Feature Article

January 04, 2013

When is 'Courage' Just Folly?

The difference between taking a risky action that later is deemed to be “courageous” or “foolhardy” typically hinges on whether the bet pays off. European mobile operators were not “visionary” when they overbid for third generation (3G) spectrum licenses. They were just gravely mistaken about the value of the licenses.

That same question might be asked about completed fourth generation (4G) spectrum auctions in the Netherlands, and some now wonder what will happen when the United Kingdom auctions happen. Mobile operators spent big in a recent spectrum auction in the Netherlands. Despite a reserve price of only €478 million, the total amount paid ended up nearly eight times higher at €3.8 billion.

Spending €3.8 billion is “exceedingly high,” one might argue. Over the two years, auctions of the 800 MHz band have averaged €0.65 per MHz per head of population (MHz POP). As always, frequency matters. Prices per MHz POP were €0.13 for the 1800MHz band and €0.05 for the 2.6GHz band.

Using those numbers as a guide, a total of around €1.7 billion would have been expected. The final prices were double that amount. Prices paid per MHz POP far exceed any other European 4G auction, IHS Screen Digest suggests. U.K. 4G auctions to be held in 2013 will provide the next test of pricing.

Australia's minimum prices for new spectrum to be auctioned are too high, and some bidders already are saying they won't be bidding. The Australian Communications and Media Authority have set the reserve price for 700 MHz spectrum at $1.36 per megahertz (MHz) per population. Vodafone and Telstra say they won't bid at those prices, while Optus says the minimum price is too high.

3G auctions held recently in the Netherlands saw prices higher than anticipated, which as service providers worried a ruinous bidding war could result. That was a near-disaster when the same thing happened during 3G auctions.  

European mobile phone companies spent $129 billion six years ago to buy 3G licenses  that were expected to trigger new revenue-generating services. As recently as 2006, though, that had not proven to be the case.

Service providers cannot afford to make that mistake again. There is a very fine line between folly and wisdom, where it comes to spectrum purchases.

Edited by Amanda Ciccatelli

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