Australian government misses $1 billion in Digital Dividend auction

The government failed to sell one-third of the 700MHz spectrum—worth $1 billion—that was up for sale in the Digital Dividend auction. Total revenue for the auction made from 700MHz and 2.5GHz spectrum was $1.96 billion, below the government's expectations.

As expected, Telstra took the lion’s share of the so-called “beachfront” 700MHz spectrum, taking 2x20MHz of the 2x45MHz available in the auction, according to results released today by the Australian Communications and Media Authority (ACMA). Optus took 2x10MHz and the remaining 2x15MHz went unsold.

The 700MHz auction lasted only one round, so the spectrum was sold at its reserve price of $1.36 per MHz POP. POP is a telecom term measuring the amount of spectrum owned in a region multiplied by the number of people reached.

The government sold all of the spectrum it had available in the far less expensive 2.5GHz band, but in only three rounds and at prices “only marginally above reserve prices,” the ACMA said. Telstra again took most of the spectrum (2x40MHz). Optus followed with 2x20MHz and surprise entrant TPG Internet took 2x10MHz.

Background: What is the Digital Dividend?

Telstra spent $1.3 billion in the auction, while Optus paid $649 million and TPG spent $13.5 million. Vodafone Hutchison Australia, which had previously stated it would not bid for 700MHz but left open the possibility of a 2.5GHz run, withdrew before the auction began.

The results were largely consistent with the predictions of analysts who spoke to Computerworld Australia before the auction.

A late rule change by Communications Minister Stephen Conroy had allowed participants to bid for a maximum of 2x25MHz each, but it appears that proved too expensive a proposition for either Telstra or Optus. Conroy increased the maximum after Vodafone Hutchison Australia made clear it would not bid.

Conroy said today the government would return the leftover 15MHz of paired 700MHz spectrum to the market in the next two to three years.

“The ACMA has previously stated that it should not be assumed any unsold spectrum would be returned to market in the short term, or at a price that is lower than the reserve price set for this auction,” Conroy said. “I endorse that as a sensible view and intend to provide the ACMA with a formal Direction that supports that approach, following public consultation.”

The reserve price was the minimum amount accepted for bids.

ACMA Chairman, Chris Chapman, said the auction results would provide better mobile broadband to Australia.

“By making spectrum previously required for analog television transmissions available to meet rising demand for high-speed wireless broadband, the Digital Dividend auction will well position the Australian telecommunications industry to deliver fast, ubiquitous and symmetrical mobile broadband connectivity to consumers and industry,” he said.

Telstra CEO, David Thodey, said the telco would use its new spectrum to achieve faster speeds, more capacity and wider coverage of its 4G LTE network.

Optus CEO of consumer Australia, Kevin Russell, similarly said the 700MHz spectrum would bring better coverage to metro and regional Australia and that the 2.5GHz spectrum would increase capacity for metro customers.

TPG said the 2.5GHz spectrum it has acquired “is a valuable asset which, with developing technologies, will bring TPG the opportunity to offer innovative and value-adding products to its customers, particularly in the increasingly important wireless broadband market.”

Telcos may begin to use the 700MHz band on 1 January 2015 and the 2.5GHz band on 1 October 2014. The bands must first be cleared of their existing users.

Follow Adam Bender on Twitter: @WatchAdam

Follow Computerworld Australia on Twitter: @ComputerworldAU, or take part in the Computerworld conversation on LinkedIn: Computerworld Australia

Copyright © 2013 IDG Communications, Inc.

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