Conroy's spectrum smackdown

The $4 billion spectrum windfall for the Gillard government isn't exactly in trouble but Stephen Conroy isn’t taking any chances.

The sale of the digital dividend spectrum, destined to bring in a $4 billion windfall for the Gillard government, is not exactly in trouble but communications minister Stephen Conroy isn’t taking any chances.

Conroy’s decision to take over from the Australian Communications and Media Authority (ACMA) with regards to setting the reserve price for the spectrum reinforces Canberra’s urgency to squeeze every ounce of value from the digital dividend. Perhaps a response to the faltering competitive tension, now that Vodafone Australia looks unlikely to join the race .

The communications minister can dictate the reserve price because when it comes to telecom policy his word is the law. Conroy recently regaled an audience in the US about the unfettered power at his disposal.

 “If I say to you, everyone in this room, if you want to bid in our spectrum auction you’d better wear red underpants on your head, I’ve got some news for you. You’ll be wearing them on your head.” They will do as he says, in other words.

“I have unfettered legal power. There’s a seriously important difference between the Australian model and overseas. Not many regulators have quite that much power.”

Well, the decision to pull rank on ACMA is a clear demonstration of this power.

It’s also a demonstration of how critical the reserve price has become with regards to the final outcome. With the blocks of 700 MHz spectrum is most likely to be contested between Telstra and Optus the price was expected to be revealed by the Australian Communications and Media Authority (ACMA) in November along with the other auction rules.

However, the final price will now be set by Conroy with ACMA looking after the mechanics of the auction process, which is still scheduled for April 2013.

With  Conroy  in charge the reserve price will almost fall on the top end of the $1.25 to $1.59 per MHz POP, however, the question is whether the telcos will be happy to pay that price.

As far as the telcos are concerned their primary concern would be ensure that the auction sticks to the timetable. The price is important but the need to get their hands on the blocks of 700 MHz spectrum to reinforce their respective 4G strategies is paramount.

That’s not to say that both Telstra and Optus won’t try their level best to exert some pressure on the government, but the final equation here really boils down to need. The Labor government wants the billions to shore up its surplus and the telcos absolutely need the spectrum.

Both Telstra and Optus will fight hard for the 700 MHz band simply because 4G is the next competitive flashpoint in the local market. As the telcos continue to tout their 4G credentials to responsive consumers the spectrum auction will set the foundation of how the story plays out.

Telstra already possesses substantial 4G capability and Optus’ is upbeat about the impact of the Vividwireless acquisition. However, the auction will provide the spectrum needed by both telcos to expand their rural and regional presence.

So has Conroy’s decision to exercise his powers changed the equation for the telcos? I suspect not, because both Telstra and Optus presumably already had an inkling that this was on the cards.

They also probably have a pretty good idea of what sort of a price range Conroy is looking for. The trick now of course will be ensure that both the telcos and the government end getting what they want.