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Win for Vodafone, loss for 2degrees as Adams decides to auction remaining 4G spectrum

UPDATE / Nov 19: ICT Minister Amy Adams says 5MHz left over from the first round of the 4G spectrum auction will go back on the block November 26 - with a $22 million reserve.

The decision is a win for Vodafone, which lobbied hard for the remaining spectum to be auctioned immediately.

And it's a loss for 2degrees which wanted the unsold spectrum to be put back on the shelf and auctioned later. The carrier argues Telecom and Vodafone have "deeper pockets" by dint of having more contract customers, and already have more spectrum.

Telecom took a neutral stance, saying it would put for the 5MHz if it was put back up for grabs, but was also comfortable with it being auctioned later.

Others, including Tuanz and Vector, said the government should consider using the spectrum for new technologies.

The government raised $176 million from the first round of the auction.

Telecom and Vodafone both bid the reserve price of $66 million to secure the maximum first-found allocation of 15MHz, and 2degrees bid $44 million for 10MHz, leaving 5MHz on the table. 

Auction rules gave Ms Adams discretion over what to do with the "leftover" 5MHz.

2degrees co-founder Tex Edwards says her decision to put it back on the block is "a disgrace."

"In the 1990s Telecom got all the favours. In the 2010s, it's Vodafone," he says.

Under the auction terms, bidders who acquire three lots of radio spectrum must build at least five new cell sites each year, for five years.

However, for any bidders who win four lots (which will be whatever telco nabs the final 5MHz of paired spectrum), the requirement increases to ten new cell sites each year for five years. This was always the provision for one bidder winning four lots, a spokesman for Ms Adams' office tells NBR, not a special condition recently added.


2degrees reignites spectrum auction fight with rollicking attack on Vodafone; Vodafone jabs back

Nov 8: 2degrees is looking to reanimate the spectrum auction debate this afternoon with a rollicking attack on Vodafone.

Vodafone’s campaign to secure the remaining 700MHz spectrum shows it will pay whatever it takes to stall true competition in mobile, the company says.

Earlier this week, Vodafone said an unsold lot of 5MHz paired spectrum should go back on the block - and put that opinion to ICT Minister Amy Adams today.

The Crown wants to raise at least $198 million selling 45MHz of paired spectrum.

The first round of bidding saw Telecom and Vodafone each bid their expected $66 million to buy 15MHz of paired spectrum each.

2degrees bid $44 million for 10MHz, leaving 5MHz of the total 45MHz freed up by the analogue TV switch-off still on the table.

The telco says it would diminish competition if the Telecom or Vodafone wins the remaining 5MHz, given they already have more spectrum, and greater subscriber numbers that it says give them "deeper pockets" for bidding.

2degrees CEO Stewart Sherriff says Vodafone’s public comment this week that the spectrum should be sold to “the party that values it the most” adds to chilling reading in its Commerce Commission application for the scarce resource.

“Vodafone already has more spectrum than anyone else and is seeking to use its market power to gain even more. This is a once in a generation allocation and the outcome will impact the telecommunications market for the next 18 years."

In an industry where the company with the most spectrum enjoys lower infrastructure build and operation costs, Vodafone is seeking to lock-in twice as much spectrum as 2degrees, the company says.

Mr Sherriff says Vodafone’s October 9 clearance application to the Commerce Commission reveals its plans to ensure 2degrees does not continue to grow, preventing post pay and business customers from getting the value they deserve.

In seeking the remaining 5MHz paired of 700MHz spectrum, Vodafone concludes:

“…all [operators] can continue to compete on the same basis as at present….Vodafone and Telecom would remain in broadly equivalent positions…and there is no reduction in 2degrees ability to compete on the same basis as it currently does”.

Mr Sherriff says these comments are aimed at ensuring 2degrees does not grow, ultimately undermining its ability to become a full service telecommunications provider that challenges Vodafone and Telecom in the fixed and mobile markets.

Vodafone external affairs director Tom Chignell responded to NBR with a bullet-point assault:

To wit:

