Lack of competition stifles European auctions.docx

7/30/2019 Lack of competition stifles European auctions.docx

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Lack of competition stifles European

auctions

filed under:Mobile,Wireless broadbandMay 27, 2010 by Michael Newlands

The consensus amongst spectrum consultants is that the recent spate of auctions in Europehave mainly resulted in good results for operators, disappointing revenues for governmentsand, possibly, few benefits for consumers.

Looking at the three most recent auctions of2.6 GHz spectrum in the Netherlands,DenmarkandGermany, plus a mixed bag of other spectrum in the latter including Europes first sale of800 MHz digital dividend spectrum, consultant Richard Marsden of DotEcon said: I thinkthe common theme across these three auctions is low competition.

it was a mistake to have a super auction rather than individual auctions for the differentbands.

There was no excess demand in the Netherlands, and only modest excess demand inDenmark and Germany. This is a challenge for auction design in any countries where themobile market is relatively mature, and there are established incumbent operators.

Going back to the earlier 2.6 GHz auctions in three Scandinavian countries, Marsden said thesame was true here.

To understand the price differences across the auctions you have to dig into the detail ofwho was bidding, the market context in which they were bidding and the auction set-up.

It is striking that prices in Sweden and Denmark were significantly higher (on a per popMHz basis) than elsewhere. Both these countries have four mobile operators and theircollective demand outstripped supply, so prices had to go up until the point that one of theMNOs was willing to back down.

Comparison of European 2.6 GHz auctions

Country Auctiondate

Price( million)

Population(Million)

MHz sold /MHz/Pop( cents)

Norway 11/07 29 4.8 205 2.95

Sweden 05/08 226 9.1 190 13.01

Finland 11/09 3.8 5.3 190 0.33

Netherlands 04/10 2.6 16.5 130 0.12

Denmark 05/10 137 5.5 190 13.08

Germany 05/10 345 81.9 190 2.21
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By contrast, if you look at Norway and Finland, these countries had only 2 and 3 operatorsrespectively, so in the absence of any strong entrants, its no surprise spectrum sold at levelsclose to reserve.

Germany also has four operators, but the prices there for the 2.6 GHz segment of the auction

were low compared to Sweden and Denmark.

According to Marsden, the obvious explanation is the fact that the 2.6GHz band was just oneof several bands available in that auction.

Bidders were able to obtain substitute spectrum in other bands, such as 1800MHz and 2GHz,so there was more scope for bidders to compromise over demand for 2.6GHz. Moreover, the

battle that really mattered in Germany was the competition for 800MHz.

He described the Netherlands, where the lowest prices of all were achieved, as an odd case.He noted that while there are only three incumbents, the auction also attracted participation

from two serious new entrants.

However, because the spectrum caps on the incumbents were set very low, there still wasnot enough demand to increase prices above reserve. If the spectrum caps had been looser,

perhaps there would have been competition and higher prices. However, this is uncertainbecause it may have been the presence of the spectrum caps that attracted the entrants to jointhe process, he said.

More generally, there are no particularly obvious reasons why 2.6 GHz spectrum should beless valuable in Germany, Norway, Finland and Netherlands than in Sweden and Denmark.Therefore, its probably reasonable to suppose that the winners of 2.6 GHz spectrum in theformer countries got a good deal, helped by the fact that competition was weak.

Ongoing legal challenges

German lawyer Dr Grace Nacimiento who specialises in spectrum issues sounds a note ofcaution over the German auction. It should be kept in mind the whole auction is subject tovarious ongoing legal proceedings. BnetzAs (the German telecoms regulator) decisions have

been challenged in court by two of the mobile network operators, two cable companies, threebroadcasting companies, one broadcasting network operator and one broadband operator inthe 2.6 GHz band. At this point it is therefore unclear if and to what extent the auction will

hold up to legal review.

the results in Germany, will definitely close the market for the next 15 to 20 years sincethere is no spectrum left below 3 GHz.

Taking the various auctions together she comments: One obvious lesson when comparingthe auctions seems to me that they show that new entrants will only have a chance to acquirespectrum if either spectrum is reserved for new entrants or spectrum caps are imposed on theestablished operators.

Given the amount of spectrum in Germany it would have been possible to open the doors to

new competitors. Auction conditions were considered in the market to be rather anti-


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competitive, favouring the established MNOs. Spectrum caps in the different bands certainlywould have helped to open the market.

When other administrations are looking to hold their own auctions she feels spectrum capsand competition-friendly conditions should be of the essence, in particular when large

amounts of spectrum are put on the market.

Stimulating competition

The conditions for admission to the auction should be designed in a way to encourage newentrants to participate; in Germany, only the four incumbent MNOs made it into the auction;one applicant withdrew, another one was refused by BNetzA.

She also feels it was a mistake to have a super auction rather than individual auctions forthe different bands. She points out the bands differ in their technical characteristics andeconomic value, and could serve different business models in the market.

The MNOs, given their existing spectrum assets in 900 MHz, 1800 MHz and 2 GHz, wereobviously competing in the 800 MHz band, and dividing the rest (300 MHz) amongstthemselves as nice to have E-plus being the only MNO in a different position, not havingwon any spectrum in 800 MHz, says Nacimiento.

She said there seemed to be no real competition in the other bands which indicates theamount of spectrum was more than is actually needed by the MNOs. This is also reflected inthe substantial differences between the price per MHz/pop in 800 MHz and 2.6 GHz, all

bands having been set at the same floor price of 1.25 million per 5 MHz.

Comparison of bands at German super auction

BandPrice

( million)MHz sold

/MHz/Pop

( cents)

800 MHz 3,600 60 74.48

1800 MHz 105 50 2.51

2.0 GHz 358 59.2 7.39

2.6 GHz 345 190 2.

Current British thinking would see different bands, including 800 MHz and 2.6 GHz, sold inthe same auction. But Nacimiento feels a lesson should be learnt from the German auction.Different auctions with specific conditions, based on technical specifics and economic value,would make much more sense if the goal is to ensure efficient spectrum usage, avoidspectrum hoarding and open up the market to new competitors.

She says the results in Germany, provided they hold up in court, will definitely close themarket for the next 15 to 20 years since there is no spectrum left below 3 GHz.

Closing the market means reinforcing the existing oligopoly and constraining competitionand innovation. It seems rather doubtful that consumers would profit from such a marketdevelopment.


