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Conroy's spectrum mistake is Telstra's 4G revenge

The very fact that Conroy needed to intervene in the digital-dividend spectrum auctions shows how much things can change in five years. But as Conroy reaps what he sowed, is he making things better or much, much worse?
Written by David Braue, Contributor on

It's a safe bet that most mobile carriers would have preferred to wear red underpants to the auction over the policy that Stephen Conroy eventually introduced. Yet, as the industry counts the cost of his intervention in the mobile-spectrum auction, the move can be seen either as a shrewd response to the lack of competition — or as a disastrous fix for a long-ago misstep by Conroy that will engender a long-term lack of competition.

Perhaps carriers will bid more now if Conroy wears the underpants on his own head. (Credit: David Braue/ZDNet; BikiniBottom-red-20030625 image by Raimond Spekking, CC BY-SA 3.0

Either way, there is little doubt as to why Conroy felt the need to step in at this juncture: The government has been talking up the potential windfalls of the "digital dividend" for the better part of a decade now, and if those windfalls fail to eventuate it would be a massive spiritual defeat, as well as a problematic outcome for Labor's knife-edge surplus balancing act.

An argument could be made that this is all Conroy's fault.

We can, in this, lay some of the blame on Vodafone; if its absence from the auction meant that Telstra and Optus were able to snatch up key spectrum for a song, there's no reason why they wouldn't buy all of it — and, in so doing, close out any hope that some as-yet-unknown dark horse (Google, are you listening?) might step in to heat things up. This would relegate Australia's 4G market to formally bring the two-horse race that it already is into practice.

An even stronger argument could well be made that this is all Conroy's fault: remember that one of his first official acts as Labor's communications minister, all the way back in December 2007, was to extend the analog TV switch-off schedule from the Howard government's original deadline of December 2008.

Pushing back this deadline may have been prudent, given the low take-up of digital TV at that point, but adding a full five years to the schedule pushed back the availability of digital-dividend spectrum by a ridiculous amount (the United States, remember, stopped broadcasting analog signals in 2009, but I can still sit down and tune them in here today, four years later).

At that point, the iPhone hadn't even been launched in Australia, and iPads were still the stuff of science fiction. But things change quickly in telecommunications, and an over-eager Conroy would have been better served by dispensing with all of the fact finding and instead pursuing a more aggressive rollout timetable that would have unplugged analog TV by, say, 2010.

Conroy will say that he was trying to spare citizens some sort of digital TV shock by easing them into the new world, but more moderate thinkers will recognise that people would have learned very quickly if they risked losing their TV broadcasts.

Yes, Conroy was too nice and soft around the analog switch-off — and he's reaping the rewards now, because that five-year timeframe saw the commoditisation of wireless data, off-the-charts growth in demand for wireless broadband services, and a commensurate imperative for telcos to figure out a way to deliver it.

Necessity is the mother of invention, they say, and Telstra opened the floodgates when it invented a way to bypass the need for the digital dividend altogether. Its 1800MHz services may have been controversial in their early days — and caused quite a bit of consternation for Apple — but Optus' necessary decision to follow suit has established 1800MHz long-term evolution (LTE) services as a perfectly legitimate way of getting 4G.

Now we have a looming auction with an uncertain outcome, only two guaranteed participants, and a government that's desperate to maximise the value of the spectrum.

A year later, Telstra has nearly 1 million 4G customers, and, frankly, needs the digital-dividend spectrum much less than it used to. This fact has a direct impact on the saleability of that spectrum, which is still a nice-to-have thing for Telstra, but no longer the imperative it once was.

That's a huge slap in the face for a communications minister who has made much of his power over the industry — for example, in waving a digital-dividend ban over Telstra like the proverbial sword of Damocles, if it didn't comply with Labor's NBN plans, and more recently in his infamous statements about red underpants.

The jury is still out on whether he's a fan of red underpants himself, but Conroy's face is certainly red after Telstra both secured a nice NBN migration plan for itself and moved ahead of Conroy's analog-switchover deadline to secure itself the lion's share of Australia's 4G services. Telstra CEO David Thodey may be a nicer and more pragmatic leader than Sol Trujillo, but he is no less shrewd.

We now have more than a year until analog TV is switched off, by which time the rapidly growing availability of 4G devices is likely to have helped Telstra double the subscriber base on its 4G network. There are constraints on the capacity of its 1800MHz spectrum, of course, but to believe that Telstra can't push forward without the digital-dividend spectrum may be overstating things a bit.

Conroy could never have envisioned all of this back in 2007, of course. But if he hadn't been so complacent about the analog TV switchover, we no doubt would have already had a highly profitable 4G spectrum auction, potentially with the involvement of third parties who would seize upon the opportunity to build out smaller 4G networks for content delivery or other purposes.

Now we have a looming auction with an uncertain outcome, only two guaranteed participants, a government that's desperate to maximise the value of the spectrum, and a rather viable alternative into which Telstra is already pouring much of the money that Conroy would prefer to be heading into the government's coffers.

A new Commonwealth Bank analysis, for example, has predicted that Conroy's efforts to boost 4G spectrum prices, augmenting the relicensing costs of their existing 3G spectrum, will cost the industry AU$2.2 billion at auction and AU$5.5 billion over the next three years. However, the greater cost will come in the lack of 4G competition that results as the full implications of Conroy's unintended 4G legacy hit home.

What do you think? Will Conroy's move shore up the industry or permanently damage it? And, more broadly, should the government be intervening in a mobile market where private enterprise has been happily thriving for years?

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