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Government to auction off 700MHz mobile broadband spectrum

Vodafone's proposal to buy the spectrum outright sparked negative responses from Telstra, Optus, and TPG, with the government deciding to auction off the 700MHz spectrum instead.
Written by Corinne Reichert, Contributor

The Australian government has announced that it will be auctioning off 2x 15MHz of the 700MHz spectrum band that went unsold during the 2013 digital dividend auction, following Vodafone Australia's proposal to buy the spectrum outright.

The 700MHz spectrum, auctioned off by the Australian Communications and Media Authority (ACMA) in 2013, is used for additional 4G mobile broadband capacity, particularly over long distances.

The government said it had 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.

For the auction, the government will provide formal directions to the ACMA on the allocation limits and reserve price, after seeking advice from the Australian Competition and Consumer Commission (ACCC).

Vodafone in May proposed to the Australian government that it be permitted to acquire 2x 10MHz in the 700MHz spectrum band for 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 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.

Vodafone at the time called its proposal a "win-win" for government and competition, with the Department of Communications calling for submissions from interested parties by June.

Alongside the decision to auction off the spectrum, the government also published the submissions on Friday.

Optus' submission [PDF] recommended that the government reject the proposal to allow Vodafone to be allocated the spectrum, saying it would be at odds with the Radiocommunications Act.

"Optus does support the principle that unused 700MHz lots should be allocated to maximise the overall public benefit, including achieving the highest value use," Optus said.

"Optus does not consider that the highest value use can be achieved or demonstrated by a 'behind-the-door' allocation to a single party at a price that appears, on the face of it, to be below current market prices."

Rather, Optus recommended an "equitable, transparent, and evidence-based process" for selling the spectrum.

Telstra's submission [PDF] said it had been "very surprised and concerned" at the proposal to sell the spectrum directly to Vodafone.

"We believe the proposed sale is detrimental to the integrity of Australia's spectrum management framework and potentially undermines confidence in future auction processes," Telstra said.

"Not only is it inconsistent with previous spectrum allocations, it is also inconsistent with key policy principles such as openness, transparency, equity, and ensuring that spectrum can be put to its highest value use."

Selling the spectrum to Vodafone without going to market first would result in a "sub-optimal allocation" and set an "undesirable" precedent on spectrum sales, Telstra concluded.

TPG's submission [PDF] revealed that the company had earlier this year expressed to the government that it wanted to purchase all of the remaining 700MHz spectrum so it can enter the mobile market, as it is attempting to do in Singapore.

"TPG's innovative products and business processes, combined with strong cost control and low overheads, have brought very high-value, low-cost plans to the broadband corporate and residential markets," TPG explained.

"TPG believes that there is good scope for it to bring a similar dynamic to the mobile market.

"TPG believes that the government's policy settings have not operated to encourage new entrants into the market for mobile services."

The provider, whose mobile customers currently use Vodafone's network, said the Australian government should, like the Singapore government, set policies to encourage a fourth mobile entrant.

Further, TPG recommended that Telstra should not be permitted to take part in any future 700MHz auction, because it is "already spectacularly dominant in the mobile market".

Optus should also not be allowed to take part, TPG added, because it already purchased enough in the 700MHz band during the original digital dividend auction.

TPG, Optus, and Telstra all welcomed Friday's decision, 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.

"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."

Telstra added that the decision "upholds the integrity of the spectrum allocation framework while ensuring that this spectrum can be put to its highest value use", and said it would like to participate in the auction.

Vodafone Australia chief strategy officer Dan Lloyd simply said that Vodafone is "currently considering our options".

Both the New South Wales Telco Authority [PDF] and the Law Enforcement and Security Radio Spectrum Committee [PDF] requested that the federal government take into account spectrum being allocated to public safety agencies prior to undertaking a commercial auction.

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.

Vodafone chose not to take part.

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.

During the ACMA's 1800MHz spectrum auction earlier this year, Optus Mobile spent the most, at AU$196 million, followed by Telstra, at AU$191 million; TPG, at AU$88 million; and Vodafone Australia, at AU$68 million.

Updated October 7 at 2pm AEDT: Added comment from TPG CEO David Teoh and Vodafone chief strategy office Dan Lloyd.

Updated October 7 at 2.39pm AEDT: Added comment from Optus.

Updated October 7 at 4pm AEDT: Added comment from Telstra.

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