Don't price us out of spectrum: 2degrees

Third mobile operator says auction of 700MHz band should be used to rebalance spectrum allocation

2degrees says it should get the largest chunk of the 700MHz spectrum that becomes available in the digital switchover, in order to ensure ongoing competition in the mobile market.

The company's director of corporate affairs Mat Bolland says the operator will advocate for 20MHz (paired) of the 45MHz (paired) that will become available after the termination of analogue television transmissions in 2013. This would be likely to leave 25MHz to be divided among Telecom and Vodafone.

Bolland’s argument is that if you look at existing spectrum holdings in the sub 1GHz spectrum bands, 2degrees has significantly less than its competitors and the 700MHz allocation is an opportunity to correct that imbalance (see table below, supplied to Computerworld by 2degrees).

Sub 1GHz spectrum is significant because it is the most cost-effective spectrum for delivering mobile data.

“We already have less spectrum at the moment and it would be naive to think that just because a competitor has more customers they should get more spectrum in the future,” he says. “We would not have received any spectrum two years ago because we weren’t in business.”

Bolland was responding to comments made by Vodafone head of corporate affairs Tom Chignell last week. At a media briefing Chignell said: “We are saying in an efficient market those who have got, or who anticipate getting more customers, will pay a higher price for the spectrum and it should be allocated on that basis, which is typically how it is done in New Zealand.”

However, Bolland says the government shouldn’t sacrifice ongoing competition in the mobile market for short-term monetary gain.

“The government has to get a fair price, but it should be driven by what the spectrum’s worth,” he says.

“Where you sit now is two out of the three players have a significant amount of funding at their disposal because they have had the market to themselves for a long time. They have resources and the incentive to bid up the cost of spectrum so that the spectrum is either extremely expensive for 2degrees and we either can’t afford it or we spend so much that the money that we would have used for customers gets distracted,” he claims.

Chignell suggested the spectrum auction – which is likely to take place in 2012, but which the rules on how it will be conducted are likely to be set by Christmas – could net the government as much as $200 million. However, Bolland says that as the mobile industry collects revenue of around $2.4 billion a year, “it wouldn’t take too many years for consumer savings to outweigh that windfall.”

Chignell also questioned whether it was appropriate to settle a Maori claim on the 700MHz spectrum by offering a portion of it to the Te Huarahi Tika Trust, which in the last major spectrum auction in 2001 was offered spectrum for a discounted rate. The Trust, which purchased the spectrum, then took up an equity share in what became 2degrees.

Computerworld asked Bolland if this was appropriate for the 700MHz spectrum, given Chignell’s observation that 2degrees is majority owned by overseas interests.

“Nothing was given for free and we can’t really comment on Maori spectrum claims, but we would observe that the last time Maori bought spectrum the outcome for all New Zealanders was pretty remarkable,” Bolland says.

Computerworld asked about the idea that the 700MHz spectrum could be used in rural areas to improve connectivity, and that because Telecom and Vodafone are building the Rural Broadband Initiative they are arguably best placed to deliver those connectivity improvements.

“The government’s funding fibre, so we shouldn’t confuse fibre with spectrum for a start and 2degrees will compete in the rural area. We will roam or otherwise. You don’t take a preferential situation in the RBI and use it to disadvantage rural customers ... they should be screaming as loud as anybody for us to have that spectrum so we can compete for their business.”

Bolland says 2degrees customer growth is strong. In March it announced 580,000 customers on the network, staff numbers are approaching 500 and the company is investing $100 million in building out its infrastructure in cities such as Hamilton and Tauranga.

But he warns that being disadvantaged in the spectrum auction could have a negative effect on 2degrees investment.

“I’m not going to divulge anything around our plans other than to say, we want to be a national players, we’ve been investing, we’re investing now. If spectrum is allocated poorly it just makes that impossible.”

A Ministry of Economic Development spokesperson says a discussion document on 700MHz spectrum allocation will be released later this month.

See also Vodafone declares its spectrum agenda

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