Spectrum price corrects One.Tel folly

Spectrum price corrects One.Tel folly

Summary: While the government is expected to gain up to $4 billion from upcoming spectrum auctions and licence renewals, it is expected to actually decrease the price of spectrum in the 1800MHz band.

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While the government is expected to gain up to $4 billion from upcoming spectrum auctions and licence renewals, it is expected to actually decrease the price of spectrum in the 1800MHz band.

Just before Christmas last year, Communications Minister Stephen Conroy announced a round of public consultation on the renewal of 15-year spectrum licences in the 800MHz and 1800MHz spectrum bands, which are due to expire in 2013. The government also published reports by consulting firm Plum Consulting that revalue the spectrum to estimate how much the telcos should pay to keep their spectrum.

In the late 1990s and the early 2000s, spectrum in the 800MHZ and 1800MHz bands were auctioned off for a total value of approximately $1.7 billion and has subsequently been used by telcos Vodafone, Telstra and Optus for the delivery of 2G and 3G mobile services.

As mobile use skyrocketed in the past decade, the value of the limited available spectrum has also grown, and Plum has suggested that the value of the spectrum in the 800MHz band should go from an average of $0.29 per MHz per person, to up to $1.46 per MHz per person.

But in the case of the 1800MHz spectrum, the price per MHz per person should actually decrease, according to Plum. In 1998, the first round of 1800MHz spectrum auctions reaped $158.3 million or $0.14 per MHz per person, but the second auction in 2000 was eight times as big and managed to get $1.3 billion, or $1.26 per MHz per person. This is substantially higher than the $0.23 per MHz per person, which Plum is now recommending in its report.

According to the firm, despite the fact that telcos such as Optus and Telstra are deploying Long Term Evolution (LTE) networks in the 1800MHz spectrum band, the second auction results are unlikely to be repeated, and in a global perspective Australia will be paying a much higher price for the spectrum than the rest of the world.

Spectrum

1800MHz spectrum pricing compared
(Credit: Plum Consulting)

Plum blamed the entry of the now-defunct One.Tel into the telco market, which coughed up $523 million for spectrum in 2000, causing the price to spike, as well as the peak of the technology boom in 2000 that would ultimately bring the downfall of One.Tel.

"The main factors that changed in between the two auctions that could have had such a large positive effect on values were 1) the dotcom boom, which reached its peak around the time of the second auction, and 2) the presence of a serious competitor (One.Tel) in the second 1800MHz auction," Plum Consulting said.

Regardless of the downgrade in price, it is expected that the government will charge around a 50 per cent premium on Plum's calculated value of the spectrum bands and thus reap up to $4 billion for renewing spectrum licences.

Spectrum in the 800MHz band is more valuable than in the 1800MHz band because it allows network operators to gain better in-building penetration, and carry signal for longer distances, meaning less mobile towers are required.

This year will be the year of spectrum, with the Australian Communications and Media Authority set to auction off 700MHz and 2.5GHz spectrum for LTE networks at the end of 2012.

Topics: Government, Government AU, Telcos

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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