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Excessive complication?

The big bang auction should not be repeated by other regulators since once the spectrum isassigned it takes decades to change an inefficient allocation.

US-based spectrum consultant Karen Wrege found the price differential in Germanyastounding, but said the results were not surprising.

The few bidders, no new entrants and enormous amount of spectrum in the German auctionresulted in low values. This is a windfall for the incumbent providers in Germany.Incumbents everywhere favour the big bang auction approach that Germany adopted becausethere is plenty of spectrum to choose from and everyone gets something, says Wrege.

Also, very high mobile penetration rates usually lead to lower incremental spectrum valuesso it is not surprising that the German auction resulted in lower revenues. She agrees with

Nacimiento that there is a lesson to be learnt here by regulators in other countries.

The big bang auction should not be repeated by other regulators since once the spectrum isassigned it takes decades to change an inefficient allocation. Inefficient spectrum assignmentscan dramatically effect mobile telecommunications competition and consumer prices, she

points out.

Looking at the other two auctions, Wrege said: The Dutch and Danish auctions were overlycomplicated and could have been made simpler for bidders. I would recommend a simplersimultaneous multiple round clock auction for regulators who are considering an auction toassign their spectrum.

The Dutch auction spectrum caps and limited competition resulted in the clock auctionending after the very first round. The auction's only purpose in that case was to determinewhich block each of the winners would ultimately be assigned. It's a pity that they didn'tinclude a provision that would open up the spectrum caps in the event that there was lowerdemand than expected. This is what is being contemplated in Ireland.

Danish 2.6 GHz auction raises 50 times

more than Dutch auction


Denmarks auction of 2.6 GHz spectrum came to an end today with four bidders paying acombined 136 million for 2 x 70 MHz of paired FDD spectrum and 45 MHz of unpairedTDD spectrum.

In last months auction in the Netheralnds a total of just over 2.6 million was raised fromthe sale of 2 x 65 MHz of paired spectrum with no bidding for unpaired spectrum. The

Netherlands has a population of 16.7 million as opposed to just 5.5 million Danes, further
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highlighting the discrepancy in prices. At the time the small amount raised by the Dutchcontest was put down tounusually tight spectrum caps. There were no spectrum caps inDenmark.

Finn Petersen, deputy director of Danish telecoms regulator the National IT and Telecom

Agency (NITA) explained that the three operators buying 2 x 20 MHZ lots of pairedspectrum were prepared to pay a lot more than Hi3G which paid less than a million euros forits 2x 10 MHz of FDD spectrum and 25 MHz of TDD spectrum.

Operator

Paired spectrum

(MHz)Unpaired spectrum (MHz)

Price

(DKK)

Price

(Euros)

Hi3G 2520-2530 2640-2650 2570-2595 7,091,000 952,765

TDC 2500-2520 2620-2640 333,333,000 44,787,782

Telenor 2550-2570 2670-2690 2595-2605 333,333,000 44,787,782

Telia 2530-2550 2650-2670 2605-2620 336,331,000 45,190,291

Total 2 x 70 MHz 50 MHz 1,010,088 135,718,620

He said there was also very little interest in the unpaired spectrum which went for aminimum price. Telia bought 10 MHz of unpaired spectrum but was awarded the adjacent 5MHz lot at the top of the TDD band for free because of severe constraints on its use. If theyare not interested in using it, they can give it back to us, Petersen said.

Asked if NITA was happy with the price, he said there had been no prior assumptions aboutthat and the main point of the exercise had been to get the frequencies allocated as efficientlyas possible which the auction had done. The auction model worked very well, and the ITsupport was very good he said.

Like the auction in the Netherlands, the Danish one has a first phase in which the participantsbid for lots of spectrum and a second assignment phase to determine which exact frequenciesthey were awarded. However while the assignment phase threw up very different prices in theDutch auction, there was very little difference in what the Danish operators paid for their

positioning in the band.

He toldPolicyTrackerthe licenses were for a 20-year period, are freely tradable and are bothtechnology and service neutral. No coverage obligations are attached to the licenses either.

Petersen said the liberalised nature of the auction was due to Denmarks new frequencies lawwhich went into effect on January 1 this year. This allows secondary trading and introducedflexibility is the use of spectrum in a number of bands, he said.

-

Spectrum caps blamed for unsatisfactory

outcome of Dutch auction

filed under:Mobile,Wireless broadbandApr 29, 2010 by Michael Newlands
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The outcome of the just-competed Dutch 2.6 GHz auction, which saw only paired FDDspectrum sold in a market-led format, does not appear to have satisfied anybody save the twonew entrants.

Even UK-based auction specialists DotEcon which designed the auction and produced the

software to run it were not happy at the way things panned out with 60 MHz of spectrum corresponding exactly to the unpaired TDD centre gap which CEPT recommends beharmonised in all European auctionsremaining unsold. (SeepreviousPolicyTrackerarticle)

It is disappointing that the innovative design feature of allowing the market to determineallocation was not tested in the auction

It is an ironic result because the bands which were sold correspond exactly to the paired FDDfrequencies in the CEPT bandplan. A similar thing happened in theNorwegian 2.6 GHzauction, which allocated more TDD spectrum than the CEPT plan. In fact the extra TDD

bands were bought by a company which intends to use them for FDD. It raises two questions:

do operators want the opportunity to adopt specific national approaches and are complexauction designs necessary?

Were the caps too restrictive?

DotEconconsultant Richard Marsden, just back from the Netherlands where he supportedregulator Agentschap Telekom in running the auction, put the blame for the unsold spectrumat the door of the Dutch government which had imposed strict spectrum caps on incumbents

based on their existing holdings in other bands. This meant KPN and Vodafone beingrestricted to 20 MHz and T-Mobile to 10 MHz. New entrants were limited to 40 MHz.

It is disappointing that the innovative design feature of allowing the market to determ ineallocation between paired and unpaired technologies was not tested in the auction, he said.

It is perhaps surprising that no one bid for the unpaired spectrum.One possible explanationfor this may be the unusually tight caps imposed on the three incumbent bidders, This createdroom for two entrants to each buy the maximum permitted four paired lots each.

Had the caps been looser, it is possible that there would have been more competition forpaired spectrum, and possibly one or more of the bidders may have considered unpairedspectrum as an alternative.

