone network in the 700MHz range.

The good news is this isn’t a done deal. The Commerce Commission still has to assess whether or not the extra spectrum breaches the Commerce Act in terms of market dominance. We’d argue that yes, it does and I’d go further and say that both the telcos and the customers would be better off if we set aside this auction and leave the last 5MHz pair on the shelf for the time being.

Paul Brislen is CEO of the Telecommunications Users Association of NZ

Comments and questions
9

That last bit of spectrum should have been allocated to unlicensed devices like our current wifi spectrum so that smart innovated parties could have developed real economic opportunities for everyone, not just companies with $83 million to blow.

If Vodafone has nearly 300MHz of spectrum then surely stopping Telecom getting 200 +5 would be worse for competition? Wouldn't the better target for reducing spectrum be Vodafone - your former employer...

I doubt there's much that can be done to reduce existing stockpiles but newly available spectrum could be used to redress the imbalance.

I don't for a second believe that 2d having less spectrum puts them at a competitive disadvantage. 2d just need to do more with less.. like any growing business. More specturm for the bigger players allows them to have a better average speed per user.. but also leads to lazy frequency planning practices. 2d could have exactly the same 4g footprint with their available spectrum and having worked for big red like myself you should know this.

I think you need to have a look at the LTE-A requirements, Benjamin. In short more spectrum means more bandwidth and in LTE world we're talking about speeds of 300Mbit/s.

It doesn't matter how clever your marketing is, if the other guy can offer that and you can't, you lose.

Yes Paul, in the air interface. Just like the current round of technology you share the air interface with all other users on that network.

Sorry if this question has been answered elsewhere...but is there a use it or lose it type requirement attached to the spectrum?

Maybe Paul and Sue should call on Com Com to regulate the retail price Telecom can charge like they did for Chorus. Afterall we don't want those greedy retail Telcos ripping off the retail consumer now do we?