27 November 2007 Media Statement

Government makes offers for renewal of Cellular Spectrum Rights

The Government is offering renewal rights in the 800 MHz and 900 MHz radio spectrum bands which will encourage more competition and investment in mobile broadband services

“It also provides for part of this spectrum to be made available for investment by new market entrants,” said Communications and Information Technology Minister David Cunliffe. “The renewal offers provide the existing owners with greater certainty for their future investment plans.”

In April 2007, Cabinet agreed that a 7.5 MHz pair of the spectrum that expires in 2011 or 2012 in each band should not be offered for renewal but should be offered by auction.

Cabinet also agreed that if Telecom or Vodafone sell at least a 5 MHz pair of 800 MHz or 900 MHz spectrum on the secondary market to a new market entrant in these bands within six months of the renewal offer being made, then they would be offered the remainder of the 7.5 MHz otherwise intended for auction.

“There is significant interest in these bands, as they are considered to be more economic for providing coverage in lower population density areas,“ said Mr Cunliffe.

The renewal offers were sent to the current right holders, Telecom and Vodafone on 9 November 2007.

“The offer price is $3.8 million (plus GST) per MHz pair for a term of 20 years which, as directed by Cabinet, approximates the market value of the rights and produces a fair financial return to the Crown,” said Mr Cunliffe.

“The offers also include usage criteria requiring the spectrum to be used within five years to encourage investment and ensure that the spectrum is not hoarded.”

If any renewal offer is rejected by the existing right holder, then the relevant rights will be resold by auction.

The details of the offers are available on the Ministry of Economic Development’s website http://www.med.govt.nz/radio/cellular-rights.

Questions and answers

1. What services are to be provided under these offers?
These bands are expected to continue to be used for the provision of cellular services.

2. What are the current management holdings of Telecom and Vodafone?
The usable paired spectrum holdings of Telecom and Vodafone in the 800 MHz and 900 MHz bands are currently 19.985 MHz and 21.000 MHz respectively. All of Telecom’s holdings expire in 2012 and are subject to renewal offer. Only 15.200 MHz of Vodafone’s holdings expire in 2011-2012 and are subject to the renewal offer. The remainder expire in 2022.

3. What is the renewal offer price?
The renewal offer price is $3.8 million (excluding GST) per MHz pair for a 20 year term.

4. How was the offer price calculated?
The renewal offers are based on a price that is an estimate of the market value of the rights. It was determined using an incremental deprival valuation (incremental ODV) approach, which was checked for reasonableness against New Zealand and overseas benchmark values. A report on how the price was calculated, along with peer reviews of that work, is available on the Ministry of Economic Development’s website at. http://www.med.govt.nz/radio/cellular-rights.

5. What are the secondary market transaction requirements in the renewal offers?
As a default, a 7.5 MHz pair of the spectrum that expires in 2011 or 2012 in each band is not being offered for renewal but offered by auction. This is to encourage competition by enabling new entrants to the market to purchase spectrum.
However, if Telecom or Vodafone complete a secondary market sale to a new market entrant of at least a 5 MHz pair of 800/900 MHz spectrum within six months of the renewal offer being made, then the seller will be offered the remainder of the 7.5 MHz pair that would otherwise have gone to auction.
If the spectrum rights that are the subject of the secondary market transaction expire in 2011/12 then the purchaser will be offered renewal rights on the same or similar terms and conditions that have been offered to the current management right holders – Telecom and Vodafone.

6. What is the intention of the ‘use or lose’ requirements of the offers?
The offers contain ‘use or lose’ requirements to ensure that the spectrum management rights will be effectively used. A condition of acceptance of the offers for renewal of 800/900 MHz spectrum includes the purchaser having to demonstrate, within five years of purchase, use of the purchased 800/900 MHz spectrum to provide cellular services on a commercial basis:
• to at least 65 percent of the New Zealand resident population, without relying on the infrastructure (including networks) of other providers;
• that operate 24 hours per day, seven days per week (excluding reasonable outages including those for maintenance and construction).
7. Under what conditions would there be an auction of spectrum in these bands?
An auction would occur in two situations:
• if Telecom or Vodafone (or both) reject all or part of the offers, then the rejected spectrum will be auctioned;
• if either Telecom or Vodafone do not complete a qualifying sale of at least a 5 MHz pair of spectrum by 9 May 2008, then the associated 7.5 MHz pair of 800/900 MHz spectrum will be auctioned.

8. What are the terms and conditions for the sale of spectrum to new market entrants?
The terms and conditions contained in the agreements for any sale of 800/900 MHz spectrum on the secondary market by Telecom and/or Vodafone are a matter for these companies. However, in order to be offered the 7.5 MHz pair that would otherwise be auctioned, the sale of a minimum of a 5 MHz pair of spectrum on the secondary market must:
• be to a genuine new entrant;
• allow deployment of that spectrum by the new entrant immediately after that sale; and
• provide for the amendment of any licences granted under those management rights to expire no later than two years after transfer of the spectrum to a new entrant.

ENDS

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