The idea the caps prevented more competition was supported by a statement from Vodafone.which along with the other incumbents had sought a court injunction seeking to delay theauction and have its format changed.

Final prices were low, even relative to previous 2.6GHz auctions.

Given the imposed restrictions, Vodafone obtained a good result in the 2.6 GHz auction.However, it is a pity that one third of the total spectrum available now remains unused, whichunderlines our initial reservations on the chosen auction procedure, Vodafones officialspokesperson toldPolicy Tracker.
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To make sure that spectrum is used in its most efficient way and innovation is optimallystimulated, we would like to work with the Ministry of Economic Affairs in the Netherlandsabout a long-term spectrum policy and the upcoming frequency auctions, he said. Thisseems to imply the threat of further legal action is now off the table.

Caps may have driven down prices

Marsden also felt the caps could have been responsible for the poor proceeds from theauction.

Final prices were low, even relative to previous 2.6GHz auctions. This is despite the factthat there were two entrant bidders competing against the incumbents for paired spectrum.Again, the caps on incumbents probably provide an explanation for this, he said. Marsdenwas unable to say why four of the nine qualified bidders took no part in the auction. Thereserve prices were set at a low level, so this was clearly not a deterrent to participation, hesaid.

US-based spectrum consultant Karen Wregehad a slightly different take on things. Thefundamental problem with this auction was that there was no real competition, she said.

If the auction included the original 9 bidders, the results would have been substantiallydifferent. When four bidders dropped out of the auction before it began, the regulator was leftwith a single round clock where at the end of the first round of the clock there was no excessdemand. Indeed there was not only no excess demand, there was 60 MHz of excess supplysince the bidders were limited in the number of MHz that they could bid on and win, saidWrege.

So, there was no need for the planned supplemental bid phase and the auction went directlyto the assignment stage. The prices in the first phase were the reserve prices even though it isclear based on the final prices for some of the FDD pairs that the bidders would have beenwilling to pay more. KPN paid a 355% premium over base price for its choice of spectrum,while Ziggo 4 paid a 152% premium, she said.

She said the disparate prices in the final assignment stage did not come as a surprise since itis likely that all of the bidders strongly preferred the spectrum in the middle over thespectrum at the edges of the band.

There may also have been fitting problems that would have impacted the final second prices.We may never know exactly what happened since I understand that the regulator is not goingto reveal the assignment stage bids, she concluded.

Dutch pick up the UK's auction baton

filed under:Mobile,Wireless broadbandFeb 11, 2010 by Michael Newlands
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The ground-breaking approach of using auction design to determine spectrum packagingseems to be off the agenda in the UK but should be tested in practice in the next few weeks inthe Netherlands 2.6 GHz auction.

When Ofcom was still hoping to auction the 2.6 GHz band as early as 2007, the UK regulator

had proposed a format which would allow the market to determine the amounts of paired andunpaired spectrum. However, an auction of very similar design will take place in the

Netherlands in March or April.

When the UK auction finally does take place it seems unlikely the same service- andtechnology- neutral format will be used. The CEPT band plan of a 50 MHz centre block ofunpaired spectrum surrounded by 140 MHz of paired spectrum seems a more likely model.

Truly technology neutral?

What is going to happen in the Netherlands, and what would have happened in the UK hadthe auction gone ahead as originally planned, is known as a combinatorial clock auction.

In the first phase of bidding, participants bid over a large number of rounds for 5 MHz lots,which theDutch regulatorhas determined is the minimum bandwidth in which a service can

be provided. There are 38 lots.

Each time they bid, participants specify how many lots they are bidding for, and whether theywant paired or unpaired spectrum. The price per lot increases each round until demand andsupply are in equilibrium.

the complex auction procedure being proposed in the Netherlands...is unlikely to achieve anefficient outcome

There is then a supplementary bid round in which participants can bid on variouscombinations of their preferences for paired and unpaired frequencies.

Until now, which portion of the band will go to which participant has not come into theequation. A second phase of the auction allows the successful participants to bid for specific

positions between 2500 and 2690 MHz.

The preferences of the market as revealed in the auction process will have decided how much

of the spectrum will be for unpaired (TDD) use and how much for paired (FDD) use.

While the licenses are service- and technology-neutral, in practical terms the TDD spectrumwill likely be used for WiMAX and the FDD spectrum likely for LTE. While a TDD versionof LTE and an FDD version of WiMAX are standardised it is likely to be years before thereis equipment in the market for these variants which are more likely to appear under the ITUlabel IMT-Advanced.

TheDanish 2.6 GHz auction due to be held at about the same time as the Dutch contest alsotakes a combinatorial clock approach, allowing participants to bid for different packagesof spectrum, but the FDD/TDD split has been determined in advance. (Companies taking part

can also bid for 2.1 GHz which is being sold as a single lot)
http://www.agentschap-telecom.nl/english/companies/auction2.6GHz/Pages/Theauction.aspxhttp://www.agentschap-telecom.nl/english/companies/auction2.6GHz/Pages/Theauction.aspxhttp://www.agentschap-telecom.nl/english/companies/auction2.6GHz/Pages/Theauction.aspxhttp://en.itst.dk/copy_of_frequencies/licences/Auctions-and-calls-for-tenders/2-5-ghz/public-consultation-over-draft-2-5-ghz-auction-documents/http://en.itst.dk/copy_of_frequencies/licences/Auctions-and-calls-for-tenders/2-5-ghz/public-consultation-over-draft-2-5-ghz-auction-documents/http://en.itst.dk/copy_of_frequencies/licences/Auctions-and-calls-for-tenders/2-5-ghz/public-consultation-over-draft-2-5-ghz-auction-documents/http://en.itst.dk/copy_of_frequencies/licences/Auctions-and-calls-for-tenders/2-5-ghz/public-consultation-over-draft-2-5-ghz-auction-documents/http://www.agentschap-telecom.nl/english/companies/auction2.6GHz/Pages/Theauction.aspx


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In the Dutch auction a limit of 40 MHz of spectrum per participant has been set, with existingspectrum holdings being taken into account to ensure there are new entrants and they cannot

be blocked by incumbent mobile operators KPN, Vodafone and T-Mobile buying up all theavailable spectrum.

Too complicated?

