Spectrum sale to telcos falls short by $1b
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 held back from buying much of the prized 700 megahertz spectrum, which will be used in 4G mobile networks.
None of the three main carriers, including cash-rich Telstra, bought the maximum allocation in the 700 MHz band due to the government's high reserve price.
Vodafone, the country's third-largest carrier, said last year that it was pulling out of the auction altogether.
Mobile operators must have enough spectrum to carry users' data or their networks become clogged and speeds slow down.
The government only netted about $2 billion for spectrum that Communications Minister Stephen Conroy had described as "waterfront property".
Industry analysts had estimated telcos would spend between $2.8 billion and $3.5 billion at the auction.
Due to a combination of high reserve price and the withdrawal of Vodafone, $1 billion worth of the spectrum remains unsold.
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.
Goldman Sachs believes Telstra's investment will further cement its position as a lead player in the crucial 4G market.
Goldman Sachs said Telstra had secured "a dominant spectrum position", acquiring between 40 per cent and 50 per cent of spectrum available.
"We believe this extends Telstra's already significant competitive advantage over its competitors, particularly Vodafone Australia, which did not participate in these auctions," Goldman Sachs told clients in a note.
Optus, the country's second-largest carrier, secured 20 MHz of the 700 Mhz band and 40 MHz of spectrum in the 2.5 GHz for $649 million.
Optus' chief executive of Australian consumer products, Kevin Russell, said the acquisitions would help the carrier provide stronger 4G coverage across metropolitan and regional Australia.
But Optus said the high reserve price for spectrum prompted it to examine options such as tapping its existing spectrum bandwidth.
David Epstein, head of Optus' government and regulatory affairs, told BusinessDay: "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 the 2.5 GHz band for $13.5 million.
But TPG spokesman Tony Moffat said the spectrum was likely to be used for wireless broadband.
InvestSMART FORUM: Come and meet the team
We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.
Want access to our latest research and new buy ideas?
Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.Sign up for free