Conroy's 4G spectrum pricing 'seriously flawed': Fletcher

Conroy's 4G spectrum pricing 'seriously flawed': Fletcher

Summary: Liberal Party MP Paul Fletcher has said that the Australian government's pricing decision for 4G spectrum is a "serious error".

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Former Optus executive and now Liberal Party backbencher Paul Fletcher has said that the Austrailan government's price for the digital dividend spectrum will only appeal to the incumbent Telstra, and will damage competition and pricing in the mobile sector.

Between December last year and early January, Communications Minister Stephen Conroy set the reserve price for slots of the 700MHz and 2.5GHz spectrum at AU$1.36 per megahertz per population and AU$0.03 per megahertz per population, respectively. In conjunction with spectrum renewals, the Australian government is hoping to get close to AU$4 billion from telecommunications companies looking to acquire the spectrum to roll out 4G long-term evolution networks.

The auction has hit a snag, however, with Vodafone pulling out and Optus reassessing whether it will still get spectrum at that reserve price. The company has until January 24 to decide whether it will participate in the auction set for mid-April.

Fletcher, who left Optus to become the Federal Liberal MP for the Sydney seat of Bradfield, wrote in an opinion piece for the Australian Financial Review today that Conroy had made a "serious error" by setting "an unprecedentedly high reserve price" for the auction.

"It is clear what has happened: the Rudd-Gillard government is desperate for revenue as its budgetary position collapses, and hence has set a very high reserve price to try to raise as much money as possible. For a government which wants to encourage broadband services, this is a terrible piece of policy," he said.

"The reason that auctions are used to allocate radio frequency spectrum, a scarce, publicly-owned resource, is so it is allocated to the purpose with the highest value to the community. Raising money is secondary. Unfortunately, Conroy has got the priorities reversed and the consequences will be serious."

By also easing up competition limits, thereby allowing telcos to buy more spectrum, it only benefits Telstra, he said.

"As well as setting a high reserve price, [Conroy] has increased the amount that the dominant player, Telstra, can buy. Of course, thanks to its lucrative NBN deal with the Gillard government, Telstra is to receive AU$11 billion, so it is well placed to spend up big on spectrum."

Telstra's AU$11 billion deal to decommission its fixed copper network and move customers over to the NBN is not paid out upfront, but is spread out over the life of the project. However this is not the case with the spectrum sale. One reason for Vodafone dropping out of the spectrum auction is that the government required the payment to be made this year, and not when the spectrum is made available at the start of 2015.

Fletcher said that the high auction prices will lead to high costs for customers.

"It is the same error Conroy made in fixed broadband, where NBN Co's excessive capital expenditure will need to be recovered through higher prices it charges for services," he said.

It is unclear at this stage whether the government will revise the prices before the auction in April. One point that had concerned Optus was getting access to the spectrum early in areas where the digital switchover and restack had been completed. This has been addressed in part, with the Australian Communications and Media Authority (ACMA) indicating that for the lucrative 700MHz bands, service providers will be able to apply to be issued with an apparatus licence in areas where they wish to roll out networks before the licence commences in January 2015.

Topics: Government, 4G, Government AU, Telcos, Telstra, Australia

About

Armed with a degree in Computer Science and a Masters in Journalism, Josh keeps a close eye on the telecommunications industry, the National Broadband Network, and all the goings on in government IT.

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7 comments
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  • Spectrum Tax

    If you add up all the different band that Optus own and add a possible 40MHz (2 X 20MHz) 700 this will leverage the Spectrum tax per device assuming Optus have 10 Million from $1.30 to about $2.70 Per month. I have doubled the price due to interferes tax and profit margin. This does not include other taxes and cost such as infrastructure. But the difference will always be over double as what you do the top you do to the bottom.
    SW_Victoria
  • correction

    I have doubled the price due to "interferes tax and profit margin"
    Reword that “interest, tax and profit margin”
    SW_Victoria
  • Fletcher's shot himself in the foot

    I'd like to point out this quote from Fletcher's full article:
    "Conroy's reserve price implies expected proceeds of nearly $2.8 billion; the highest amount previously raised was a bit over $1.3 billion when 1800 MHz spectrum was auctioned in 2000 (albeit for two thirds as much spectrum as next year's auction)."

    When you consider that extra third, and accounting for 13 years of inflation, this actually puts the current reserve price at exactly the same level. So by Fletcher's own metric, the reserve price is set correctly (and that's ignoring the fact that this spectrum is of higher demand and quality than that sold in 2000).
    karl_w_w
    • more precision!

      In fact, the amount raised in 2000 was $1,327,846,765 and that was in March http://www.acma.gov.au/WEB/STANDARD/pc=PC_310641

      $1,327,846,765 / 2 * 3 = 1,991,770,147.5

      Using http://www.rba.gov.au/calculator/quarterDecimal.html to calculate the equivalent cost as of Sept 2012 (the latest it goes to) gives a cost of $2,909,070,315.86. So according to Fletcher, Conroy has actually underpriced it by at least one hundred million dollars.
      karl_w_w
      • Maybe

        That should be taken into account, for sure.

        But you should also remember that the ill-fated One.Tel caused the price of 1800MHz to be much more expensive in 2000 than it should be.

        http://www.zdnet.com/spectrum-price-corrects-one-tel-folly-1339328824/
        Josh Taylor
  • Can't wait.

    So, what happens when all the spectrum is sold? Will Mr Fletcher come out and admit that had the Liberals have been in charge of the auction they would have sold it to their mates for a song?

    Assuming it all sells, the ALP should run hard on this line. Fletcher has admitted he would have sold it for less, far less, than what it's being advertised at by the ALP. Not a good look. That spectrum belongs to the Australian people and the Libs have admitted they would have sold us short.
    Cowboy1600
  • EDIT

    I should say, Fletcher has all but admitted the Libs would sell it for less. He hasn't explicitly said the Libs would lower the price, but he may as well have.
    Cowboy1600