  • Whether Telecom or Vodafone acquire the remaining block of spectrum will be determined by an auction, should the Government decide to sell it.
  • The Commerce Commission will decide if there is a competition issue for Telecom or Vodafone to own the extra spectrum.  We don’t believe there is.  We expect to find out on 6 December and the Government has the option to wait until then to restart the auction.
  •  2degrees have been given a great opportunity to ensure that they have as much 700MHz spectrum as the other two operators.  Achieving that outcome obviously was not worth the extra $22m they would have had to find in 5 annual instalments.  What they are asking for here is a strategic option to achieve the same outcome but at no cost.
  • The way spectrum is allocated in New Zealand is by giving those who value it most the opportunity to obtain it.  Vodafone values the extra block because we know our customers value the services we offer.
  • If the norm was to allocate spectrum evenly across all operators then the Government would not use auctions to achieve this.
  • Vodafone has 2x65MHz of spectrum deployed today in the 2100MHz FDD band and below.  This covers 2G, 3G and 4G services (and 3G Femtocell services (“Suresignal”).  Telecom has 2x55MHz and 2degrees 2x50MHz.  This sort of distribution is quite common across other comparable countries.
  • There is a further 2x72MHz and 1x75MHz of spectrum in the 2GHz band not currently owned by mobile operators which is largely unused.
  • In Australia, VHA has no 700MHz spectrum, Telstra has 2x20MHz and Optus has 2x10MHz.  But the world has not fallen in.
  • In Germany, the fourth operator E-Plus chose not to buy any 800MHz (digital dividend) spectrum.  It chose a different strategy and saved lots of money.  This happened in other European countries too.
  •  It may be 2degrees views that the extra spectrum is not needed now but Vodafone believes customers, particularly those in rural areas will appreciate the opportunity to enjoy fast services (in this case, potentially 33% faster).

Vodafone breaks silence over unsold spectrum; has a poke at Telecom

Nov 4: Vodafone has broken its silence over spectrum left on the table after phone companies bid $176 million during the first round of the government's 700MHz spectrum auction.

The company wants the unsold lot of 5MHz paired spectrum to go back on the block - and put that opinion to ICT Minister Amy Adams today.

The Crown wants to raise $198 million selling 45MHz of paired spectrum. The first round of bidding saw Telecom and Vodafone each bid their expected $66 million to buy 15MHz of paired spectrum each. 2degrees bid $44 million for 10MHz, leaving 5MHz of the total 45MHz freed up by the analogue TV switch-off still on the table.

"We’re strongly of the view that if demand requires it then should be sold to the highest bidder. That's how an auction works." Vodafone external affairs director Tom Chignell told NBR ONLINE.

A visitor from Mars might rationally assume demand during an auction process is a function of at least two competing bidders for spectrum.

Mr Chignell says "there's demand as long as one party wants it."

The Vodafone exec also told NBR he was confused by Telecom's stance.

He noted Telecom told NBR it had "no issue" with 2degrees' stance that the unsold spectrum should be left on the shelf, and sold at a later date.

Yet Telecom has also applied to the Commerce Commission (along with Vodafone) for approval to bid for the final 5MHz, Mr Chignell says.

"It's not clear if they're walking away or just trying to stop there being a contest," he says.

NBR asked Telecom for clarification.

Spokesman Andrew Pirie confirmed Telecom doesn't have an issue issue if the government acquiesces to 2degrees' demand and puts the 5MHz back on the shelf to sell at a later date. "But if the government chooses to put it up for auction we’ll bid for it."

He added, "I can't help it if Tom's confused."

All three operators had all the spectrum they need to get on with their 4G network upgrades, Mr Pirie said.

Mr Chignell said 2degrees should bid for the remaining spectrum now. It would be more expensive to buy later (a theory backed up by Sydney-based telecommunications analyst Paul Budde, who earlier told NBR that 4G spectrum would get a better price a couple of years down the track, when the telco's network rollouts were more advanced, and customer demand for faster mobile data was more pressing).

He noted Telecom, Vodafone and the company that became 2degrees all bid for 3G spectrum at the government's last major auction in 2001. Vodafone didn't begin its 3G build until 2006; 2degrees didn't launch until 2009 and Telecom didn't launch its 3G network (initially known as XT) until the same year.

The government is still deciding what it will do with the unsold spectrum.

Separately, the Commerce Commission is investigating the implications of Telcom or Vodafone ending up with 20MHz of the 45MHz originally put on the block.

2degrees says it would diminish competition if the Telecom or Vodafone gains 20MHz, given they already have more spectrum, and greater subscriber numbers that it says give them "deeper pockets" for bidding.

ckeall@nbr.co.nz

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Comments and questions
5

A possible use for it is for civil defence. In large cities where cellular networks often get swamped following a major disaster, the remaining spectrum could allow civil defence and emergency workers phones to roam on the emergency network and continue to operate.

We are held at the mercy of these three companies in NZ... the band should be offered to local companies at a reduced rate to allow for opertunities of more competition.
The band should be used to alternative purposes if the Teleco industry cant see the value in it... the best opertunity is to expand Freeview and offer it to the broadcast industry to allow for fair cometition agains the Globeopolies like Sky.

Yes, the Government should be thinking more strategically and encouraging new entrants into the market by limiting the bigger players from owning all the spectrum. Isn't that the role of the Government? To manage natural resources for the best interests of all New Zealanders??? You have to wonder sometimes...

How is spectrum a Natural resource to be managed?

If you want to bid, then bid, but don't cry if you haven't got the cash to go all the way... it's an AUCTION, people bid until they pull out, have no money left or win!

And you seriously think there is scope for a viable new entrant. Done any maths? Ever?