Fletcher takes a big fat swing at 4G auction


blog Those of us who have been following telecommunications debate in Australia for a while will be cognizant that the Federal Government can do very little in this portfolio without attracting Opposition comment of some kind on its activities — no matter whether it’s doing a good or bad job. This morning, it appears, it’s Liberal MP and former Optus executive Paul Fletcher’s turn to whale on the Government’s wireless spectrum auction, which Vodafone has already deserted and which Optus thinks is way too expensive.

Fletcher’s argument, as posted publicly on his website after it first appeared in the AFR newspaper this morning (there’s another AFR yarn here as well), follows below. To our mind we don’t feel as though the Government’s been doing that bad a job on the auction — but the timing of it has hampered it greatly, given the fact that Vodafone likely can’t really afford to be part of the process. In this context, Optus and perhaps Telstra were always going to have more power in the bargaining process. In any case, here’s Fletcher’s diatribe:

“The Rudd-Gillard government has badly mis-managed fixed broadband policy: after five years and several billion dollars oftaxpayers’ money, as at October 2012 fewer than 7000 customers took a fibre service on the national broadband network. It is now taking an equally inept approach with mobile broadband services, with a seriously flawed approach to allocating a big slice of radio frequency spectrum. In 2013 a key piece of spectrum the 700 megahertz (MHz) band is to be allocated by auction.

This will be used by mobile phone operators to deliver the next generation of wireless broadband services so called 4G or LTE (“long-term evolution”).

Already, millions of Australians have 3G data services on their mobile handsets, offering download speeds which are typically 2 to 3 megabits per second (Mbps). 4G services are much faster, with download speeds typically between 5 and 10 Mbps (and theoretically the ability to go a lot higher). The amount of data being delivered over mobile networks is exploding. The industry regulator, the Australian Communications and Media Authority, estimates datademand will be 30 times 2007 levels by 2015, and 500 times by 2020.

So the allocation of new spectrum to support these services is criticaL Both Telstra and Singtel Optus have launched initial 4G services on their existing spectrum, but the mobile carriers need more spectrum for the big volumes forecast. This means it is critical to get the policy settings right for the auction of the 700 MHz spectrum. Unfortunately, Broadband Minister Stephen Conroy has made a serious error by setting an unprecedentedly high reserve price for the auction, $1.36 per megahertz per head of population.

This is much higher than the price paid in recent auctions of similar spectrum in other countries. According to research by Goldman Sachs, the average across eight countries was 80c per megahertz per head. It is also much higher than earlier spectrum auctions in Australia. Conroy’s reserve price implies expected proceeds of nearly $2.8 billion; the highest amount previously raised was a bit over $1.3 billion when 1800 MHz spectrum was auctioned in 2000 (albeit for two thirds as much spectrum as next year’s auction).

It is clear what has happened: the Rudd-Gillard government is desperate for revenue as its budgetary position collapses, and hence has set a very high reserve price to try to raise as much money as possible. For a government which wants to encourage broadband services, this is a terrible piece of policy. The reason that auctions are used to allocate radio frequency spectrum a scarce, publicly-owned resource is so it is allocated to the purpose with the highest value to the community. Raising money is secondary. Unfortunately, Conroy has got the priorities reversed and the consequences will be serious.

Already, one operator, Vodafone Hutchison Australia, has said it will not bid. Another, Optus, says it regards the prices as unreasonably high and is considering its position. This is a bad sign. The government itself has said in a statement relating to the auction in February 2012 that “the three incumbents [Telstra, Optus and Vodafone] are the entities most likely to participate” in the auction. Another bad sign is what Conroy has done with the “competition limits”.

These are rules that limit the amount of spectrum any one player can buy at the auction. In early 2012, Conroy said that of the 45 MHz available at the auction, a maximum of 20 MHz could be acquired by one bidder. Recently, he increased the maximum to 25 MHz. In other words, as well as setting a high reserve price, he has increased the amount that the dominant player, Telstra, can buy. Of course, thanks to its lucrative NBN deal with the Gillard government, Telstra is to receive $11 billion so it is well placed to spend up big on spectrum. This is good news for Telstra that should worry consumers: high auction prices mean high capital expenditure by operators, which means higher prices to consumers.

It is the same error Conroy made in fixed broadband, where NBN Co’s excessive capital expenditure will need to be recovered through higher prices it charges for services. Australia needs a vigorous, competitive mobile broadband marketplace, with as many players as possible. Achieving this should be the dominant consideration in setting the auction rules. Instead, the Gillard government has set rules for the 700 MHz auction which favour the dominant incumbent and which prioritise short-term revenue raising over sound policy design for the long term.”

