UPDATED: Telecom cleared to buy last 4G spectrum lot

Telecom Corp. [NZX: TEL], New Zealand's second-biggest mobile phone operator, has been cleared to buy the final lot of 700 megahertz radio spectrum, flagged for fourth-generation mobile use, after proposed government allocations made it unlikely Two Degrees Mobile would gain any benefit if it managed to acquire the spectrum.

The Commerce Commission approved the sale, saying Telecom's acquisition was unlikely to substantially lessen competition because the unused block wasn't placed next to 2degrees' other band-width holdings, meaning the third mobile operator wouldn't gain much of an edge if it held the extra lot. Commission chair Mark Berry said the government's proposed placement of the unsold block in a position not adjacent to 2degrees was key to clearing Telecom's acquisition.

The band-width allocations were announced last Friday by Communications Minister Amy Adams.

"Given the blocks are non-adjacent, it reduced the prospect of the Crown and 2degrees reaching an agreement on a sale," Berry said. "Even if 2degrees was to acquire the 5MHz block, 2degrees' competitiveness in this space is not likely to be materially enhanced since the block is not adjacent."

The Ministry of Business, Innovation and Employment said the lot was placed between Telecom and Vodafone to let the government fulfil its commitments under the auction rules.

If Telecom wasn't cleared to acquire the spectrum, MBIE told the regulator the Crown would consider allocating the block for other uses ahead of a possible sale to 2degrees, though any decisions about the use wouldn't be made until after the September election.

Adams today said the clearance means network operators can get on with building 4G networks, which are currently in their early stages, with a view to covering 90 percent of the population within five years.

Telecom chief executive Simon Moutter said the clearance means the country's biggest telecommunications company will benefit its customers with faster speeds and more capacity on its 4G network.

"This fourth lot puts Telecom in the best position in the market to deliver a very high-performance 4G mobile network for New Zealand, including in less densely populated areas," Moutter said in a statement.

Telecom shares slipped 0.4 percent to $2.71.

The decision means 2degrees won't get the benefit of lower costs by holding more spectrum, though the carrier has enough to cater to its customers.

"We don't believe it's the right decision and it's interesting that just a week ago the commission's annual monitor report shows there are competition issues for mobile customers on account plans and business plans," 2degrees corporate affairs director Mat Bolland said.

The regulator's annual report on the telecommunications industry showed 2degrees had made inroads into pre-pay customers, but struggled to win over more lucrative corporate clients and on-account users.

The smallest of the mobile operators opposed clearing Telecom to buy the extra lot, by crowding 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.

Telecom bought the fourth 2x5 MHz for $83 million in the second round of a government auction, having secured three lots of 2x15 MHz spectrum for $66 million in the first round. Vodafone missed out on the fourth lot, having bought three 2x15 MHz lots for $66 million in the first round, while 2degrees bought two lots of 2x10 MHz spectrum for $44 million.

The government raised $259 million from the auction of the spectrum, which became available as a result of the switchover to digital television from analogue, having put a minimum reserve price of $198 million for the spectrum, something privately-held 2degrees said was a premium to the $157 million spent clearing the radio waves in the switchover of analogue television to digital, and the $119 million valuation attributed to the spectrum by the Treasury.

While some 4G capability is already available on higher MHz spectrum, the 700MHz range is especially well-suited to pushing fast mobile broadband into rural areas because it requires fewer repeater stations to achieve coverage and into densely populated urban settings, such as commercial buildings.

As part of the auction’s conditions, the mobile phone operators will have to upgrade existing rural cell sites to 4G capability within five years and continue to expand their coverage. That’s to ensure at least 90 percent of the country has access to a 4G network within five years.

(BusinessDesk)