A regulator asks: 'How distinct is 4G?'

A spectrum auction in New Zealand highlights competition concerns.
Written by Rob O'Neill, Contributor

New Zealand’s competition regulator, the Commerce Commission, has released a statement of competition issues arising from mobile network incumbents Telecom and Vodafone both applying to bid for the management rights to 700 MHz radio spectrum.

The regulator, whose market analysis has been questioned by one of the founders of challenger network 2degrees, is seeking views on the issues, including whether 4G mobile services are "sufficiently distinctive" to place them in a different market from 2G and/or 3G services.

The spectrum is coming to market by auction later this year as the result of the so-called digital dividend, the switch-over from analog to digital television broadcasting.

The Commission has outlined the issues it considers will be important while both Telecom and Vodafone have provided their views as to why acquisition of spectrum would not damage competition, in particular from challenger network 2degrees.

The Commission’s statement is required because both Telecom and Vodafone have applied to acquire allocations larger than the two 15 MHz blocks initially offered should they become available.

The auction rules limit the amount of spectrum each bidder can acquire to up to two 15 MHz blocks. However, these limits may be relaxed to two 20 MHz blocks if they are freed up as the auction proceeds.

Submissions from Telecom and Vodafone argue that retail mobile markets are currently highly competitive and the acquisitions would not alter existing operators' abilities to compete.

2degrees, they say, is likely to have sufficient spectrum to enable it to compete in the provision of 4G mobile services, considered the ideal application of 700MHz spectrum.

The Commission says it will examine the extent to which Telecom and/or Vodafone’s acquisition of two enlarged blocks might inhibit  retail mobile competition, in particular in the provision of 4G.

Telecom and Vodafone have submitted that significant efficiencies would arise from their acquisition of two 20 MHz blocks, including higher quality 4G services in rural areas.

2Degrees is also a registered bidder in the auction.

One of 2degrees' founders, Tex Edwards, in a submission to a review of the Telecommunications Act last month, accused the Commerce Commission of faulty analysis of the mobile market.

In a submission in the name of KLR Investments, rather than 2degrees, he said the Ministry of Business, Innovation and Employment had been “gamed and made a fool of” by Vodafone PR spin.

“It is factually incorrect to suggest that there are three incumbent operators who are converging towards equal market shares,” he wrote.

“There are two operators who have positive cash flow and one operator who is still experiencing significant negative cash flow and unless it captures a like for like customer base, it doesn’t have a sustainable future to provide like for like competing infrastructure.

“The Minster, the Treasury, the Commerce Commission and the Ministry of Business, Innovation and Employment need to revisit their analysis of the mobile market .”

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