Image credit: Office of Malcolm Turnbull


  1. “Conroy’s reserve price implies expected proceeds of nearly $2.8 billion; the highest amount previously raised was a bit over $1.3 billion when 1800 MHz spectrum was auctioned in 2000 (albeit for two thirds as much spectrum as next year’s auction).”

    In making his argument, he destroys his argument.

    If “two thirds” of the amount of spectrum to be sold next time, was sold last time – if the same amount of spectrum were sold this time, $1.3 billion would become $1.95 billion this time.

    That’s $850 million less in direct comparison.

    Add into that inflationary pressures over 12 years, increased competition in 2013 in comparison to 2000, and greater scarcity of the commodity, $2.8 billion doesn’t actually seem that unreasonable.

    Once again, Fletcher is comparing apples with oranges, and coming up with deformed carrots.

    • More than that, I’d much rather have (for example) 20MHz of spectrum in the 700MHz band than in the 1800MHz band. 700MHz has much better propagation over distance and much better building penetration. It also doesn’t have any legacy networks hanging around screwing up your frequency planning.

    • In fact, according to [http://www.rba.gov.au/calculator/annualDecimal.html] $1.95b in 2000 is $2.71b in 2011 (the last year it goes up to). So it seems today’s reserve price is exactly the same as the reserve price back then!

    • Ha, thats funny – he does too.

      I stopped listening to Fletcher ages ago. He really had no idea at Optus with regulatory affairs, he just confirms it every time he opens his mouth. Its impressive that one man can believe as much tripe as he puts out.

      Consequently because of bad management over Optus’ available spectrum (not his decision), they’re now short on U900 and nudging Vodafone for some of theirs. I’m not surprised Optus is now screaming for spectrum which they know Telstra is going to be first in line for.

      Its not a … BAD price for the spectrum, but its extortionately expensive when they’re trying to expand rural network coverage, improve metro in-fill and data capacity AND refit sites with u900 / 4g 1800mhz. . I have no doubt Optus will be at the auction … I’ll be impressed if they buy anything.

      • On 700 I think they – optus – will buy. They already have 2.3 to pair with it…. Its the 2.5g band id be surprised if they play for. Remember with 700 two bidders can walk away with as much as they can take, 45 MHz each. And still leaves a few crumbs over… So there’s room for two there. I don’t expect a bid fight in 700 and as others already note the reserve is actually historically fair. So if its a dead match and two – most likely telstra and oprtus – walk away with their askings at reserve price, I’m satisfied the government has set it appropriately there and I’m not concerned the value is excessive.

        The other spectrum band could be interesting. Those with metro capacity issues will be interested….I don’t see that auction as simple as the lower band.

        That’s all my mere speculation of course…. See how it pans out……

        • Of course they will. The whinging over the price routine is an act carried out by all rentseekers who want the government to cave in and give concessions and make their business position much better – for very little gratitude to the tax payer

          We have seen and heard it all before – think mining tax, financial planner rule changes, carbon tax, etc. Every time a government of any stripe tries to introduce a much-needed policy that has a chance of being effective and well thought out, along come the PR spinners and shady lobby groups and the News Limited hacks to make a massive fuss and ruin good initiatives that would make a difference for the greater good.

  2. Paul Fletcher said: “It is the same error Conroy made in fixed broadband, where NBN Co’s excessive capital expenditure will need to be recovered through higher prices it charges for services.”

    Jesus, I’d hate to know how much the HFC cost Telstra then, I’m paying double what I will on the NBN…I guess that made the BigPond network around $70B (of course that’s worked out using Liberal style “Hockeynomics”!!)

    • One thing they always leave out, the pay back period. FTTN has a way short life time. While the FTTH NBN will be paid back by 2033 and still be viable tech, FTTN (if it is 1/3rd the cost which I doubt as a large part of the NBN isn’t the FTTH cost) will have to be paid back around 2020 and will be obsolete before then (1Gb home speeds as standard predicted by then)

  3. There have been a couple of countries where the spectrum was underpriced and the telcos didn’t even have a bidding battle, they just came in and almost divided it among themselves so they didn’t raise the price. I could see Optus and telstra coming in and taking maybe a 40/60 split (telstra being able to afford more) which is why the price has to be set high enough to start with. It would make more sense if they stopped calling it an auction and just sold it at an industry standard price.

  4. When selling Austrailans assets into the private market it’s up to the Government to sell at the highest price possible.

    • Indeed Kevin.

