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2GHz Band (3G) Auction
(Auction 200) - Commentary

22nd March 2001

“In terms of transparency, it is at least very clear that the ACA showed a high level of skill at setting start bids, to a point where, it seems, auctions may no longer be required to establish market prices.”

In this commentary:

  1. Overview of Auction Results.
1.0 Overview of Auction Results

With no bids received, the 2 GHz auction closed in Round 19. This is a small number of rounds for an auction of this type, for example, the first 1.8 GHz auction closed in 89 rounds and the last 1.8 GHz auction went for 139 rounds. Last week we suggested that the auction would end quickly because of the unusually high ACA start bids.

The high start bids effectively create a high bidding activity requirement. The activity is usually established through a target percentage activity based on current eligibility. It is initially set low (70%) at the start of an auction. However, the high start bids created a bidding environment similar to that normally experienced when the percentage activity is raised much higher. It is likely that the high start bids:

The auction has ended and there is now more that 3 months to get the proceeds into Consolidated Revenue whereas if it had continued for 139 rounds the timing may have been a bit tight. Revenue appears to rule!

In terms of spectrum allocation transparency, it is at least very clear that the ACA showed a high level of skill at setting start bids, to a point where, it seems, auctions may no longer be required to establish the market price of spectrum. Seriously though, industry knew it needed spectrum but didn’t believe it warranted paying much more than the ACA start bids. They seemed to think those bids were already too high. The competition for the two National lots sent the total revenue ($1,169 million) only 8% above the reserve price ($1,080 million) and 10 lots remain unsold.

The only lots that were significantly above the start bids were the National lots - about 30% higher. There was a small skirmish over National 1 and National 2 lots between Optus, Vodafone and Telstra with, at one point, 4.7 times the minimum increment being paid in one round. However, in Round 7, Telstra discreetly relocated out of the contest and was able to obtain spectrum equivalent to a National lot for an eventual price of $186.75 million when the National lots went for $241.1 and $244.8 million. Telstra’s equivalent National lot even includes 5 MHz of frequency contiguous regional spectrum that will reduce the likelihood of any loss in utility caused by:

Telstra then used its high eligibility in Round 13 to add a further 5 MHz paired spectrum to its tally, having played waivers in the two previous rounds in order to let the dust settle after the activity percentage had been raised to 95% in round 11.

The only other bidder to achieve the maximum 15 MHz paired in locations where it really counts (Sydney and Melbourne) was Hutchison.

During the auction it appeared that bidders were unwilling to take on Telstra’s deep pockets, although, Telstra was not the highest bidder in the last 1.8 GHz auction.

Also, it appeared that Optus was very keen to obtain its quota of unpaired spectrum.

Perhaps on a positive note, 3G Investments (Qualcomm) and CWK (Arraycomm) have obtained spectrum and will be able to use it starting October 2002. The Government may welcome this as new competition within the Australian market. However, both companies are equipment vendors and Qualcomm, for example, has obtained spectrum before in the 800 MHz auction and later on-sold it.

Copyright: Spectrum Management International Pty Ltd, 2001