It is still unclear whether a single auction defining the paired/unpaired arrangement or a bigauction encompassing multiple bands will turn out to be less complex

Vodafone is against the format of the Netherlands auction, and so would presumably also beagainst a very similar format being reinstated for the UK auction.

Andy Hudson, Vodafone Groups head of spectrum policy, toldPolicyTracker: Vodafonehas some reservations regarding the complex auction procedure being proposed in the

Netherlands. We believe it is unlikely to achieve an efficient outcome and suggest the auctionshould be revised."

We support the general approach being taken by many regulators of combining severalbands into single auctions. This provides greater clarity and allows participants to acquireappropriate spectrum for coverage and capacity needs of their customers.

The latter approach is what the so-calledIndependent Spectrum Brokerhas proposed for theUK. It is still unclear whether a single auction defining the paired/unpaired arrangement or abig auction encompassing multiple bands will turn out to be less complex; only time willtell.

Intel Corp UKs Wireless Standards and Regulations Manager Graham MacDonald said hewas not as close to the Netherlands auction, but on the UK s ituation he said: We would

prefer a similar situation where the market determines how much paired and how muchunpaired spectrum is allocated as Ofcom had originally proposed. Intel is heavily invested inWiMAX.

The Danish auction was originally due to be held in February, but the National IT andTelecom Agency toldPolicyTrackerthat it has been rescheduled until April or May.

Thedeadline for applications for the Dutch auctionwas on January 8 and the bidding process

is expected to start in March or April, according to the regulator, Agentschap Telecom.

Big three operators happy with low-cost

German auction


Germanys super auction featuring four different spectrum bands has fizzled out after more

than a month of incremental bidding. The final takings of 4.4 bn were half of the predictedvalue.
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The onlyparticipants in the auctionwere the four incumbent operators, with three of themspending roughly the same amount (1.3 to 1.45 bn) on a mixture of spectrum, the vastmajority of the cost being for the 800 MHz digital dividend spectrum. The bidding ended on20 May.

The fourth operator, KPN subsidiary E-Plus, did not win any 800 MHz spectrum and as aresult spent a much more modest 285 million on a mixture of paired and unpaired spectrumin the 1.8 GHz, 2.0 GHz and 2.6 GHz bands.

Spectrum assignments from the German auction

Operator Band Amount Price million

Deutsche Telekom 800 MHz 2 x 10 MHz 1,154

1.8 GHz 2 x 15 MHZ 61.3

2.6 GHz (FDD) 2 x 20 MHz 76.2

2.6 GHz (TDD) 5 MHz 8.6

Sub Total 2 x 45 +5 MHz 1,300

Vodafone 800 MHz 2 x 10 MHz 1,210

2.0 GHz (FDD) 2 x 5 MHz 93.8

2.6 GHz (FDD) 2 x 20 MHz 73.5

2.6 GHz (TDD) 25 MHz 45

Sub Total 2 x 35 +25 MHz 1,442

O2 (Telefonica) 800 Mhz 2 x 10 MHz 1,212

2.0 GHz (FDD) 2 x 5 MHz 65.9

2.0 GHz (TDD) 19.2 MHz 11.4

2.6 GHz (FDD) 2 x 20 MHz 71.4

2.6 GHz (TDD) 10 MHz 16.5

Sub Total 2 x 35 +29.2 MHz 1,377

E-Plus (KPN) 1.8 GHz 2 x 10 MHz 43.9

2.0 GHz (FDD) 2 x 10 Mhz 187.4

2.6 GHz (FDD) 2 x 10 MHz 36.7

2.6 (TDD) 10 MHz 16.5

Sub total 2 x 30 +10 Mhz 284.5

TOTAL2 x 145 MHz Paired (FDD)

69.2 MHz Unpaired (TDD)4,403

Deutsche Telekom, Vodafone and Telefonica O2 between them spent 3.6 bn on 2 x 30 MHzof 800 MHz spectrum.

The next most expensive chunk of spectrum was 2 x 20 MHz in 2.0 GHz band which went toVodafone, O2 and E-Plus. This was considerably more per unit the much-hyped 2.6 GHz

band which went for a total of 258 million for the 2 x 70 MHz paired portion, with all fouroperators getting their share, and 87 million for the 50 MHz unpaired centre gap.
http://www2.bundesnetzagentur.de/frequenzversteigerung2010/ergebnisse.htmlhttp://www2.bundesnetzagentur.de/frequenzversteigerung2010/ergebnisse.htmlhttp://www2.bundesnetzagentur.de/frequenzversteigerung2010/ergebnisse.htmlhttp://www2.bundesnetzagentur.de/frequenzversteigerung2010/ergebnisse.html


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The 2 x 25 MHz of 1800 MHz spectrum available went for a surprisingly modest 105million while the cheapest lot was 19.3 MHz of unpaired spectrum in the 2.0 GHz bandwhich fetched just 11.4 m from O2.

Amount of spectrum and price by band

Band Amount of Spectrum Total price for band

800 Mhz 2 x 30 MHz 3.6 bn

1800 Mhz 2 x 25 MHz 105 m

2.0 GHz paired 2 x 20 MHz 347 m

2.6 GHz paired 2 x 70 Mhz 258 m

2.0 GHz unpaired 19.2 MHz 11.4 m

2.6 GHz unpaired 50 MHz 86.6 m

The general consensus amongst analysts seems to be that the three operators who won 800MHz spectrum can be pretty satisfied with the auction result and the price paid, particularlycompared to the nearly 50 bn paid for German 3G spectrum at the height of the Internet

bubble in 2000.

Germany takes the lead

A statement from Deutsche Telecom (DT) soon after the auction ended seemed to confirmthat view. The outcome of the spectrum auction puts Germany in a leading position when itcomes to the award of the digital dividend in the 800 MHz band in Europe, and at the cuttingedge of mobile broadband development, said the countrys largest mobile operator and fixed

line incumbent. If the efficient use of LTE is also to be guaranteed on an international level,neighbouring countries now need to follow suit.

The head of DTs German operations Niek Jan van Damne was quoted as saying: Weacquired all the frequency blocks necessary to move forward with our network expansion.We are thus establishing a key basis for increasing mobile data revenue in line with ourstrategy.

DT said it will use the 800 MHz spectrum to roll out LTE to rural areas while it will use itsnew 1.8 GHz and 2.6 GHz holdings to provide coverage in densely populated urban areas.

