VHA ducks out of Australia’s spectrum auction, TGP a surprise winner

VHA ducks out of Australia’s spectrum auction, TPG a surprise winner

07 MAY 2013

Struggling Vodafone Hutchison Australia (VHA) chose not to bid for 700MHz and 2.5GHz spectrum going under the hammer in Australia, but TPG Internet, a fixed-line broadband player, took the plunge in an auction which raised almost AUD2 billion ($2 billion) in total.

Telstra secured the bulk of wireless frequencies. Australia’s number one mobile operator by subscribers paid a total of AUD$1.3 billion for 2x20MHz (700MHz) and 2x40MHz (2.5GHz) chunks of spectrum.

Optus Mobile, the market’s number two, stumped up just over AUD$649,000 for 2x10MHz (700MHz) and 2x20MHz (2.5GHz).

And TPG grabbed 2x10MHz in the 2.5GHz frequency band for AUD13.5 million

Quoted in local press reports, Nicole McCormick, an Ovum analyst based in Australia, said potential plans for TPG to become Australia’s fourth MNO would be ambitious but not unrealistic.

“TPG has demonstrated expertise in running a lean business model and it has the platforms in place to support an extended mobile business, something which defunct One.Tel did not have,” she said.

McCormick also expressed surprise that Vodafone didn’t take part in the auction process.

“We think it would have been a sensible long-term spectrum insurance policy for Vodafone to have picked up 2.5GHz spectrum for data traffic management purposes in metro areas,” she said, indicating this could be a good complement to the 1800MHz VHA is currently using for LTE services.

There was some speculation before the auction that a high price paid by Telstra in the auction could affect the company’s credit rating. However, according to ratings agency Moody’s, Telstra has escaped that fate – but only just.

“The quantum of spectrum purchased by Telstra and amount paid, which was close to the reserve price, was broadly within the range of our expectations though on the low side and will be manageable for the company within its existing rating”, said Ian Lewis, a Moody’s VP and senior credit officer.

According to Chris Chapman, chairman of the Australian Communications and Media Authority (ACMA), the auction process “ran smoothly and resulted in the allocation of spectrum to the companies that valued it the most”.

However, a 2x30MHz chunk of spectrum in the 700MHz frequency band went unsold.

For Stefan Zehle, chief executive at Coleago Consulting, a telecoms specialist, this means the auction was a “failure”. He blamed the “extremely high reserve prices” set by ACMA, which led to VHA skipping the auction.

“Potentially several billion dollars of benefit to the economy has been lost as a result of setting reserve prices above the level where weaker operators can earn a normal return of capital employed,” he said.

Zehle further argues that the Australian government has also lost out, since it budgeted to raise a sum at least equal to the total reserve price (AUD$2.89 billion) but only managed to rake in AUD$1.96 billion – 32 per cent below the target.

“The outcome says a lot about politicians’ lack of understanding of how investment decisions are made and also demonstrates an unwillingness to listen to the industry,” added Zehle.

Communications minister Stephen Conroy, quoted by local media, said the unsold block was “worth in the order of AUD$1 billion”. The government, he added, would aim to sell it within the next two or three years.

Author

Ken Wieland

Ken has been part of the MWC Mobile World Daily editorial team for the last three years, and is now contributing regularly to Mobile World Live. He has been a telecoms journalist for over 15 years, which includes eight...More

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