The ‘dividend’ is from spectrum freed up when analogue TV broadcasting ends later this year. The Australian Communications and Media Authority (ACMA) expects the spectrum auction to run over several weeks, with results known in mid to late May.
“Once the auction has concluded, the results will be verified by an independent third party,” says ACMA. “Successful bidders will then be notified of the auction results, which will be published by the ACMA.”
ACMA says that during the auction it will not be disclosing any information about the progress of the auction, the level of competition, the identity of the bidders, or any other information that, if disclosed, could affect or be capable of affecting the outcome of the auction. “This is to protect the integrity of the auction.” Bidders are also bound by strict confidentiality provisions intended to guard against anti-competitive behaviour and therefore will not be able to discuss their participation in the auction.
In previous spectrum auction bids ACMA has set the reserve pricing, but it was told by Communications Minister Stephen Conroy in November 2012 that he will be the one to determine the reserve price. Conroy decided to take charge to maximise the government’s return on the auction – it hopes to make up to $4 billion from the sale. He has set a reserve price of $1.36 per MHz per head of population.
In December 2012 Conroy issued an amending direction to increase the competition limits from 2x20 MHz to 2x25 MHz for spectrum in the 700MHz band. “These directions provide certainty for industry and confirm that the ACMA will proceed with the auction in April 2013,” Senator Conroy said. “They ensure the best outcome and a fair price for the industry, consumers and the Commonwealth.
“This spectrum is seen as the ‘waterfront property’ of spectrum and the Government has made a significant investment to free it up. It is important that we get a reasonable return on this valuable public asset. In setting the reserve price, the Government has taken into consideration expert advice and consulted with relevant agencies including the ACMA. The amended limits will provide a competitive bidding environment for the 700MHz spectrum in a wider range of bidding scenarios.”
The fact that Senator Conroy took control of setting the reserve price can only mean that he is concerned that leaving it to ACMA would not give the government as high a return. In other words, he is likely to set a higher reserve price than the independent arbitrator, for purely political reasons. That is more likely to help Telstra, which has lots of money, than its competitors, which do not.
Carriers need the extra spectrum for 4G, LTE and further rollouts. The spectrum to be auctioned is called the 700 MHz band, but is actually for the 126 MHz of spectrum in the frequency range 694–820 MHz. Conroy is under pressure from the government to maximise the return from the auction to help the federal budget return to surplus.
Telstra and Optus are keen for more spectrum, but Vodafone CEO Bill Morrow has repeatedly said he might not take part in the auction, and that Vodafone would rely on its existing spectrum allocation for future growth.
All the carriers have said that the price proposed by the Government is too high. Optus said in December the process was unworkable. “It is out of line with international outcomes. The reserve price announced is effectively double the basket of outcomes achieved in comparable advanced economies over the past two to three years. It is likely to have the effect of restricting investment significantly, raising prices as costs are passed through to consumers and reducing consumer choice.”
Telstra announced last month that would raise €1 billion ($1.275 billion) through a bond issue to funding the purchase of more spectrum. TPG may also bid. It announced strong financial results last month, and could use some of the money to bid for spectrum . It has not announced that it will definitely do so, but CEO David Teoh, when specifically asked whether TPG would bid, said he could not confirm or deny the rumours.
Ratings agency Moody’s said last week (CommsWire, 19 April) that the credit ratings of both Telstra and Optus may come under pressure from their participation in the spectrum auctions. “The extent of the pressure on the ratings of these companies will depend on the degree to which they fund their spectrum purchases via debt and the amount of spectrum they purchase at the government auctions,” said Moody's.
“Based on our hypothetical scenario and key assumptions, the acquisition of spectrum will likely be partially debt-funded, depending on ultimate cost,” says Lewis. “The acquisition of spectrum will be most challenging for Optus's financial profile, while it could also narrow the financial cushion within Telstra's rating”.
ACMA publishes timetables and other relevant information about the auction on its website: http://www.acma.gov.au/WEB/STANDARD/pc=PC_310656