Could auction languor bring NBN Co into mobile 4G?

Could auction languor bring NBN Co into mobile 4G?

Summary: With the upcoming 4G spectrum auction looking shaky, Stephen Conroy would have to be considering what he'll do if the result falls short. One option would be to direct NBN Co to enter the 4G wireless market and foster new competition amongst NBN-powered MVNOs.

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In the wake of his recent moves to shore up the reserve price of the upcoming "digital dividend" auctions, I recently asked Communications Minister Stephen Conroy what he would do if there were no bids on the 700MHz spectrum — from which the government is planning to extract at least AU$3 billion.

He wouldn't comment on such speculation, but with the formal withdrawal of Vodafone Hutchison Australia (VHA), and the risk of a filibuster from Optus and Telstra, Conroy — fresh from celebrating his 50th birthday and, I might also assume, the announcement that NBN Co is ahead of its own rollout forecasts, for what they're worth — will most certainly be weighing the government's options should such an outcome come to pass.

NBN Co CEO Mike Quigley and Communications Minister Stephen Conroy.
(Credit: DBCDE)

While VHA has already folded, and Telstra will surely bid on the spectrum it needs to extend the footprint and capacity of its 4G network — and early users of its existing services know how badly this is necessary — the participation of Optus is the big wildcard here.

Optus initially indicated that the per-capita figures behind the government's $3 billion reserve price made participation in the auction difficult to justify, although its revelation this week that it will at least put its hand up for a ticket suggests that it is being realistic. It is a risky proposition, however: without 4G to counter Telstra, Optus will become… well, it will become VHA, really. And nobody wants that.

But what if Optus and Telstra's combined bidding still falls far short of the government's reserve? Conroy could lower his expectations and let the Budget eat the difference; negotiate favourable terms with unknown third parties to step into the market; beg VHA to reconsider its abstinence; or any other strategy you care to think of to ensure full takeup of the digital-dividend spectrum.

With so much up in the air, it's worth considering another option: if the government can't get what it needs from the private sector, why couldn't Conroy just as well give Telstra and Optus what they're bidding for, and use the remaining spectrum to start a government-owned mobile carrier?

It wouldn't need to be a retail telco; that is of course a grossly inappropriate role for the government, especially in a market where competition has for many years been anecdotally working well.

But what would prevent Conroy from allocating a portion of the digital-dividend spectrum to a new company — putatively a division of NBN Co — which would provide wholesale 4G wireless services to private-sector telcos that would then operate as mobile virtual network operators (MVNOs) on an ongoing basis?

NBN Co already has, or is building, an extensive network of backhaul that would support the rollout of appropriate mobile towers. The company could then contract the likes of Crown Castle Australia — which already owns and manages 1600 mobile towers around the country on behalf of 2G, 3G, and 4G operators — to maintain the physical infrastructure and transceivers to deliver 4G services.

Leasing unsold spectrum would allow the government to extract value from that spectrum, which would otherwise lie fallow and help paint the Budget bottom line that queasy shade of red that politicians and economists hate.

Because the digital-dividend spectrum lies at distance-friendly 700MHz, instead of the jerry-rigged and shorter-range 1800MHz solutions currently on the market, NBN Co wouldn't even need to roll out that many 4G towers.

The result would be a widespread, wholesale-only 4G network that would be instantly available to even smaller telcos and NBN retail service providers (RSPs) looking for additional value-added services. Such companies are currently limited to MVNO solutions from Vodafone and Optus — notwithstanding the blip from Telstra's late-in-the-game decision to resell 3G services.

In the current mobile market, it is Optus' dominance of the MVNO market that can be said to be a limiting factor. Optus customers, including Amaysim, Virgin Mobile, Dodo, Primus, iiNet, TPG, and Woolworths Mobile, are locked into whatever pricing plans Optus cares to offer them; I imagine all would relish a bit more competition in the MVNO space, since the only other real option is VHA.

It's worth noting that Optus itself has presaged a shakeup in the MVNO market after the company recently outlined its strategy to bolster revenues by pushing its MVNO customers away from price-competitive strategies.

"We've started to reassess some of the value that we're seeing from some of the wholesale deals," Optus Wholesale and Satellite Managing Director Rob Parcell told industry journal CommsDay last month. "We are starting to see a situation where we're just trading customers between wholesalers … we really find that approach has hit its last stage."

If Optus is concerned that it's not recovering enough value from its extant spectrum, and that its MVNO business has become a haven for discounter mobile operators that are affecting its own margins, it's unlikely that the company is going to be too happy about buying up premium-priced 4G spectrum from the government and then releasing it to cut-rate MVNOs so that the same thing can happen all over again.

Here, then, may be the opportunity for Conroy to make a bold intervention in the 4G mobile market — providing a wireless carrier of last resort that will leverage the NBN to provide a wholesale mobile platform on which cut-price operators can build their own MVNO businesses without fear of being cut off by a profit-minded supplier.

