Regulator urged to block 4G spectrum sale to Vodafone, Telecom in 2degrees-sponsored report

2degrees CEO Stewart Sheriff

The Commerce Commission has been urged not to sign off on the country's dominant mobile phone operators buying the remaining 700 megahertz radio spectrum for fear of undermining burgeoning competition in the market.

A Covec report, commissioned by new entrant 2Degrees, claims competition among mobile carriers would be "substantially enhanced" if the antitrust regulator declines clearance for Vodafone New Zealand and Telecom Corp to buy the unsold pair of 5MHz spectrum blocks. The spectrum became available when the government decided to switch-off analogue television services, freeing up the radio waves for use on 4G mobile networks.

If the dominant mobile carriers are cleared to buy the spectrum, the Covec report warns 2degrees will face higher capital costs of the long-run, reducing its incentive to compete aggressively for retail and wholesale customers, particularly for those clients generating high data volumes.

"The retail market concern is the most pronounced in the on-account market segments, which have not yet been fully disrupted, where data traffic is relatively more important, and where 700 MHz spectrum is therefore of greater value," the report said.

Approval would also crowd out 2degrees' ability to offer the same quality of service as Vodafone and Telecom, and hinder incentives for effective spectrum-sharing and national roaming services.

"Each of these is a serious issue in a market, and a group of affected markets is jointly important for mobile sector competition," the report said. "Collectively, they seem likely to pose a material risk to the intensity of competition, especially since the sector is currently transitioning out of a duopoly structure, but we do not yet have three similar-strength networks."

The submission, published on the regulator's website, comes ahead of the Dec. 6 due date for the commission's decision, and as Vodafone and Telecom bid for the remaining blocks at auction. In the first round of the auction last month, Telecom and Vodafone each bought three blocks each (2x15 MHz) and 2degrees two blocks (2x10MHz).

The Covec report said the opportunity cost of leaving the unsold spectrum unallocated is very low as it won't be needed in the foreseeable future. That means declining clearance now doesn't extinguish the prospect of allocating the spectrum to Vodafone or Telecom at a later date.


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The payers overseas can sustain populations 10x that of NZ on less spectrum than 2degrees has. What is their issue?

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The thing is that 2degrees had a clear option to avoid what the Covec paper says is a real problem for them and they chose not to take it up. The cost of that option was $4.4m a year for 5 years (plus a bit of capex on additional sites they are probably planning to build anyway). So if it was such a big problem for them, why did they choose not to spend that money and to take a risk on influencing the Commission's clearance process? Bird in the hand and all that......

Tom Chignell
External Affairs Director
Vodafone New Zealand

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Lobbying for a regulatory leg-up has proven a cheaper way of nobbling the competition in the past than laying investment dollars on the table. Its the 'free option' to lobby when you don't like the competitive outcome that regulation offers to entrants but denies to dominant firms.

2 Degrees action is entirely predictable.

The irony is that models of spectrum auctions show that when the spectrum is in high demand, dominant firms tend to bid in a manner that increases the price and forecloses small competitors. Low prices, wide allocation (all registered bidders (sans Tex Edwards) bought something) and unsold spectrum shows the NZ auction to be more consistent with a product that is 'nice to have' but not strictly essential - at the current point in time. That may change in the future - which suggests that a better outcome for the govt would be NOT to sell the spare spectrum now, thereby preserving the option for all parties to bid again for it at a later date. If 2 Degrees had anticipated this, then it would have realised that the time to buy was in the auction, as the price will only get higher later, and in buying it would have foreclosed on the opportunity of Vodafone and Telecom buying the spectrum in the future.

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Tom, if it weren't for 2Degrees, Vodafone and Telecom would still be slugging the consumer

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Maybe 2Degrees should worry about the network it has now, My friend just moved off 2Degrees back to Vodafone in Chch and the coverage / speed leaves the 2Degrees network in the dust, Sort out the 2G or at least the 3G before looking at 4G leave the bandwidth for a network that can actually deploy a decent network,

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