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ACMA opens applications for 700MHz mobile broadband spectrum auction

The 700MHz spectrum will be auctioned off in two lots: 2x 10MHz and 2x 5MHz, with bids starting at AU$571.8 million and AU$285.9 million, respectively.
Written by Corinne Reichert, Contributor

The Australian Communications and Media Authority (ACMA) has opened applications ahead of its 700MHz mobile broadband spectrum auction in April, as well as releasing its auction guide finalising the process by which it will be auctioned off.

The ACMA confirmed that the spectrum will be auctioned off in two lots: One lot of 2x 10MHz in the 738-748MHz frequency range paired with 793-803MHz; and one lot of 2x 5MHz in the 733-738MHz paired with 788-793MHz.

Under the auction guide [PDF], the starting price for the first lot will be AU$571,814,000, while the second lot will start at AU$285,907,000, with applicants also required to pay a 10 percent deposit of the starting prices by the preference deadline on March 16.

The winning bidder will be permitted to pay either the total amount upfront or in three annual instalments comprising 48.0051 percent of the gross auction price by January 31, 2018; 26.6315 percent of the gross auction price multiplied by 1.05 by January 31, 2019; and 25.3634 percent of the gross auction price multiplied by 1.1025 by January 31, 2020.

Applications close on February 13 and involve an entry fee of AU$10,000 to take part in the auction, which is expected to begin on April 4.

"This spectrum band -- made available after Australia switched from analog to digital TV -- is highly valued for mobile broadband, in particular 4G services," acting ACMA Chairman Richard Bean said on Monday.

"We expect that the spectrum will be used to provide high-speed mobile voice and data coverage to regional and metropolitan Australia."

Spectrum licenses will commence on April 1, 2018, and expire on December 31, 2029, in line with the previously issued 700MHz licences.

According to the ACMA, if the 700MHz lots remain unsold after the auction, it is "likely to be allocated for a predetermined price or by way of tender".

The ACMA will use what it called the "simple clock auction" (SCA) methodology for auctioning off the spectrum.

"Before each round, the auction manager nominates a price (the specified price) that the bidder must meet in the upcoming round to be eligible to place a bid in the subsequent round. The bidder can make a bid at or above the specified price (a continue bid) or place a lower bid (an exit bid). An exit bid must be equal to or greater than the specified price for the previous round of the auction. If a bid for a lot is for lower than the specified price of the current round -- that is, if it is an exit bid -- then it is the bidder's final bid for that lot. Once a bidder has made an exit bid, the bidder cannot resume bidding on that lot in future rounds," the ACMA explained.

"The bidder can also place a continue bid above the specified price for the round using the 'advance price' feature. The system automatically accepts that 'advance price' as the bidder's bid in subsequent rounds until either the advance price falls below the specified price for a round (and hence becomes an exit bid), or the bidder makes a new, replacement bid in a subsequent round (whichever occurs first).

"The highest bidder in the final round wins and pays the amount of the second-highest bid. This ensures that the winner never pays more than necessary to win, which encourages 'true value' bidding."

If identical exit bids are made, the winning bidder will be chosen by a "pseudorandom selection", the ACMA added, and will pay the amount specified in the tied bid.

No single person or group is permitted to acquire more than 2x 20MHz of spectrum in the 700MHz band -- lower than the 2x 25MHz limit imposed during the 2013 digital dividend -- which will be ensured by the ACMA.

Communications Minister Mitch Fifield made this allocation limit in December after receiving advice from the Australian Competition and Consumer Commission (ACCC). The ACCC also said that Telstra should not be permitted to buy any spectrum in the 700MHz auction, as it already holds a majority.

During the original 700MHz 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.

"Given Telstra currently holds over 50 percent of available low band spectrum, we consider that if it was able to acquire additional 700 MHz spectrum, it would increase its dominance of the available spectrum for use in mobile markets," the consumer watchdog said.

"Further, we do not consider that being unable to acquire additional 700MHz spectrum will constrain its ability to compete."

If TPG won the spectrum, it would build a fourth mobile network, and if Optus or Vodafone Australia won the spectrum, capacity and quality across their mobile networks would be increased -- all of which would improve competition, the ACCC said.

The ACMA also amended the spectrum tax determination at the end of last year, ahead of the auction.

"The ACMA amended Part 7A of the Radiocommunications (Transmitter Licence Tax) Determination 2015 in December 2016 to incorporate base rates of tax for a PMTS Class B licence authorising the operation of a transmitter in the frequency range 788-803MHz," the ACMA explained.

"The relevant annual licence tax rate is AU$0.07/MHz (paired)/pop with population, based on the relevant hierarchical cell identification scheme (HCIS) applying population estimates from the 2011 Census. This is consistent with the tax rate applied for 'early access' apparatus licences after the digital dividend auction."

The ACMA had released its consultation paper on the draft allocation decisions for the 700MHz spectrum band auction in October, revealing its proposed entry fee, lot configuration, and auction methodology, all of which remain the same in the auction guide.

This followed the Australian government announcing at the beginning of October that it would be auctioning off the 700MHz spectrum that went unsold during the 2013 digital dividend auction, following Vodafone Australia's proposal to buy the spectrum outright for either AU$571,814,450 upfront or in three instalments totalling AU$594.3 million.

The 700MHz spectrum, auctioned off by the ACMA in 2013, is used for additional 4G mobile broadband capacity, particularly over long distances.

The government decided to auction off the remaining 700MHz spectrum after consulting on Vodafone's proposal and determining that there was strong market interest from other providers.

Vodafone, TPG, Optus, and Telstra have all expressed interest in bidding for the spectrum, with TPG CEO David Teoh saying it could allow another mobile entrant in Australia.

"We believe that wireless connectivity will play an increasing role in the future needs of Australian telecommunications consumers. We have recently invested in 1800MHz spectrum and would be keen to augment that purchase with 700MHz spectrum. The long-term benefits for our company of securing this spectrum would be significant," Teoh said at the time.

"We are particularly pleased that the ACCC will be looking at the competition limits that should apply in respect of this auction. Access to spectrum represents the ultimate barrier to entry in this market. Existing providers, particularly those with substantial existing spectrum holdings, including in the 700MHz band, might have an incentive to limit the ability of a fourth entrant to secure spectrum. We will be making submissions to the ACCC that they recommend allocation limits that will have the best outcomes for competition and consumers."

Teoh in December said that while challenging, it is imperative that TPG become the fourth mobile operator in Australia.

"We stated quite clearly that we would like to be the fourth mobile operator ... it is a difficult project, and we have to be careful in our implementation," he said.

"What you have in this company, a lot of things are in place: The extensive fibre infrastructure, the backhaul that we own; there is one key cost to run a mobile network, the customer service; the core network; the billing systems; they are all in place today.

"What we lack are the towers -- acquiring tower space is very difficult in this country."

TPG will also take part in Singapore's mobile spectrum auction in an effort to become the fourth mobile operator there.

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