However how long KPN will stay on in Germany following subsidiary E-Plus withdrawingfrom the 800 MHz bidding is the subject of speculation, with analysts raising the possibilityof a merger with or sale to third-ranked Telefonica O2.

The result of the auction was in stark contrast with the Indian 3G auctionwhich ended a dayearlier having raised more than twice as much as the government and analysts had estimated.

Vodafone, the only company to take part in both auctions, paid 1.44 bn for a mixture ofspectrum holdings in Germany, 1.2 bn of which was for 2 x 10 MHz of 800 MHz spectrum.In India it forked out $2.47 bn (1.98 bn) for 2 x 5 GHz of 2.1 GHz spectrum.
https://www.policytracker.com/headlines/unhappy-operators-pay-14.6-bn-in-indian-3g-auctionhttps://www.policytracker.com/headlines/unhappy-operators-pay-14.6-bn-in-indian-3g-auctionhttps://www.policytracker.com/headlines/unhappy-operators-pay-14.6-bn-in-indian-3g-auction


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Unhappy operators pay $14.6 bn in Indian

3G auction

filed under:MobileMay 20, 2010 by Michael Newlands

After 183 rounds of bidding over 34 days, Indias 3G auction has come to a close havingraised $14.6 billion for government coffers but failing to produce a single nationwide licenseholder.

Although three national licenses were theoretically available to anybody who successfully bidfor spectrum in each of the countrys 22 circles or service areas, no one company wonmore than 13 regional licenses.

MTNL and BSNL...will have had a substantial shock as the auction price smashed allexpectations, and between them they will have to pay $3.6 bn

Following the auction there are now seven private operators licensed to provide 3G servicesin addition to the 15 licensed 2G operators. But unless there is consolidation in the market,the only national 3G service will be provided by the two state-owned operators MTNL andBSNL which are expected to merge in the short-to-medium term.

At present they have a network sharing agreement with MTNL operating in the two maincities of Delhi and Mumbai while BSNL operates in the rest of the country. It plans on

providing 3G coverage in 780 cities by year end.

Both launched their 3G services last year, having been given use of a freed-up 2 x 5 MHzblock of spectrum prior to the auction on the condition they later pay the market price asdetermined by the auction.

They will have had a substantial shock as the auction price smashed all expectations, andbetween them they will have to pay $3.6 bn, $1.4 bn of which MTNL will have to fork outjust for its service in the two cities which are Indias national and commercial capitals. Theminimum price for a national 3G license had been pegged at just $750 million by thegovernment.

Price paid by licensed 3G operators

OperatorNo of regional

licencesTotal Price

Bharti 13 $2.63 bn

Vodafone 9 $2.47 bn

Reliance 13 $1.84 bn

Aircel 13 $1.50 bn

Idea 11 $1.23 bn

Tata 9 $1.25 bn
https://www.policytracker.com/search?Subject%3Alist=Mobilehttps://www.policytracker.com/search?Subject%3Alist=Mobilehttps://www.policytracker.com/search?Subject%3Alist=Mobilehttps://www.policytracker.com/search?Subject%3Alist=Mobile


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STel 3 $72 m

Sub-Total 71 $10.99 bn

State-owned operators 22 (1 national license) $3.61 bn

Total 93 $14.6 bn

The amount of money Bharti, Reliance and Vodafone had to pay for their licenses in Delhi --$710 million each, or almost the reserve price for a national licenseand Mumbai -- $695million each -- was one reason given for the big threes failure to acquire a national 3Gfootprint as well as being a major contributor to the overall kitty.

"We would like to point out that the auction format and severe spectrum shortage along withensuing policy uncertainty, drove the prices beyond reasonable levels," Bharti Airtel said in astatement. As a result we could not achieve our objective of a pan-Indian 3G footprint in this

round.

Some of the results of the bidding point to either a skewed auction procedure or a lack ofplanning on the part of some of the operators. Thinly-stretched Bharti, which has just boughtthe African operations of Zain for $10.7 bn, was the single largest bidder, winning 13regional licenses for a total of $2.63 billion.

However these were at both ends of the desirability scale, with Bharti paying just $6.5million for one of the four licenses available in Jammu & Kashmir (five regions had fourlicenses available and the rest only three), and $8 million in Himachal Pradesh. But it missedout in several other major regions including Maharashtra, Gujarat and the third largest city,Kolkata.

Most popular regional licenses by price (Top 10 out of 22)

Service Area Winning bidders Price per license

Delhi Bharti, Reliance, Vodafone $710 m

Mumbai Bharti, Reliance, Vodafone $695 m

Maharashtra Vodafone, Tata, Idea $269 m

Gujarat Vodafone, Tata, Idea $230 m

Andhra Pradesh Bharti, Idea, Aircel $294 mKarnataka Bharti, Aircel, Tata $338 m

Tamil Nadu Bharti, Vodafone, Aircel $313 m

Kolkata Vodafone, Aircel, Reliance $116 m

Uttar Pradesh (W) Bharti, Idea, Tata $110 m

Uttar Pradesh (E) Vodafone, Idea, Aircel $78 m

Least popular regional licenses by price (Bottom 2 out of 22)

Service Area Winning bidders Price per licenseHimachal Pradesh Idea, Reliance, Bharti, STel $8 m


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Jammu & Kashmir Idea, Aircel, Reliance, Bharti $6.5 m

Vodafone, which only won in nine regions, was the second highest bidder because its licenseswere concentrated mainly in the top 12 circles. Although Vodafone bid nearly $2.5 bn for the3G licenses, a few days before the auction closed it wrote down the value of its Indian 2G

business by more than 25% because of the competition in the country.

Major Indian operator Tata, in partnership with Japanese mobile giant DoCoMo, while it didnot win in Delhi and Mumbai, appeared to have spent its $1.2 bn wisely in the next rankdown alongside Aircel and Idea. Small operator STel was licensed in just three of thesmallest circles.

A further hurdle

Now the winners in the auction will have to wait and see whether they get use of the

spectrum they have paid so much for in September, as the government promised before theauction. One reason for the many delays in getting the auction off the ground was the militarystill using the spectrum that has now been sold, and refusing to vacate it until the state-ownedoperators have built out a fibre optic network they can use instead.

