Will we see the return of the cosy duopoly?

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The government is gearing up to sell management rights to the 700MHz spectrum in the next few months and hopefully we’ll see LTE mobile service deployed throughout the country in the not too distant future.

The auction itself is key to the future of the mobile telco sector in New Zealand and there are a couple of worrying signs in the information that’s been released so far.

All together we’re looking at 45MHz in total. We have three mobile operators so that would be three lots of 15MHz each. Nice and simple, it means we have equal opportunity for mobile network deployments and each network operator will be able to offer the same level of throughput as the other operators.

However, that doesn’t take into account the technology itself. LTE is clever stuff and will allow network operators to combine together spectrum from a variety of different bands to create a massive network with potential for hundreds of megabits per second.

If that’s to happen, we need to address ownership of all available spectrum, not just the 700MHz spectrum in isolation.

What really worries me, however, is the note in the press release that says the 700MHz spectrum will indeed be sold off in 5MHz blocks with no operator able to buy more than 15MHz. Unless there’s a lack of interest, in which case the Ministry may increase that limit to 20MHz.

Two operators with 20MHz and a third with nothing or at best 5MHz would destroy our newly emerging mobile network competitive market.

For too long we struggled with a cosy duopoly in our mobile market. Two players does not make for a dynamic market – it makes for a carefully managed, steady-as-she-goes, don’t rock the boat approach to pricing and services. It’s natural, it’s what happens in every industry and it’s entirely hopeless.

Today we have three network operators with two and a half networks. If we want to ensure a three player market in 4G (something the Aussies have already got wrong) then we have to ensure the auction is conducted in such a way as to make that a priority.

I know Treasury thinks it can make a windfall from the auction. I know the government will, in these difficult economic times, be eager for a boost to the coffers from those greedy telcos. But the true economic impact comes later, once the networks are deployed. It’s only then, when we have competition and capability, that we see the benefits such deployment can bring. The government itself acknowledges that – now it must manage the bean counters to make sure they don’t get too carried away with dollar signs in their eyes.

I’d go so far as to simply offer up the spectrum at no cost. Think what 2Degrees could do with its network deployment if it didn’t have to invest $100m or more in spectrum. That’s serious money for a network rollout that will bring competition to the masses.

Think I’m a Communist? We have precedent. We’re talking here about a 20 year monopoly on these spectrum lots, given away in the belief that the economic gain will be tremendous. If that sounds familiar then it should – that’s the argument the government uses to sell its Sky City convention centre deal. Why not use the same logic here?

The Digital Dividend is here, (but isn’t evenly distributed)

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The government has announced its plan for auctioning off the 700MHz digital dividend spectrum that will become available once analog TV is discontinued next year.

700MHz spectrum is highly sought after as a way of delivering 4G speeds, especially in rural areas. The lower frequency means the signal travels further, copes with buildings better and generally is seen as the best frequency range for LTE mobile services.

The government has decided to hold a straight forward auction rather than any kind of beauty contest as happens elsewhere in the world. It’s also decided that the sale will be organised in spectrum blocks “according to the Asia Pacific Telecommunity band plan” but there’s no word on how many blocks there will be, how big they’ll be or indeed how the auction will run. That’s yet to be decided, apparently.

In our submission to the MED (now MBIE) on the whole issue, TUANZ pushed for some kind of discount or other form of preferential treatment for rural deployment. Telcos traditionally roll out new networks in the CBDs of their largest target cities, and slowly deploy deeper into rural areas. We’d like to see that circumvented and suggested offering a lower price for telcos that offer to do just that. The government has decided not to follow that model.

Vodafone has indicated that it will deploy LTE on rural towers once the 700MHz spectrum is made available, which is a good thing for rural users.

There is one major issue outstanding, however, and that is Maori access to spectrum.

In 2000, as the 2100MHz auction approached, Maori pointed out to the government of the day that no ownership of the airwaves had been established and that Maori could challenge the government through the Waitangi Tribunal.

Then-minister Paul Swain side-stepped the issue by putting aside one block of the four blocks being sold and giving Maori interests first right of refusal on taking up those management rights at a 5% discount. He also sweetened the pot by putting up $5m to help set up the Maori Spectrum Trust (now the Hautaki Trust) and to help it find a commercial partner.

Today, that Trust is a shareholder in Two Degrees and without that discounted spectrum we probably wouldn’t have a third player in the market today.

In an ideal world, the government would probably have reached a similar deal today. Perhaps a chunk of spectrum could have been given to the Trust in order to shore up its shareholding in the company that runs Two Degrees, thus ensuring strong competition from our newest telco alongside encouraging Maori investment in the high tech sector.

Instead, the government “is investigating” setting up a $30m ICT development fund to assist Maori to “leverage the potential benefits from new technologies and promote and support the language and culture in a digital world”. That’s a laudable goal but I can’t help but feel the government has missed an opportunity to do a lot more on a pragmatic level.

It also opens the door to a challenge to the spectrum sale through the courts and potentially the Tribunal itself. That could delay the auction and potentially mean we spend a lot of money on lawyers and economists instead of where it should be spent – on rolling out faster mobile broadband, something the government says is worth $2.4 billion over the next 20 years.