Leasing the spectrum that remained unsold after the auction would allow the government to extract value from that spectrum, which would otherwise lie fallow and help paint the Budget bottom line that queasy shade of red that politicians and economists hate.

Taking a proactive approach to ensure full usage of digital dividend spectrum might be one way for Conroy to reverse the consequences of [allowing Telstra too much time to establish its rival 4G service] — and to lay the new groundwork for a fully competitive 4G mobile market.

It would also allow the government to improve mobile service, particularly in the outlying and regional areas in which profit-minded Optus, Telstra, and VHA are loathe to invest. This would address the concerns of folks like Victorian ICT Minister Gordon Rich-Phillips, who has invented a special kind of awkward — ignoring the NBN and calling for a federal strategy to improve mobile coverage — that addresses his conflicting needs to both ensure NBN delivery to Victorians, and to mercilessly bag Labor because it's Labor.

Opponents of this suggestion will argue that NBN Co is already spending enough money on its fibre network, that we already have enough competition in the mobile market, and that we can't afford or don't need another mobile network. Yet the cost wouldn't be ridiculous. If you recall, Telstra built its Next-G network for around $1 billion back in 2006; double it to allow for inflation, and you'd be talking about a brand-spanking new 4G wholesale network, with particular coverage to fix blackspots in rural and regional areas for, at a guess, $2 billion to $3 billion.

I recently opined that by delaying the digital TV switch-off, Conroy had created a problem by allowing Telstra too much time to establish its rival 4G service. Sure, Telstra wants 700MHz spectrum, but it has learned to live without it; Optus has done the same and may end up partnering with VHA to perpetuate this strategy, instead of paying for what it perceives to be premium 4G.

Taking a proactive approach to ensure full usage of digital dividend spectrum might be one way for Conroy to reverse the consequences of his earlier decision — and to lay the new groundwork for a fully competitive 4G mobile market in every part of the country.

What do you think? Would it ever work? What should Conroy do if 4G auction bidding fails to reach the government's reserve price?

Topics: NBN, 4G, Government, Government AU, Australia

About

Australia’s first-world economy relies on first-rate IT and telecommunications innovation. David Braue, an award-winning IT journalist and former Macworld editor, covers its challenges, successes and lessons learned as it uses ICT to assert its leadership in the developing Asia-Pacific region – and strengthen its reputation on the world stage.

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24 comments
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  • I sent an email to senator conroy

    I sent him an email asking him to make the auction fairer
    rosendalek22
  • Fairer?

    For who and why?
    RS-ef540
    • An auction such as this

      which is about bringing important infrastructure to Australia, should be a Win-Win-Win situation; that is, a win for government (at the very least in terms of money), a win for business (at the very least in terms of developing new business opportunities and markets) and a win for consumers. Clearly, Vodafone and Optus do not see the current proposition as a win for them. We have a Labor government trying to suck the life out of business in order to restore the budget to surplus and to payoff their massive debt. Thanks to them, we all lose!
      Wakemewhentrollsgone
      • Really...

        I have heard that in relative terms the spectrum price is on par with previous.

        But please keep faithfully electioneering, after all, it is 2013
        RS-ef540
        • With or without your permission

          "But please keep faithfully electioneering, after all, it is 2013"

          I shall continue to do so :-)

          However, electioneering is not the issue. Businesses are in business to make money. If Optus, particularly, and Vodafone to a lesser extent (as it has other problems) thought that the cost was reasonable, then both would participate. The fact that they won't gives a very strong indication that they believe that the market won't support the cost.

          Perhaps, Labor could use some of the money raised from the MRRT to help those companies . . . oh, hang-on . . .
          Wakemewhentrollsgone
  • It's a legal battle waiting to happen

    The only winner in that scenario would be lawyers. The 3 mobile networks would find a way to sue the government and then everybody would be paying more so the lawyers can get paid, and then we'd still be without a quasi-4th network.

    Telstra would be keener than anyone to make sure a wholesaled NBN-based mobile network doesn't happen.

    Also your article continues to suggest, like many others on ZDNET, that Telstra and Optus can live without 700Mhtz spectrum, and just utilise 1800 - sorry but they can't - the only carrier who can possibly live without is VHA because of their low customer base and high 1800mhtz spectrum stocks.
    jjcoolaus
  • Can we afford it? No!