But three weeks after the auction began, newspaper reports in India said the winners mayhave to wait at least an extra four months for their spectrum, until January 2011, because thefibre optic network would not be ready in time. While the government has denied this,operators are skeptical.

The results of the auction are still subject to government approval. The BWA auction, for

which there are nine approved bidders, is then expected to start. They may happen as soon asFriday.

The German and Indian spectrum auctions:

Did operators get value for money?

24 May 2010

Two of the worlds biggest spectrum auctions in the last decade finished within a day of eachother. What can be learned from their results?

It was a big week for spectrum auction watchers. On Wednesday, 19 May, the Indian 3Gauction concluded, raising EUR 11.7 billion (USD14.6 billion). This was the second highestrevenue-generating spectrum auction for almost a decade, behind the US 700MHz auction in2008. The Indian auction was quickly followed by the German auction concluding onThursday, raising EUR4.4 billion (USD5.5 billion). Did these massive auctions result invalue for money for operators? Spectrum prices have significantly fallen since the 3G

auctions in 200001. Although the EUR3.4 billion (USD4.2 billion) that Vodafone (the onlyoperator to participate in both the German and Indian auctions) spent last week may sound


15/22

like a lot, it is dwarfed by the EUR18.3 billion it spent in the UK and German auctions in2001. So, the winners of last weeks auctions are unlikely to rue their decision to participate.

That said, the spectrum sold in the Indian 3G auction is widely viewed to have beenexpensive. The Indian Department of Telecoms auctioned either three or four 25MHz lots in

the 2.1GHz band in each of the 22 telecoms circles across India. The auction generatednearly double the revenue predicted before the auction, and at approximately EUR0.34(USD0.42), per MHz, per population, it generated nearly 40% more revenue per MHz per

population than the equivalent band in the German auction (the 2.1GHz band). This wasdespite India having a GDP per capita 40 times less than that of Germany.

The German auction, on the other hand, raised less revenue than expected. Ahead of theauction, Barclays Capital forecast that it would raise EUR5.8 billion , and KPMG forecastthat it could raise up to EUR8 billion. Ultimately, it only raised EUR4.4 billion (USD5.5

billion). BNetzA auctioned a total of 360MHz (of which 2145MHz was FDD spectrum)ranging across the 800MHz, 1800MHz, 2.1GHz and 2.6GHz bands. T-Mobile, Vodafone and

O2 each spent between EUR1.3 billion and EUR1.4 billion, for which they gained between95MHz and 100MHz of spectrum. Critically, each of these operators won 210MHz of800MHz spectrum, which is viewed as the most valuable on offer, due to its favourable

propagation characteristics enabling cheaper rollout of mobile broadband to rural areas. Incontrast, E-Plus spent just EUR284 million for 70MHz of spectrum, but it failed to gain any800MHz spectrum.

In order to assess how much value for money each operator received, it is necessary to look atthe prices achieved on a band-by-band basis (as illustrated below).

Figure 1: Forecast and actual prices raised in the German auction [Source: BnetzA, BarclaysCapital, Analysys Mason, 2010]

The 800MHz band actually raised more revenue than forecast. Meanwhile, the 1800MHz,2.1GHz and 2.6GHz band all raised less than anticipated. If the German results are comparedwith other recent auction results, as shown below, again the 800MHz band looks relativelyexpensive, given that it fetched a higher price than the US 700MHz auction, and the 2.1GHz

and 2.6GHz band looks cheap when compared to similar recent auctions. Effectively, withjust 230MHz available at auction, the 800MHz spectrum band was scarce; while with


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2115MHz of high-frequency, paired spectrum available (1800MHz, 2.1GHz and 2.6GHz),there was more than enough to go around.

Figure 2: Prices of 800MHz, 2.1GHz and 2.6GHz auctions[Source: Analysys Mason]

Therefore, on reflection, E-Plus decision not to purchase 800MHz spectrum and insteadfocus on the more economical, higher-frequency bands may have been a good one. Further,having more than EUR1 billion extra in the bank is never a bad thing.

In conclusion, the Indian auction looks expensive, especially given its level of economic

development. However, it should be noted that a scarcity of mobile spectrum (regardless ofwhether it is 2G or 3G) is likely to have pushed up the prices. By comparison, the Germanauction looks like it was value for money, especially in the high frequency bands.

Comparison of 2.6 GHz Auction Results In Europe

Show10

entries

Search:

CountryAuction

DateAuction Design

Price (

Million)

Population

(Million)

MHz

Sold

/MHz/Pop

( cents)

NorwayNovember2007

SMR with Switching 29 4.8 205 2.95

Sweden May 2008 SMR with Switching 226 9.1 190 13.01

FinlandNovember2009

SMR with Switching 3.8 5.3 190 0.33

Netherlands April 2010 Combinatorial Clock 2.6 16.5 130 0.12

Denmark May 2010 Combinatorial Clock 137 5.5 190 13.08

Germany May 2010SMR (along with severalother bands)

345 81.9 190 2.21

Austria September2010

Combinatorial Clock 39.53 8.3 190 2.5


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Spectrum Auction Results

This table of spectrum auction results is based on public information obtained from a variety of

sources. If you have edits to the data here, or want to ask us questions,contact us by clicking here.

Cellular News has a helpfulreference list of links to telecom regulatorsaround the globe.

Show10

entries

Search:

Country Band(s)MHz

Sold

Populatio

n

Total

procee

ds

Total

procee

ds $US

$ per

MHz*po

p

Auction

Close

(Year/Mo/D

a)

