The fastest auction in the west

What must surely be the government’s fastest ever auction is over.

In just on a day, Telecom and Vodafone bought the maximum amount of 700MHz spectrum they are allowed currently – two pairs of 15MHz each – and 2Degrees bought two pairs of 10MHz each.

That leaves an additional two pairs of 5MHz unsold.

TUANZ has argued that having an auction is counter productive. We think it would be much better to give the licences for the spectrum to the telcos in exchange for building something we want – rural broadband, for example.

This is the model the government controversially chose for its Sky City convention centre deal. Rather than taking the money for an extension to its gaming licence, the government got Sky City to agree to build infrastructure (a conference centre) in exchange for an extension of its licence.

The parallels are obvious, although the government didn’t like the suggestion, so went ahead with an auction anyway.

Instead of investing money in the networks, the telcos have paid for pieces of paper that give them the right to build in certain 700MHz spectrum ranges. Telecom and Vodafone have each paid $66m while 2Degrees has paid $44m. That means the remaining lot is worth $22m on the same scale.

The government now has to figure out what to do next. Both Telecom and Vodafone have bought as much as they’re allowed, but the government has built in something of a back door. It has asked if they’d like to buy more than they’re allowed on the basis that it hasn’t been sold.

That must be quite tempting for both telcos and for the government, but I’d argue that this would be a very bad outcome for customers. I’d like to see all three telcos with the same amount of spectrum each. That way we can avoid the game playing around “my network is better than your network” and all the rest of the noise that goes with one player having more spectrum than the others.

In Australia, Telstra has bought two lots of 20MHz, Optus has bought two lots of 10MHz and nobody else bothered to bid because the price was so high.

This means Telstra can either offer double the speed that Optus can offer, or keep the speed the same but service double the customer base.

The 4G war in Australia is over before anyone has built a 4G tower. Telstra won.

We would do well to avoid that here. By ensuring all three players have the same amount we can ensure a level playing field when it comes to spectrum at the least.

There are a couple of ways to do that. First, the government can sit on the spectrum until 2Degrees has some funding available.

Given the spectrum can’t be deployed for a couple of years, there’s no rush to hand out the licences right now, so why not wait it out?

The second way would be to give the spectrum to the Hautaki Spectrum Trust. The Trust, you may recall, launched a bid to see the whole auction process and the government’s right to sell off radio waves taken before the Waitangi Tribunal.

That bid failed but the government has agreed to give Maori interests $30m worth of funding for ICT related activities.

If it handed over $20m worth of spectrum instead, the Trust could take that to 2Degrees and increase its shareholding in the company in exchange for the use of that spectrum.

It’s what the Trust did in the first place to get 2Degrees into the market and it makes a lot of sense for all players.

What the government shouldn’t do is rush into a sale to the highest bidder.

Telecom has already come out and said it thinks the spectrum should be shelved – as has 2Degrees, funnily enough – but of course if the government moves to sell it off, Telecom will have to compete for it or see the extra spectrum go to Vodafone for a song.

When you look at 700MHz spectrum in isolation it’s clear we want to see all three telcos on a level playing field. When you look at the sub-1000MHz range in its entirety, it’s clear 2Degrees is well behind the others in terms of spectrum resources. It needs the spectrum so it can compete in terms of pure bandwidth in the 4G world.

We need a strong third player in the market. The changes we’ve seen since 2Degrees launched have been tremendous and to the betterment of the customers. TUANZ wants to see that continue in the 4G world.