Govt raises $853m through 5G auction

Telstra, Optus, Vodafone, TPG and UK-based Dense Air have paid a combined $853 million for spectrum in a key 5G band.

The federal government has raised around $853 million through the auction of valuable 5G-compatible spectrum. Telstra, Optus, Vodafone, TPG and UK-based Dense Air have all secured spectrum in the auction, which is aimed at facilitating the early launch of 5G services.

Telstra bid the lion’s share of $386 million for 143 lots of spectrum across 13 of the 14 regions. According to the company, combined with its existing spectrum holdings, it now has 60 MHz of contiguous 5G spectrum across all major capital cities, and 50 to 80 MHz of contiguous spectrum in all regional areas. Telstra plans to have activated 200 5G sites by the end of the year.

“Securing this spectrum dramatically increases the speeds we will be able to offer and puts us in a competitive position in all markets, including Sydney and Melbourne, with site rollout to extend to these cities as soon as access to the new spectrum is available,” Telstra CEO Andy Penn said in a blog post.

Meanwhile, a joint venture established between units of Vodafone Hutchison Australia and TPG Telecom won 131 lots of spectrum for a combined $263.3 million. The venture secured licences in every available area — concentrated in Sydney, Melbourne, Brisbane, Adelaide, Perth and Canberra. The arrangement was established to participate in the auction pending the regulatory approval of the proposed merger between VHA and TPG.

Optus Mobile’s participation was limited by the terms of the auction. The company won 47 lots in the auction for a total of $185.1 million, with coverage focused on regional areas. The areas covered by the licences span regional areas of NSW, Victoria, Queensland, South Australia and Tasmania.

Optus said the new holdings in regional parts of the country will add to its existing extensive holdings of metropolitan 3.4 GHz spectrum, and allow it to extend its planned 5G-based fixed wireless access services to regional areas as well. Due to its 3.4 GHz holdings, bid limits imposed by the government prohibited the company from vying for spectrum in metropolitan areas.

Finally, Dense Air Australia, a subsidiary of UK-based Dense Air, bid $18.5 million for 29 lots of spectrum across Adelaide, Brisbane, Canberra, Melbourne, Sydney and Perth. The company plans to use its spectrum holdings to offer managed services to mobile operators aimed at helping them extend 5G coverage and capacity while lowering rollout costs.

Dense Air Australia has developed a new technology and business model involving allowing multiple mobile operators to share the same physical 5G small cell or femtocell — devices designed to extend coverage of radio access networks without the need to deploy an additional tower. It plans to provide network densification extensions to both enterprise and residential consumers, helping extend 5G coverage and capacity in hard-to-reach outdoor and indoor locations.

“Our spectrum enables us to offer a completely new type of wholesale service to 5G network operators. Dense Air will complement planned 5G deployments, by allowing much greater densification than can be achieved with macro cells alone,” Dense Air CEO Paul Senior said.

While the new spectrum licences are not scheduled to come into effect until March 2020, telecoms regulator ACMA said it is working with the winners to enable early access to the spectrum, on the condition that this does not interfere with the operations of existing spectrum licensees.

The government is set to reap a significant windfall from the auction. But opinions are divided as to whether the auction prices were too high.

VHA CEO Iñaki Berroeta claimed in a statement that the government’s handling of the auction had the result of artificially inflating prices.

“While we are pleased to have secured spectrum licences in every available area, robust competition for artificially limited supply saw the companies participating in the auction pay some of the highest prices for 5G spectrum in the world so far [in terms of price per megahertz per population], with an average price of 29c/MHz/pop,” he said.

“It’s clear there is high demand for 5G spectrum, and more suitable spectrum needs to be made available by government.”

But telecoms analyst Paul Budde believes the final result was limited in part by the imposition of the cap on spectrum holdings in metropolitan areas, which he said had also prevented nbn co from participating in the auction.

The planned VHA-TPG merger also served to inhibit competition in the auction, Budde said. Without these impediments, he estimates that the auction could have cleared over $1 billion.

“But the government correctly went for a more balanced approach,” Budde wrote.

“Smaller players known as mobile virtual network operators (MVNOs) were disappointed that the government hadn’t gone a bit further and included a requirement in the spectrum auction to also make mobile network capacity available on a wholesale basis, this would have further stimulated mobile competition, especially as after the Vodafone/TPG merger competition will be reduced.”

But high 5G spectrum prices will only be the start of the additional costs imposed on telecoms operators by the requirement to roll out 5G, Budde said.

“Users are very happy with their current 4G service and for them there would not be a reason to pay extra money to switch over to 5G,” Budde said.

“The only thing that is in it for the operators is a more efficient infrastructure, while important, the question is if that is worth the large investment? On top of the spectrum they just bought, billions of dollars will need to be invested in 5G infrastructure.”

Budde said there is the potential for operators to unlock new revenue streams with 5G in IoT-based areas such as autonomous vehicles, smart cities and e-health, but this will require additional investment and will not eventuate until 5–10 years down the track.

Image credit: ©stock.adobe.com/au/beebright

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