Auction

Type

Link to

Results

Greece

900 and

1800

MHz

110

MHz

11,319,04

8

380.5

Million

$514.5

Million

0.41320

02011/11/14 SMRA

Italy

800,

1800,

and

2600

240

MHz

60,483,52

1

3.9

Billion

$5.3

Billion

0.36326

62011/09/30 SMRA

France2600

MHz

140

MHz

64,876,61

8

936

Million

$1.26

Billion

0.13872

52011/09/22

Colombi

a

1900

MHz

25

MHz

44,725,54

3

$80

Million

$80

Million

0.07154

72011/08/11

Global

Teleco

ms

Busines

s

reports

results

Spain

800

MHz,

900

MHz,

2.6 GHz

270

MHz

46,754,78

4

1.815

Billion

$2.6

Billion

0.20427

52011/07/29 SMRA

United

States

700

MHz

7

Bidder

s won

16

304,059,7

24

$19.77

Million

$19.77

Million2011/07/25

Simultaneo

us Multiple

Round

Results
mailto:[email protected]?subject=Update%20to%20spectrum%20auction%20resultsmailto:[email protected]?subject=Update%20to%20spectrum%20auction%20resultsmailto:[email protected]?subject=Update%20to%20spectrum%20auction%20resultshttp://www.cellular-news.com/regulator/http://www.cellular-news.com/regulator/http://www.cellular-news.com/regulator/http://www.globaltelecomsbusiness.com/Article/2883677/Regions/25188/Colombia-raises-80m-in-spectrum-auction.htmlhttp://www.globaltelecomsbusiness.com/Article/2883677/Regions/25188/Colombia-raises-80m-in-spectrum-auction.htmlhttp://www.globaltelecomsbusiness.com/Article/2883677/Regions/25188/Colombia-raises-80m-in-spectrum-auction.htmlhttp://www.globaltelecomsbusiness.com/Article/2883677/Regions/25188/Colombia-raises-80m-in-spectrum-auction.htmlhttp://www.globaltelecomsbusiness.com/Article/2883677/Regions/25188/Colombia-raises-80m-in-spectrum-auction.htmlhttp://www.globaltelecomsbusiness.com/Article/2883677/Regions/25188/Colombia-raises-80m-in-spectrum-auction.htmlhttp://www.globaltelecomsbusiness.com/Article/2883677/Regions/25188/Colombia-raises-80m-in-spectrum-auction.htmlhttp://wireless.fcc.gov/auctions/default.htm?job=auction_summary&id=92http://wireless.fcc.gov/auctions/default.htm?job=auction_summary&id=92http://www.globaltelecomsbusiness.com/Article/2883677/Regions/25188/Colombia-raises-80m-in-spectrum-auction.htmlhttp://www.globaltelecomsbusiness.com/Article/2883677/Regions/25188/Colombia-raises-80m-in-spectrum-auction.htmlhttp://www.globaltelecomsbusiness.com/Article/2883677/Regions/25188/Colombia-raises-80m-in-spectrum-auction.htmlhttp://www.globaltelecomsbusiness.com/Article/2883677/Regions/25188/Colombia-raises-80m-in-spectrum-auction.htmlhttp://www.globaltelecomsbusiness.com/Article/2883677/Regions/25188/Colombia-raises-80m-in-spectrum-auction.htmlhttp://www.globaltelecomsbusiness.com/Article/2883677/Regions/25188/Colombia-raises-80m-in-spectrum-auction.htmlhttp://www.globaltelecomsbusiness.com/Article/2883677/Regions/25188/Colombia-raises-80m-in-spectrum-auction.htmlhttp://www.cellular-news.com/regulator/mailto:[email protected]?subject=Update%20to%20spectrum%20auction%20results


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Country Band(s)MHz

Sold

Populatio

n

Total

procee

ds

Total

procee

ds $US

$ per

MHz*po

p

Auction

Close

(Year/Mo/D

a)

Auction

Type

Link to

Results

License

s

Auction

Sweden

800

MHz

digital

dividen

d

spectru

m

60

MHz9,220,986

SEK

1,754

Million

$279

Million

0.50441

42011/03/04

Simultaneo

us Multiple

Round with

switching

Results

Hong

Kong

850 and

900

MHz

bands

20

MHz7,003,700

HK

1.925

Billion

$250.63

Million

1.78926

92011/03/03

Simultaneo

us Multiple

Round

Auction

Singapore

1.9 GHz

and 2.1

GHz

3

blocks

2x5total of

30

MHz

4,987,600 $60Million

0.400994

2010/10/4

Licences

were

awarded at

Reservebecause

there was

no excess

demand

Results

German Spectrum Auctions ResultsAugust 4, 2010

The mobile telecoms spectrum auction in Germany ended on the 20th of May 2010. On offerwere a total of 358.8 MHz of paired and unpaired spectrum in the 800 MHz, 1.8 GHz, 2 GHz,2.6 GHz bands. The auction was a combinatorial simultaneous multi-round auction. That is tosay all blocks were auctioned simultaneously and bidders could place a single bid for

packages of spectrum blocks rather than bidding individually on separate blocks. The overallresult was an average price of US$ 0.19 (0.15) per MHz per head of German population($/MHz/pop is the most common measure of price for spectrum). However, there weresignificant variations in price across the different bands but overall the prices are reasonable.

The key determinant driving these reasonable spectrum prices were firstly the frequency

bands that were available and second the number of bidders. For example, the high pricespaid in the Indian 3G auction, which closed only 1 day earlier on the 19th of May, where
http://www.pts.se/upload/Ovrigt/Radio/Auktioner/10-10534-results-800mhz.pdfhttp://www.ida.gov.sg/Policies%20and%20Regulation/20100903165006.aspxhttp://www.ida.gov.sg/Policies%20and%20Regulation/20100903165006.aspxhttp://www.pts.se/upload/Ovrigt/Radio/Auktioner/10-10534-results-800mhz.pdf


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bidders paid up to US$4/MHz/pop, are mainly a reflection of the fact that there were manymore bidders than available spectrum and only 3 out of 7 or 8 bidders ended up withspectrum. The number of bidders vs. available spectrum also resulted in the high prices paidin the auctions in the USA in 2007 and in Canada in 2008. Its down to economics class 101,supply and demand.

All eyes were on the digital dividend 800 MHz band. The propagation characteristics ofthis sub 1 GHz band produce wider geographic coverage outside urban areas and better in-

building penetration is dense urban areas. Prices paid for the 800 MHz spectrum wererelatively low, amounting to an average of US$ 0.91 / 0.73 per MHz per head of German

population. By comparison prices in the US 700 MHz auction in the top 20 areas, namelycities, reached $4.17/MHz/pop. The US average at the time was US$ 1.18, which is only 30%higher than prices paid in Germany. However, the US has a much lower population densitythan Germany, and generally the higher the population density the higher the prices paid.

