Vodafone proposes paying AU$594.3m for 700MHz spectrum

The Australian government has put out an exposure draft in response to a proposal from Vodafone to acquire 2x 10MHz of 700MHz spectrum for almost AU$600 million.

Vodafone Australia has proposed to the Australian government that it be permitted to acquire 2x 10MHz in the 700MHz spectrum band that was unsold in the auction held by the Australian Communications and Media Authority (ACMA) in 2013.

Vodafone's proposal, first reported by CommsDay, would see the ACMA charge the telecommunications provider spectrum access of either AU$571,814,450 upfront, prior to the licence's commencement; or in three instalments of AU$274.5 million on January 31, 2018, AU$159.9 million on January 31, 2019, and AU$159.9 million on January 31, 2020, for a total of AU$594.3 million.

"The government has received a proposal from Vodafone Hutchison Australia (VHA) to acquire 2x 10MHz of the unsold 700MHz 'digital dividend' spectrum," the Department of Communications said on Friday.

The department released an exposure draft on the matter, with Communications Minister Mitch Fifield directing the ACMA to determine access charges as being no less than AU$1.25/MHz/pop for residual 700MHz spectrum.

"I direct the ACMA to take such action as it considers necessary to allocate and issue a single spectrum licence authorising the operation of radiocommunications devices in the entirety of residual 700MHz band one in the designated area," Fifield said in the Radiocommunications (Spectrum Licence Allocation -- Residual 700MHz Band One) Direction 2016 exposure draft.

Vodafone chief strategy officer Dan Lloyd said it is important that the unsold spectrum be used in order to bring better mobile coverage nationwide, particularly to more remote areas.

"For several years, 15MHz of 700MHz spectrum has been lying unutilised. Vodafone recently put forward a proposal to acquire some of this spectrum," Lloyd said.

"Our proposal is a win-win for competition and for government, as we have offered to pay the same effective price for the spectrum as the price paid in the 2013 auction. The Australian government would be fairly compensated for the spectrum at the market price, while customers in regional and rural areas would benefit from increased competition, as it would allow us to extend coverage into these areas."

Vodafone has also been bringing mobile coverage to remote areas through taking part in the federal government's mobile blackspot initiative, advocating for the USO to be removed, and also refarming its 850MHz spectrum band to bring coverage to regional and metropolitan Queensland, NSW, and the Australian Capital Territory.

According to the Department of Communications, allowing Vodafone to purchase the 700MHz spectrum would comply with the rules of the digital dividend auction by ensuring that it "is not advantaged by not participating in that auction process in 2013".

Telstra, however, did not welcome the news, saying Vodafone had its chance to purchase spectrum in the 700MHz band during the auction -- and is now paying below market rate for it.

"We are concerned at the process and potential outcome. There was a competitive auction in 2013 for this spectrum, which Vodafone chose not participate in," a Telstra spokesperson said.

"Despite being one of the world's largest telecommunication companies, it is now trying to buy spectrum at a price we believe is below the market rate and outside a transparent competitive process.

"Demand for mobile capacity continues to grow, and we query how taxpayers can be sure this provides a higher return than a competitive process."

During the May 2013 auction, Telstra bought 2x 20MHz of the 700MHz spectrum along with 2x 40MHz pairs of spectrum in the 2.5GHz band for a total of AU$1.3 billion, while Optus bought 2x 10MHz of 700MHz and 2x 20MHz in the 2.5GHz band for a total of AU$649 million.

Vodafone at the time flagged that it would not be taking part.

"Building another network on another spectrum band would incur significant costs with limited improvement to customer experience for our customers for the foreseeable future," a Vodafone spokesperson had said at the time.

"700MHz is not currently an extensively used 4G spectrum band internationally, so device options are very limited."

After the auction, 30MHz of spectrum in the 700MHz band was left over, with then-Communications Minister Stephen Conroy saying it would be put back on the market within three years' time.

"15MHz paired of the 700MHz spectrum, worth in the order of AU$1 billion, remains in the Commonwealth's hands for now, and we intend to return it to the market in the next two or three years," Conroy had said.

"The ACMA has previously stated that it should not be assumed any unsold spectrum would be returned to market in the short term, or at a price that is lower than the reserve price set for this auction."

Should Vodafone be permitted to purchase the spectrum now, there would still remain 5MHz of the band for any other purchasers.

Submissions on Vodafone's proposal are due on June 3, 2016.

During the ACMA's 1800MHz spectrum auction earlier this year, Vodafone secured 11x 1800MHz of spectrum for AU$68 million.

Vodafone bought two lots in North Queensland, spending AU$7.75 million; one lot in South Queensland, for AU$7.91 million; four lots in the Australian Capital Territory, for a hefty AU$37 million; two lots in Tasmania, for AU$12.87 million; and two lots in Regional Western Australia, for AU$2.5 million.

Telstra bought AU$191 million worth of 1800MHz spectrum, while Optus spent the most, at AU$196 million.

The high-band 1800MHz spectrum online auction will improve 4G in regional and remote Australia, bringing high-speed coverage to those living outside of the major cities.

Updated at 3.10pm AEST, May 9: Added comment from Telstra