Spectrum fight goes on and on

The Commerce Commission has again delayed giving clearance to Telecom to buy the last block of management rights for 700MHz spectrum.

To recap: the government auction saw three bidders (Telecom, Vodafone and 2Degrees) able to buy a maximum of three lots of spectrum each.

Telecom and Vodafone did just that, but 2Degrees only bought two lots, leaving one block of spectrum on the table.

The advice to government from all parties was that it should remain there until the technology to deploy services on 700MHz was rolled out - implicitly, until 2Degrees could afford the extra block.

But the government decided it wanted the cash, so raffled off the last block to the highest bidder. 

Neither Telecom nor Vodafone would back down, or let the other side get the spectrum cheaply, and ultimately Telecom won, but only by bidding $83m for it. By contrast, each telco paid only $22m for the same sized block in the original round.

Telecom now needs permission from the Commerce Commission to buy the additional chunk and clearly, that's proving to be a long time in coming.

The problem is that Vodafone has around 300MHz of available spectrum, Telecom 200MHz and 2Degrees around 100MHz of spectrum altogether.

In the all important sub-1000MHz category, Vodafone will have around 60MHz, Telecom about the same and 2Degrees will have around 40MHz.

That means that like for like, Vodafone can pack on three times the number of customers 2Degrees can service, and offer them the same performance. Or, looking at it the other way round, it could offer the same number of customers three times the capacity.

That puts 2Degrees in a very tricky position, and I suspect if Vodafone had won this bidding war for the last chunk the Commission would already have made its mind up and said no.

Telecom, however, is a trickier proposition, positioned as it is half way between the two. Would allowing Telecom to buy the last chunk impact on competition? Should the Commission allow it to go ahead?

TUANZ argued that the last chunks should be left on the shelf, that if either Telecom or Vodafone get to buy it, they'll put 2Degrees in an almost untenable position. Sure, 2Degrees can offer a service and it will still be able to use the spectrum for 4G services, but one of the beauties of 4G is its ability to aggregate spectrum and use chunks of spectrum scattered far and wide to deliver a service. That means the player with the most spectrum wins.

We already have a perilous situation in telecommunications in New Zealand. We have two players who dominate almost every market segment - mobile, broadband, toll calling, you name it and "Telecom and Vodafone" account for well over 80% of the customer base and revenue.

We need to make sure 2Degrees isn't shut out of the 4G market, and beyond, and the easiest way is to make sure it has as near a level playing field in terms of access to spectrum as is possible.

I've pondered on why the government would auction the spectrum in the way that it has. The auction was conducted in secret, behind closed doors, and unlike previous years has been split into two halves. We've only had the first part of the fight - how much spectrum do you want. Once the Commission has decided on this issue, we move on to round two - which blocks of spectrum do you want? Each company will have to bid again to determine where on the 700MHz range their lot lies, and there's only one reason you would do that - to make more money.

$22m a block is not a huge amount, but it's only half the battle. We're yet to see quite how much this contest costs but one thing is clear - customers will end up paying for it one way or another.

Paul Brislen is CEO of the Tuanz, the Telecommunications Users Association of New Zealand.