The reasonable prices paid for the 800MHz spectrum in the German auction are due to three

factors:

Only the four incumbent operators (Vodafone, Deutsche Telekom, Telefonica O2, E-Plus)bid for the spectrum, there were no new entrants. The unusual aspect of the German auction was that the 800MHz spectrum band had beendesignated to provide mobile broadband coverage in rural areas. Operators must first buildcoverage for 90% of the population in villages with a population of not more than 5,000inhabitants, in phase 2 towns from 5,000 to 20,000, in phase 3 towns 20,000 to 50,000 andonly in phase 4 can the spectrum be deployed in larger cities. Mobile operators usually roll-out networks first where there is the greatest density of population in order to maximise thereturn on their investmenti.e. in urban areas. The value of the spectrum to an operator will

be lower if they have to invest in what they would normally regard as marginal or evenuneconomic areas first. Vodafone and Deutsche Telekom were restricted to a maximum of 20 MHz each out of 60MHz on offer. This meant the fight over the remaining 20 MHz was between Telefonica O2and E-Plus. In the event Telefonica O2 placed a higher value on the spectrum and outbid E-Plus, obtaining 20 MHz and E-Plus had to content itself with spectrum in the 1.8, 2.0, and 2.6GHz bands.

Prices paid for the higher bands were only a fraction of the 800 MHz band. Since E-Plus didnot buy any 800 spectrum, the operator ended up paying only US$ 0.06/MHz/pop

(0.05/MHz/pop) compared to the three others paying an average of US$ 0.22/MHz/pop(0.17/MHz/pop). Yet E-Plus gained two 10 MHz blocks in the 2.0 GHz band which was thenext most valuable band.

Prices paid for the 2.6 GHz band with an average of US$0.03/MHz/pop (0.02/MHz/pop)were low, but in line or even slightly above other recent 2.6 GHz auction in Europe, some ofwhich only achieved the reserve price of less than $0.01/GHz/pop. The 2.6 GHz band is the

primary band for the deployment of LTE (4G) and is ideal to provide capacity for mobilebroadband in densely populated areas. The coverage roll-out conditions do not apply to the2.6 GHz band and Germany has many cities with high concentrations of populations whichmakes this spectrum potentially more valuable in Germany than in many other countries.


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Spectrum caps blamed for unsatisfactory

outcome of Dutch auction

filed under:Mobile,Wireless broadband

Apr 29, 2010 by Michael Newlands

The outcome of the just-competed Dutch 2.6 GHz auction, which saw only paired FDDspectrum sold in a market-led format, does not appear to have satisfied anybody save the twonew entrants.

Even UK-based auction specialists DotEcon which designed the auction and produced thesoftware to run it were not happy at the way things panned out with 60 MHz of spectrum corresponding exactly to the unpaired TDD centre gap which CEPT recommends beharmonised in all European auctionsremaining unsold. (SeepreviousPolicyTrackerarticle)

It is disappointing that the innovative design feature of allowing the market to determineallocation was not tested in the auction

It is an ironic result because the bands which were sold correspond exactly to the paired FDDfrequencies in the CEPT bandplan. A similar thing happened in theNorwegian 2.6 GHzauction, which allocated more TDD spectrum than the CEPT plan. In fact the extra TDD

bands were bought by a company which intends to use them for FDD. It raises two questions:do operators want the opportunity to adopt specific national approaches and are complexauction designs necessary?

Were the caps too restrictive?
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DotEconconsultant Richard Marsden, just back from the Netherlands where he supportedregulator Agentschap Telekom in running the auction, put the blame for the unsold spectrumat the door of the Dutch government which had imposed strict spectrum caps on incumbents

based on their existing holdings in other bands. This meant KPN and Vodafone beingrestricted to 20 MHz and T-Mobile to 10 MHz. New entrants were limited to 40 MHz.

It is disappointing that the innovative design feature of allowing the market to determ ineallocation between paired and unpaired technologies was not tested in the auction, he said.

It is perhaps surprising that no one bid for the unpaired spectrum.One possible explanationfor this may be the unusually tight caps imposed on the three incumbent bidders, This createdroom for two entrants to each buy the maximum permitted four paired lots each.

Had the caps been looser, it is possible that there would have been more competition forpaired spectrum, and possibly one or more of the bidders may have considered unpairedspectrum as an alternative.

The idea the caps prevented more competition was supported by a statement from Vodafone.which along with the other incumbents had sought a court injunction seeking to delay theauction and have its format changed.

Final prices were low, even relative to previous 2.6GHz auctions.

Given the imposed restrictions, Vodafone obtained a good result in the 2.6 GHz auction.However, it is a pity that one third of the total spectrum available now remains unused, whichunderlines our initial reservations on the chosen auction procedure, Vodafones officialspokesperson toldPolicy Tracker.

To make sure that spectrum is used in its most efficient way and innovation is optimallystimulated, we would like to work with the Ministry of Economic Affairs in the Netherlandsabout a long-term spectrum policy and the upcoming frequency auctions, he said. Thisseems to imply the threat of further legal action is now off the table.

Caps may have driven down prices

Marsden also felt the caps could have been responsible for the poor proceeds from theauction.

Final prices were low, even relative to previous 2.6GHz auctions. This is despite the factthat there were two entrant bidders competing against the incumbents for paired spectrum.Again, the caps on incumbents probably provide an explanation for this, he said. Marsdenwas unable to say why four of the nine qualified bidders took no part in the auction. Thereserve prices were set at a low level, so this was clearly not a deterrent to participation, hesaid.

US-based spectrum consultant Karen Wregehad a slightly different take on things. Thefundamental problem with this auction was that there was no real competition, she said.

If the auction included the original 9 bidders, the results would have been substantiallydifferent. When four bidders dropped out of the auction before it began, the regulator was left
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with a single round clock where at the end of the first round of the clock there was no excessdemand. Indeed there was not only no excess demand, there was 60 MHz of excess supplysince the bidders were limited in the number of MHz that they could bid on and win, saidWrege.

So, there was no need for the planned supplemental bid phase and the auction went directlyto the assignment stage. The prices in the first phase were the reserve prices even though it isclear based on the final prices for some of the FDD pairs that the bidders would have beenwilling to pay more. KPN paid a 355% premium over base price for its choice of spectrum,while Ziggo 4 paid a 152% premium, she said.

She said the disparate prices in the final assignment stage did not come as a surprise since itis likely that all of the bidders strongly preferred the spectrum in the middle over thespectrum at the edges of the band.

There may also have been fitting problems that would have impacted the final second prices.

We may never know exactly what happened since I understand that the regulator is not goingto reveal the assignment stage bids, she concluded.

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