Communications Minister Stephen Conroy has set the reserve pricing for so-called "waterfront spectrum" in the 700MHz band that telcos will bid on next year to secure spectrum for the rollout of their 4G long-term evolution (LTE) networks.
The government is hoping that the auction of the 700MHz and 2.5GHz spectrum bands will bring in up to AU$4 billion in revenue at a time when the government is looking to get a razor-thin AU$1.1 billion budget surplus in 2012-13.
The digital dividend auction was originally supposed to take place in November this year, but in June, Communications Minister Stephen Conroy delayed the auctions until April 2013 to give the potential bidders time to prepare.
Today, the government followed through with its plans announced last month, and set the lowest possible price for telcos to secure spectrum in the 700MHz spectrum band — at AU$1.36 per megahertz per population.
The price is close to the price outlined in a Plum Consulting report for renewing 800MHz spectrum licences, but far outweighs the price recommended for the 1800MHz spectrum band, on which Telstra and Optus have currently deployed their 4G networks.
In a sign that the government is clearly concerned about whether Vodafone will participate in the spectrum auction process, Conroy has also eased up competition limits on the spectrum auction, allowing telcos to buy up to 2x25MHz, instead of the originally planned 2x20MHz.
Vodafone Australia CEO Bill Morrow said in July that because Vodafone has 30MHz worth of 1800MHz spectrum that can be used for 4G services, the company may opt out of participating in the auction for the "waterfront" spectrum.
Conroy said in a statement that by setting the price today, it gave certainty that the auction would go to plan in April 2013.
"These directions provide certainty for industry and confirm that the ACMA will proceed with the auction in April 2013," Conroy said.
"They ensure the best outcome and a fair price for the industry, consumers, and the Commonwealth. This spectrum is seen as the 'waterfront property' of spectrum, and the government has made a significant investment to free it up. It is important that we get a reasonable return on this valuable public asset."
Conroy said that the Australian Communications and Media Authority (ACMA), which is conducting the auction, will soon seek applications from those who intend to bid in the auction.
A recent Commonwealth Bank analysis estimated that Telstra will spend around AU$2.7 billion for its slice of spectrum, while Optus will spend AU$900 million. The analysis doesn't rule out a bid on spectrum from Vodafone, provided that the reserve pricing isn't too high, and said that it would likely acquire AU$350 million worth of spectrum.