Spectrum auction opens door to digital TV vendors

The Ministry of Commerce is to auction off large chunks of radio spectrum which could be used to transmit high-definition digital television. Computerworld understands that at least two overseas companies have approached the government about buying the frequencies despite the fact that the equipment to deliver such technology is not yet commercially available. Next Monday the ministry will auction six lots of broadband radio spectrum suitable for the transmission of television from cellular sites. Currently cell site transmitters are capable of transmitting voice and data only.

The Ministry of Commerce is to auction off large chunks of radio spectrum which could be used to transmit high-definition digital television.

Computerworld understands that at least two overseas companies have approached the government about buying the frequencies despite the fact that the equipment to deliver such technology is not yet commercially available.

Next Monday the ministry will auction six lots of broadband radio spectrum suitable for the transmission of television from cellular sites. Currently cell site transmitters are capable of transmitting voice and data only.

Northland-based telecommunications consultant Robert Cooper says “these frequencies are so wide and have so much capacity that you could create a cell site service network but rather than voice and data you could transmit television at a rate of tens of gigabits per second. It’s a high-speed delivery mechanism for anything that can be digitised.”

However, the hardware necessary to implement such a service has only just been developed in North America and isn’t yet commercially available.

“The bidders would have to be highly speculative,” says Cooper. “I would say that there would be an element of risk for the next five years. To provide this type of service you need three things — frequency, hardware and a business plan. You can’t have a business plan because you don’t know how much the hardware will cost or when it will be available.”

Going on what Telecom has paid in the past for blocks of frequency, he estimates the government could demand up to a quarter of a million dollars for each lot. However, he believes it could fetch a much greater price if the equipment were available.

“It might not be very far away, maybe this time next year. At the moment there is no company in the world [from which] you can order transmission equipment, receivers in particular. You could order a prototype but that’s all. People are going to be bidding on something they hope they can use in a certain way with a business plan sketched on a piece of paper.”

Chris Underwood, of the Ministry of Commerce, says the government’s decision to auction the bandwidth is a response to market demand. “I can assure you that the government wouldn’t go to the expense of creating management rights if there wasn’t a demand for it.”

While he will not reveal who has registered as bidders, he says more than one party has approached the government and “one would have to assume that they can source equipment from somewhere”.

“My understanding is that the people who are showing interest believe there is equipment available at a commercial price.”

He described a possible scenario where a large overseas company may want to try out such a service in the deregulated New Zealand environment to prove that it can be done, before going forward in its own country.

Meanwhile, Auckland IT lawyer Craig Horrocks has reservations about the auction and wants to know why it has not been more widely advertised. “We are talking about a major piece of New Zealand property. Given the interest in this type of radio spectrum, you would think that the government would advertise as widely as possible, including in overseas telecommunications journals.

“The letter inviting bidders went out on November 19 and bidders have to be registered by December 4. This just doesn’t give interested parties enough time to prepare.”

In response, Underwood says the auction has been advertised in New Zealand’s major daily newspapers and in the New Zealand Gazette as well as on the Internet.“You would be surprised at how word gets around. The US embassy watches the newspapers and anything that it thinks would be of interest to US companies it passes back. I imagine other countries’ embassies do the same as well as trade attachés.”

Horrocks says he has other concerns, including: the ministry’s requirement that bidders deposit a bond of 25% of the maximum they expect to bid, the ministry’s refusal to reveal who has been invited to bid or who had registered to bid, the fact that any incumbent licences on the lots had not been listed, and that the rules of the auction state that the auction manager can change the method of bidding during the auction.

Underwood says that the way the auction is being conducted is not different to previous radio spectrum auctions over the past six years. “There is nothing new about the 25% bond. In fact, it’s now a lot less tough than it used to be. It is done to protect bidders and to make sure that everyone bidding is serious. Otherwise you could have parties bidding with no intention of buying but simply to drive up prices or to prevent competition from entering the market.”

He says there are no incumbent licences on the lots that are up for auction and the auction manager can change the method of bidding to avoid the auction being dragged out for months.

“Usually these auctions use a multiple-round mode where all bidders have a window of opportunity to put in bids. This is round one. Our computer sorts out the highest bids against each lot and publishes them, and they become the reserve price for that lot. Then you go onto the next round. The important thing about multiple-round mode auctions is that no lots are sold until all the lots are sold. So if you have 90 out of 100 lots sold and it looks like it’s going to drag on, the auction manager can change to real-time mode, or as real as you can get over the Internet, so we call it nominal real time. This is the same as if you were bidding on an auction floor. ”

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