Vodafone pulls out of pricey 4G spectrum auction

Following the Australian government's decision to set a reserve price for 700MHz "waterfront" spectrum at a level that will collectively cost the telcos close to AU$3 billion, Vodafone Australia has decided not to participate in the auction, and Optus is also reconsidering its participation.

Late on Friday afternoon, Communications Minister Stephen Conroy announced that the reserve price for the digital dividend spectrum in the 700MHz band, to be auctioned off in April next year, will be AU$1.36 per megahertz per population. This roughly puts the total value of the spectrum to be auctioned off at AU$3 billion.

Vodafone Australia — which has had its share of financial woes recently, losing over a million customers in 18 months due to under investment in its 3G network — immediately announced that it would not participate in the auction. It would instead rely on its large holdings in the 1800MHz spectrum band to roll out its own long-term evolution (LTE) 4G next year and focus on continuing overhauls of its 3G network.

"We will not be participating in the auction for 700MHz under the current terms," Vodafone said in a statement. "Vodafone is fortunate to have one of the best spectrum holdings that is well suited for data capacity and 4G technology. Our investment focus in the near term is on a network experience that our customers can benefit from as soon as possible. "

Optus' vice president of corporate and regulatory affairs, David Epstein, said that the price was effectively double the price of the same spectrum in other parts of the world, and said that Optus was reconsidering participating in the auction.

"Optus is studying the detail of the government's announcement, but as announced, it appears unworkable and out of line with international outcomes," he said in a statement.

"The reserve price announced is effectively double the basket of outcomes achieved in comparable advanced economies over the past two to three years. It is likely to have the effect of restricting investment significantly, raising prices as costs are passed through to consumers, and reducing consumer choice."

Epstein told the ABC this morning that the government needed to be more realistic about the price, and Optus was now looking at options other than acquiring more spectrum for the delivery of 4G services.

Telstra was less forthcoming with its views.

"We will consider it in detail as part of our auction strategy. Given this is an auction process, we have no further comment," the company said in a statement.

Shadow Communications Minister Malcolm Turnbull told ABC's AM program on Saturday that the government was clearly using the spectrum auction to reach its AU$1.1 billion budget surplus in 2013.

"It knows that this is its only chance of getting a surplus in the budget this year. So again, this is being driven, not by policy, but by politics."

He questioned why the government was spending billions subsidising fixed line broadband as part of the National Broadband Network (NBN) and, at the same time, trying to get as much as it could from the sale of spectrum. Turnbull predicted that if Telstra is the only bidder, the auction process would fail.

"It could, of course, then negotiate directly with the companies, and I imagine that's what they would do. But if the auction process fails, because only one person turns up or only one person is left standing, then that is just a complete debacle. That would be yet another policy failure by Stephen Conroy," he said.

Turnbull said that the government needs to balance the need to extract a fair price for the spectrum from the telcos, but at the same time, put it at a price that keeps competition in the market and doesn't force the companies to raise their prices.