FROM OUR CORRESPONDENT
Australia:
Australian spectrum auction “failure” We got our turn for a bit of global scrutiny when our 700MHz and 2.6GHz spectrum auction results were announced in early May.
ANSWER
Not all of it was welcome for our regulator, the Australian Communications and Media Authority (ACMA), which was left to explain to the world’s press why 2x15MHz of the 700MHz spectrum remained unsold. Answer: because Vodafone decided not bid due to what some termed the extremely high reserve prices set by ACMA. Stefan Zehle, CEO at Coleago Consulting, got under the skin of our ACMA with the following analysis (in brief – ACMA has damaged the Aussie economy by not listening to the industry). The main problem was that the auction of digital dividend spectrum was estimated to deliver a net benefit to the Australian economy of between A$7bn and A$10bn. Of course this estimate assumed that all of the spectrum will be allocated to mobile. In the event one third of the APT band plan 700MHz spectrum remains unsold whereas 100 per cent of the cost of freeing up the spectrum has been incurred. Therefore potentially several billion dollars of benefit to the economy has been lost as a result of setting reserve prices above the level where weaker operators can earn a normal return of capital employed. The damage the ACMA has inflicted on the Australian economy does not end there. Since VHA (Vodafone) ended up without spectrum it will further weaken their relevance in the market. Since competition is likely to have been weakened this will reduce the “consumer surplus” from the digital dividend i.e. the benefit consumers would gain in form of lower prices. Of course the most direct impact is the lower auction revenue for the
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Government. The Australian government budgeted in revenue from the auction at least equal to the total reserve, i.e. AS$ 2,894 million. In the event the auction raised only AS$ 1,964 million, i.e. 32 per cent below the target. The ACMA’s failure could hardly be more complete. Yet, it was widely predicted that with these high reserve prices spectrum would remain unsold, in fact Vodafone said it would not bid unless the reserve prices are lowered. The outcome says a lot about politicians’ lack of understanding of how investment decisions are made and also demonstrates an unwillingness to listen to the industry.
As you’d expect, good honest Aussie battler Chris Chapman, ACMA chair, wasn’t having that, and pointed out that Vodafone had already said it had not intention to bid for 700MHz spectrum even before ACMA set the reserve price. Additionally, Voda had also not bid for any spectrum at 2.5GHz, even though that had a relatively low reserve price. So, he concluded, price was not the issue. He also said that Zehle’s analysis of the cost to the economy through reduced competition was also off the mark. Yet down here in Oz, we know that all the operators had indeed complained about the reserve price. Optus described it as “unworkable’’, and said the government’s asking price was more than three-and-a-half times the price of wireless spectrum in similar markets. No chapeau, Mr Chapman.