Mobile carriers have left the federal government $1 billion short of expectations after shunning a long awaited auction for new radio frequency spectrum.
Major telcos refrained from buying much of the prized 700 megahertz spectrum that will be used in 4G mobile networks.
None of the three major carriers, including cash-rich Telstra, bought the maximum allocation (spectrum in 700 MHz band) due to the high reserve set by the government. Vodafone, the third largest carrier, announced last year it was pulling out of the auction altogether. Mobile operators must have enough spectrum to carry users' data or their networks become clogged and broadband speeds slow down.
The government only netted about $2 billion for spectrum that Communications Minister Stephen Conroy has described as "waterfront property". Industry analysts had estimated telcos would spend between $2.8 billion and $3.5 billion.
Due to a combination of a high reserve price and the withdrawal of Vodafone, $1 billion worth of prized spectrum in 700 MHz band remains unsold.
The government said it was not in a hurry to return the unsold spectrum lot to the market.
Spectrum, worth in the order of $1 billion, "remains in the Commonwealth's hands for now, and we intend to return it to the market in the next two or three years", Senator Conroy said.
Telstra outspent its rivals by paying more than $1.3 billion, or two-thirds of the total amount, to secure 40 MHz in the 700 MHz band, which carries signals long distance, and 80 Mhz in the 2.5 gigahertz band, which is good for inner-city networks.
"This additional spectrum represents a major investment in the future of telecommunications in Australia and means we can continue to deliver a superior mobile experience for our customers," Telstra chief executive David Thodey said in a statement released on Tuesday morning.
Goldman Sachs believes Telstra's investment in spectrum will further cement its position as a lead player in the crucial 4G market.
"We believe this extends Telstra's already significant competitive advantage over its competitors, particularly Vodafone Australia, which did not participate in these auctions," the brokerage told clients in a note.
Optus, the second largest carrier, secured 20 MHz of the 700 Mhz band and 40 MHz of spectrum in the 2.5 GHz for $649 million.
Kevin Russell, the Optus chief executive of Australian consumer products, said the acquisitions will help the carrier provide stronger 4G coverage across both metropolitan and regional Australia.
However, Optus said the high reserve price for spectrum prompted it to examine other options such as tapping its existing spectrum bandwidth.
David Epstein, head of Optus' government and regulatory affairs, said: "We didn't have enormous need for 700 MHz spectrum, only some needs and desires. But at the price it was being offered, it means other choices come into play."
Junior carrier TPG Telecom bought spectrum for the first time. This raises the possibility the low-cost internet provider could become a fourth mobile operator. The telco bought 20 MHz in 2.5 GHz band for $13.5 million.
However, TPG spokesman Tony Moffat poured cold water on the speculation and said the new asset was more likely to be used for its wireless broadband offering.