First steps towards 5G
Recommendation
The next generation of mobile network technology, dubbed 5G, took its first steps towards becoming a reality this week.
The auction for the first batch of 5G spectrum was finalised and the results would please both the government, which raised a heap of cash, and the telcos, which now have the certainty of bandwidth.
Both Telstra and TPG/Vodafone (they formed a joint venture for the bid even though their merger has not yet been approved) secured their full allocation of metro spectrum. Telstra secured almost its entire allocation of regional spectrum while TPG sought, and bought, a lot less regional bandwidth.
Telstra paid $386m for its allocation while TPG paid $263m, the difference largely reflecting differences in regional access. Optus was excluded from metro auctions as it already owns some spectrum, but it too picked up regional bandwidth - less than Telstra but more than TPG.
Prices paid weren't cheap by international standards, but we had worried that reckless bidding would push prices up to silly levels. That didn't happen.
Regional prices, on a population basis, remain dear and the different volumes of regional spectrum purchased provide an insight into the likely strategies pursued by each company.
Telstra will aim to keep its reputation as the owner of a premium network and TPG will aim to keep costs low with a cheaper metro-focused network. Optus appears to be happy to sit in the middle.
This is only the first round of spectrum sales - more frequencies will be auctioned at a later date - and full 5G services won't be available until at least 2020. Even then, early network applications probably won't take advantage of the technical advances in the new network.
We aim to provide a more detailed view of what 5G will mean, and what it will be capable of, in due course. While these auctions remove a small risk, they don't change our views on either stock: TPG and Telstra remain HOLDs.