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Telecom bids $83m to win final chunk of 4G spectrum, smashing $22m reserve

Rumours of a fierce bidding war between Telecom and Vodafone for the final chunk of 4G spectrum have proved correct.

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

Telecom won the final 5MHz lot of paired 700MHz spectrum with a bid of $83 million - giving it 18-year rights to the 4G friendly airwaves. The reserve was $22 million.

4G offers fibre-like speed for mobile data uploads and downloads but, so far at least, has been marketed by Telecom and Vodafone with modest data caps - meaning that while you could use a 4G phone, tablet or data stick to download a high definition movie, doing do would blow your monthly data cap within minutes.

After only selling 40MHz of the 45MHz freed up by the digital TV switchover during the auction's first round, pre-Christmas, the Crown but the final 5MHz back on the block - to howls of protest from 2degrees, which dropped out (see below).

Bidding for the final lot of 5HMHz took place in $1 million increments, Telecom says, starting from $22 million.

In the first round of bidding Telecom and Vodafone each bid $66 million to secure a 15MHz block, while 2degrees paid $44 million for 10MHz.

That means the final auction result is:

  • Telecom: 2x20 MHz ($149 million)
  • Vodafone: 2x15 MHz ($66 million)
  • 2degrees: 2x10 MHz ($44 million)

The trio each have five years to pay - a provision added after 2degrees pressure, but one that will have most benefit to Telecom capex.

The auction has brought $261 million into crown coffers - although it's not all a windfall given the $157 million cost of the digital TV switchover (which was the auction's overall reserve for the 45MHz, $198 million, was designed to cover, plus change).

The Telecommunications Users Association had fretted that a bidding war could depelete telcos' finances, leading to a slower 4G rollout, and higher 4G costs for customers.

ICT Minister Amy Adams made it a provision of the auction that any bidder who acquired three blocks of radio spectrum must build at least five new cell sites each year, for five years. The auction conditions are designed to ensure that at least 90 per cent of New Zealanders have access to a 4G network and faster mobile broadband coverage within five years, the government says. Additionally, All successful bidders will also be required to upgrade 75 per cent of their existing rural cell sites to 4G, up to a maximum of 300 sites.

Although Vodafone initially charged an extra $10 on most plans for its 4G spectrum after launching its faster mobile service in February last year, it dropped the premium after Telecom launched 4G in November.

2degrees says its existing 4G spectrum (some of which was aquired from TelstraClear to smooth the way for Vodafone's purchase of the Telstra-owned telco) is enough for it to start its own 4G rollout this year. However, the company wanted the remaining 5MHz to be shelved for the time being.

2degrees says Telecom and Vodafone have deeper pockets - thanks to their big lead in contract customers, and already enjoy an advantage in spectrum. The 4G spectrum allocation process was a missed opportunity to level the playing field and boost competition, the company says.

This afternoon, 2degrees director of corporate affairs & wholesale Mathew Bolland told NBR,  "The price bid shows just how much Telecom and Vodafone are willing to spend to ensure others can’t access a scarce resource.

"Spectrum is like motorway lanes. Allowing one provider to have twice as many lanes as a growing challenger can’t be good for long term competition.

Mr Bolland says 2degrees still hopes the Commerce Commission - whose approval is required for the $83 million winning bid to be finalised - will "do the right thing for mobile users and decline clearance."

Looking right acrossy managed spectrum holdings, Vodafone has about 300MHz, Telecom 200MHz and 2degrees has just on 100MHz.

Telecom [NZX:TEL] shares were steady at $2.39 in late trading.

ckeall@nbr.co.nz


POSTSCRIPT: 

Auction rivalry spilled over onto social media after NBR tweeted news of the auction result.

"The price we paid underlines Telecom’s absolute commitment to being the leader in mobile and data network capability" Telecom GM of corporate relations Andrew Pirie tweeted.

"A great aspiration Andrew but there's still plenty of ground to made up!" his counterpart at Vodafone, Tom Chignall, responded.

"Hope you're not megaherting at the loss," quipped back Pirie.

More by Chris Keall

Comments and questions
6

Commerce Commission!!! Hello????
The government doesn't care about the people, only about monopoly businesses...
By doing this it has actively encouraged an existing monopoly Telco to ensure its monopoly continues and that all New Zealanders get shafted in the process! What vision and governance...

I think that's a bit short-sighted, Pethers and you haven't thought it through.
There is no monopoly in 4G - each TelCo has a piece of the useful 1800MHz already. The 700MHz that we are talking about here won't come into play until 2015 in real terms. Again - each Telco has a share of this spectrum.
2Degrees aren't yet active in 4G - although they DO have their frequency allocation.
They elected to NOT buy their full 2x 15 allocation.

OK Steevo - perhaps you can enlighten me how selling a majority of the available bandwidth to the biggest player is going to encourage competition in the marketplace?
It effectively locks out further competition and limits growth of existing competition... visionary of the government eh.

Uh... Telecom is neither the biggest player in mobile, nor did it get the majority of spectrum. Confused what your point is. I for one am happy the governement maximised its return. I am struggling to see how Telecom can get a better ROI with more spectrum when price competition will drive what the market demands.

NZ already has some of the best performing 3g in the world. This will benefit the customer considerably.

You are a sheep if you continue to use the biggest player in the market - why you say - because you are not encouraging competition. Competition drives down prices and stops exorbitant profits. Those who can't pull themselves away from Telecom, simply because that's who they've used for their Telco for their whole life, are just encouraging them to rip us all off for longer. The Government appears to be in this mind-set as well - stuck with the legacy Telco that doesn't bring much innovation to our country.