      Regardless of the fact that posters here have already disproven Mr. Fletcher’s claims already, it’s nonetheless a bit rich the same people who scream a) NBN wastage, now scream b) spectrum price is too dear.

      Of course had it been the other way around and spectrum was perceived inexpensive, obviously revert back to plan a)

      *rolls eyes*

  5. Seems everyone (even Renai) is in agreement about this.

    3 points, which have basically all been covered:

    1- It is a public asset- one of the LAST sections of spectrum to be significantly auctioned in the next 20 years likely. The government has a responsibility to the people to get the best price possible

    2- The price Conroy wants is cheaper, when inflation is taken into account than 1800Mhz. Not only that, it’s only 13c/Mhz/head more expensive than 850Mhz, sold in 1998 for $1.23/mhz/head….using that as a yeard stick, this is a positive BARGAIN (and the rules surrounding it on total allocation are MUCH looser as well)

    3- It wouldn’t matter WHAT price Conroy set for the auction, the Opposition was ALWAYS going to say it was to try and bolster the budget. I think the Opposition is actually more affected by the budget deficit now than the government- they’ve admitted they can’t make a surplus….apparently either no one cares or everyone knew that, cause it wasn’t a surprise to anyone….except apparently the Coalition.

    I think Fletcher is VERY likely to be the next comms minister for Opposition regardless of if they get in- he’s like Coonan- lots of waffle, no substance….just how the Coalition like communications….

  6. I think the price that is closely matched by the inflationary price of the 1998 spectrum sale is good for consumer and tax payer.
    The higher price of entry will mean only organisations that can genuinely afford to provide the capital to leverage the benefit of consumers, think of the lack of capital investment of Vodafone hogging it’s spectrum and wasting it with terribly under investing in supporting it.

    Also increases likelihood of joint ventures, between either current local companies such as Vodafone, Optus, iinet, broadband solutions, aarnet, aapt or new foreign entries from Verizon, AT&T which bring innovation and greater competition.

  7. 1’s & 0’s are far to expensive for this citizen. None of the political parties are prepared to offer a solution where affordability for access to humanities accumulated knowledge is accessible to me or my kids. At least I can still go to the library.

  8. I believe the LTE standard only allows for the use of 20MHz of spectrum bandwidth.

    What are they going to do with the extra 5MHz?

  9. “Already, one operator, Vodafone Hutchison Australia, has said it will not bid.”

    Vodafone already owns oodles of unused spectrum in the 1800MHz band across the capitals.

    Why would it want to buy more?

  10. Fletcher who? Actually, this story leaves me a little puzzled. The guy has a telecommunications history, but hasn’t been plugged into the ministry – why? One would assume a former Optus executive would bring a lot of strengths to the portfolio, but maybe not.

    • @Stephen H

      Why would an executive of a telco company know about infrastructure requirements and policy for a country? He might know how to get the most ARPU out of customers and what marketing systems work, but not necessarily anything useful for a political portfolio.

      Just like Turnbull- his general interest technology is MUCH more useful for him as comms minister than being the Chair of OzEmail in the 90’s.

      • I would like to think he had a clue about the industry he worked in, and his political party could use that hard-won expertise.

        But maybe not.

  11. From this story, and quite a few others, I would have to say that we the Public, as it is “Our” spectrum that is being Auctioned off, are going to be looked after better by Labor policies for the sale, rather than the Coalition policies for the same, when it comes to Telecommunications.
    The Coalition, who by their own rhetoric, seem to be wanting to rip the money off the Public and look after the best interests of Big Business, over the vested interests of their Electoral Constituent’s well-being for financing the Public Services provided by the Government for all Australian Citizens.
    Whilst I would not trust either Party to organize a fund raiser in a brown paper bag, from what each are saying, it leaves the Coalition looking like Snake Oil Salesmen and ultra cheapskate shady ones at that, as they really think we are fools to fall for their diatribe.
    I can’t believe they are shooting themselves in the foot again. Are they really that dumb?
    So who is the fool? The Idiots that get elected and espouse this crap, or those who actually vote for them?

    • Listen to the likes of Jones, Hadley etc and you will realise there are a great number of people out there who will believe what they have been told because it comes from somebody from the political party they follow.

      At the end of the day if Abbott was in power, I believe he would also be trying to secure the best price for the spectrum as possible. It just suits their political needs at the moment to jump on board with the cries of Optus.

      Not that I have a great idea of how the spectrum itself or how the licensing works, but it would be interesting to see the figures reported as dollar per existing mobile connection rather than dollar per head of population. As per the argument about Australia’s advanced mobile market wouldn’t this show that per existing connection the cost per consumer may be lower?

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