    Great article David - and provocative. I don't believe that there is benefit to the taxpayer to be running an LTE wholesale network beyond the agreed scope of NBN - 500K LTE access customers outside the reach of the fibre access network. Turnbull may extend that number and reduce the fibre ends but that's just fiddling with big levers. Conroy is on a power trip, no doubt about it. He said so himself at a briefing overseas. That behaviour usually does not bring about sensible long term decisions for taxpayers. Sure, a target $ for licences is what he should be aiming for on behalf of taxpayers but let the market decide what the real value is without interference from a one-eyed referee.
    mal_kelly
  • False dichotomy and a big distraction for NBNCo

    The other option not mentioned is that the spectrum is not sold to anyone in 2013. Maybe leave it for a later time when demand is greater? Or structure the pricing to give an advantage to a new entrant. It's a false dichotomy to suggest that the spectrum *has* to be sold to someone else if neither Telstra or Optus bid enough.

    On the matter of NBNCo participating, that would surely be an un-necessary and high-risk distraction for a project that already has enormous pressure to deliver on its current charter. All you'd succeed in doing is to bog down NBNCo with a new non-core delivery that has almost no overlap with what it's currently doing.
    markDZD
    • "On the matter of NBNCo participating, that would surely be an un-necessary and high-risk distraction"

      yep, totally agree and while I'm not completely opposed to the idea, at this stage it's very hard to endorse.

      Also it would be funny if NBNco did do this as certain people would have no room to complain because they believe "wireless is the future" and for them less risky than rolling out fibre. It would be hilarious to see the flip-flopping and special pleading that would result from the event.
      Hubert Cumberdale
      • you do seem

        to have jumped onto the fence considering your second sentence.
        Blank Look
        • Exactly what fence would that be visionary? There is nothing ambiguous about what I've said. It's quite easy to understand too.
          Hubert Cumberdale
  • Interesting:

    As the 2.6GHz band is set at $0.03/pop its going to sell. Now Telstra suck up 25MHz that will leave a 20MHz L700 network.

    It not going to work you need a high band for the high density areas and you are going to struggle with the higher order MIMO that the medium to high band can do with such a grater ease. They will have to buy steal some of the 3.6GHz/3.8GHz band to create this network.

    I do agree that if Optus go to bed with VHA they will be able to produce a 15MHz L900 network that will do the job just fine. Outside capital cities they still have plenty of 1.8GHz and 2.1GHz unsold and/or can be re-farmed from the point to point links.

    Optus spend about $600Million P.A. And Telstra over $1Billion P.A. on mobile along. If you think the government can do it for $1Billion, good luck to you. A lot of the country network has not sold the infrastructure to crown thus no cheap or easy ride to setup. Although back-haul would not be a problem.
    SW_Victoria
  • Competition is at 2 levels, and they are different

    The NBN FTTH will offer no competition at the network level. It is argued that it is too expensive to compete at this level. It will, however, let retailers compete at that level.

    To say that an NBN LTE network will increase competition misses the point that this is only retail competition. At a network level you'd have a government-owned entity providing a network that competes directly with Telstra's network.

    We've had many years of successful competition in the mobile market. You might want to argue about whether rural areas could use a single monopoly mobile provider - perhaps they could. But if we're going to argue about major cities then perhaps first we should consider exactly why we think this is necessary now, and whether competition has failed in the last 20 years.
    GregA_z
  • Can't see it happening

    Though if it did, I think Richard Flude would have a cerebral aneurysm being the "private enterprise" fan he is. You could consider him a litmus test for how the Coalition would respond :o)

    For it to have even a remote chance, you'd have to prove that the three larger players are acting as a cartel/monopoly, and I don't think there's any real evidence of it at all.

    Although I do have to admit, the idea of cheap mobile data only plans is pretty attractive considering what the big 3 charge.
    Tinman_au
    • This is ridiculous

      NBN Co producing nothing whilst spending billions is proposed to enter the most competitive telecoms market in Australia and you expect lower prices?

      Beyond comical, now delusional.
      Richard Flude
      • Hey Fluddy, just wondering if you have that page number yet. If not could we at least get a ETA? Thanks.
        Hubert Cumberdale
        • popcorn.jpg

          I, for one, look forward to reading this mythical page.
          Course, if it couldn't be produced, I'm not sure I'd be able to believe anything Richard said ever again.
          RealismBias
          • now now realismbias, absence of evidence is not necessarily evidence of absence. Because I'm uncertain why someone would quote Turnbull without verifying the information in the August 2012 NBNco corporate plan themselves I am willing to assume that it has in fact been verified and the reason why I have been unable to find the page number myself is due to some oversight on my part. This is why I ask the question "Which page number does the information appear on?".
            Hubert Cumberdale
          • Err

            Considering Richard already inferred he was CEO (I run a company) when he isn't and said all comms investment stopped - but later said I just finished a comms project... etc etc

            The fact you guys give him any credibility at all is most noble of you :)

            Here's one for you Richard - http://www.youtube.com/watch?v=t5LZMFZF4F4
            RS-ef540
        • Seems...

          Fluddy has gone MIA... perhaps he strayed off to La Boca?
          RS-ef540