4G spectrum auction set with competition in mind

Wednesday, 4 September 2013, 5:01 pm
Column: Bill Bennett

A relatively low reserve price and deferred payment terms means New Zealand’s government has engineered its 4G spectrum auction for competition.

New Zealand’s 4G spectrum auction will see nine lots of 5 MHz paired sold each with a reserve price of $22 million.

The auction appears to be structured to encourage mobile competition. During the first round bidders will each be restricted to buying three blocks. If blocks remain unsold individual bidders will be allowed to purchase a fourth block.

Significantly the auction terms give bidders a deferred payment option. They can pay for the spectrum over five years but will be charged a commercial interest rate.

Small block sizes and the deferred payment terms will please smaller potential bidders who feared they could be locked out of the auction by the deep pockets Telecom NZ and Vodafone.

Leaving money on the table for network build
Deferred payment should also leave network operators with the money needed to build new network infrastructure. This could make the auction attractive to new carriers.

New Zealand’s relatively low reserve price looks to be set at a level to avoid the problems the Australian government had earlier this year during its 4G spectrum auction.

That country’s high reserve saw only two-thirds of the available spectrum sold at auction – the total bid fell $1 billion short of the Australian government’s target.

Modest reserve
With the reserve set at $22 million a 5 MHz block, the New Zealand government can realistically expect to clear the shelves at its auction.

Nine blocks of $22 million effectively means the government has set a floor price of $200 million – less change – for the spectrum. This is at the bottom of analyst forecasts for the auction with some saying it could bring in as much as $400 to $500 million.

While the auction is scheduled to start on October 29, communications ministers Amy Adams said the date will be confirmed when the bidder registration process is complete.

The 4G spectrum auction will sell frequencies in the 700 MHz band previously used by analogue television broadcasters. Management rights will begin January 1, 2014 and last for 18 years.

Adams: a balanced 4G spectrum auction
Adams says: “In setting the reserve price, we have balanced generating a fair return on the sale of the spectrum rights with the significant investment required by mobile network operators to build the 4G network infrastructure.

“The reserve price also takes into account the value to New Zealand of having 4G connectivity widely deployed”, she says.

There are auction conditions for mobile operators to upgrade existing rural cell networks to 4G within five years. And successful bidders will be expected to expand cellular coverage.

Specifically bidders who buy three lots must build at least five new cell sites each year, for five years. If any bidder wins four lots, they must build ten new cell sites each year for five years.

Adams says these extra rules should see at least 90 percent of the population have access to 4G within five years.

Related posts:
1. Hawaiki edges closer with Australian deal
2. Small business broadband training
3. Kordia profit climbs post-Orcon
4. Simon Moutter interview part 2: A level playing field on GCSB

ENDS

© Scoop Media

Bill Bennett

Freelance journalist.

Auckland-based Bill Bennett writes technology and business stories that are directly relevant to New Zealand readers.

His emphasis is on telecommunications, but he also covers other aspects of technology and business. You can find his features in the New Zealand Herald and hear him regularly on RNZ Nine to Noon and the NZ Tech Podcast.

Bennett's The Download Weekly newsletter is published every Friday. You can sign up for it here. If you want to support his work, you can make a donation to his PressPatron account.

Contact Bill Bennett

• Website - billbennett.co.nz
• Linkedin
• Email - bill@billbennett.co.nz
• Mobile - 0275082740