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.