The spectrum auction circus
Summary Description Why are telcos around the world paying billions at auction for spectrum? Simon Vandore looks at the allocation of bandwidth for wireless local loop and 3G, examining the consequences for Australia.
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Roullas Top10 Simon Vandore

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Editorial InformationArticle Location
Article Topic Special Report, Broadband, Mobile
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Story Group 001112
Post Date 07/11/2000 04:13 PM Status Posted Entered by Simon Vandore on 07/11/2000 02:16 PM


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Introduction
When the Australian Communications Authority (ACA) auctioned off 3.4GHz radio spectrum last month, the government banned Telstra from bidding on most of the bandwidth offered.

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The 3.4GHz band will most likely be used for wireless local loop services, meaning the provision of everyday phone connection and high-speed data access using radio waves. Telstra was prohibited from entering this field in the 3.4GHz band in cities and towns as it already possessed fixed-line phone and high-speed data services in those places, along with about 48% of the national mobile phone market. The government believed Telstra domination of wireless local loop spectrum could have been seen as anti-competitive behaviour under the Trade Practices Act.
The spectrum covers 14 cities and towns, with five larger zones which include the most highly settled regional areas in Australia. These larger zones were the only places where Telstra was permitted to enter bids, but in the end it did not win any bandwidth at all.
The successful bidders were AKAL (headed by former Channel Ten and Austar chief Steve Cosser), which accounted for $95.283 million of the $112.472 million raised by the auction, Austar ($14.074 million) and Walker Wireless ($2.814 million). Pulsat Communications and AAPT Spectrum pulled out of the race shortly after bids closed. Spectrum Access, Vertical Telecoms and Vytel Spectrum also missed out.
A procedural error by the Department of Communications, Information Technology and the Arts delayed the auction by several months, but this allowed more time for comments to be received and the online auction process to be refined. Winning bidders are now entitled to 15 years' control over the spectrum in question, starting in 2002.
In 1998 Telstra was by far the dominant bidder for spectrum in the 800MHz and 1.8GHz bands (those used for most mobile applications in Australia today, but also suitable for wireless local loop services), followed by Hutchison Telecommunications, AAPT, OzPhone and Catapult Communications. The final auction of spectrum in the 1.8GHz band last year raised $1.327 billion for the government, coming from Hutchison, OneTel, Telstra and Vodafone. Spectrum in the 27GHz band is currently up for bids, but the only interested parties are Shin Satellite of Thailand and Agility Networks, meaning they will probably be allocated their desired bandwidth at a predetermined price.
Generation gap
Australian phone companies are now gearing up for perhaps the biggest spectrum grab of all -- the 800MHz and 2GHz bands which will be needed for 3G (third generation) mobile phone applications.
In the UK about $60 billion (around $950 per citizen) was raised by auctioning off spectrum to be used for 3G mobile phone and high speed data services using UMTS (Universal Mobile Telecommunication System, the European 3G standard). Germany's equivalent auctions raised $80 billion.
Concerns have been raised in Europe, however, over the consequences of auctioning off spectrum at such high prices. Consumers, say the critics, will end up footing the bill. It has even been called a 'stealth tax' on mobile telephony and early adopters of 3G. By contrast, the authorities in Finland (a centre for mobile phone development and the home of Nokia) simply handed out 3G spectrum free of charge to encourage speedier introduction of the technology at prices everyone can afford.
The other problem with companies spending so much money on spectrum is that 3G technologies are still in development. While WCDMA (wideband CDMA, another 3G technology) and UMTS trials have been conducted in many countries, they are not expected to be implemented until 2002 at the earliest. This is a long wait for companies who have spent billions of dollars on the relevant spectrum.
It is expected that enhancements to current mobile standards, such as EDGE (enhanced data rates for GSM evolution) will be available much earlier. EDGE should be able to transmit data seven times faster than current modems at 384Kbps -- what more, ask the critics, does a consumer need?
Bids in the billions are also a great risk for the companies involved, which may take over a decade to recoup what they spent -- presuming 3G actually takes off. Market confidence is a little shaky due to predictions that 3G will not be as useful as intended, because it requires more transmitters providing more power and is unsuited to long distances. It can theoretically offer 2Mbps data speeds, but there are questions over the feasibility of providing this to all users on a network.
Some predict only 1Mbps, while the harshest critics, such as ArrayComm's Martin Cooper (inventor of the first Motorola mobile phone in the 1970s), say it will be lucky to offer 64Kbps to each user. Cooper's solution is array broadcasting, a technology dubbed 'IntelliCell', using 'smart' antennae which can more efficiently beam radio signals directly at users based on their approximate position, rather than simply beaming in all directions at once like today's antennae.
In the US, 3G applications are not expected to hit the market until 2004 or 2005. Some current occupants of the 700MHz spectrum which will be used in that country don't even have to leave it until 2006, while the US FCC (Federal Communications Commission) has delayed its 3G bandwidth auction, originally scheduled for this month, until March 2001. Australia, where the European standard GSM (Global System for Mobiles) dominates, could still end up well ahead of the US.
Locally loopy
Lot packaging for the Australian 3G auction has been announced, but bidding will not be finalised until January 2001. The government is counting on this auction raising up to $2.6 billion and has budgeted accordingly, despite companies such as One.Tel already announcing that they won't be taking part this time.
Unfortunately, income from spectrum auctions seems very hard to predict. The British government only expected to raise $7 billion from its eventual $60 billion 3G auction and the German government was also pleasantly surprised. Meanwhile, the reverse was true in New Zealand where the government wanted $40 to $160 million for its 2GHz spectrum and only got about $27 million. Part of New Zealand's 3G bandwidth was also reserved for Maori people following a court challenge which claimed that auctioning spectrum violated the Treaty of Waitangi.
A similar lack of interest occurred in the Netherlands, where the government hoped for UK-style proceeds, but only got $240 million.
If bid inflation of the type seen in Britain and Germany does occur and much higher prices are paid, some analysts have predicted that Telstra and Optus may suffer damage to their credit ratings. The same questions as in Europe will apply to the future of 3G in Australia -- consumers will find themselves caught between a windfall for the government and a 'stealth tax' on future mobile phones.
Telstra brings with it the saved ammunition from its 3.4GHz loss and there are now many other aspiring players in the Australian wireless market, so bidding will surely be intense.


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Bulletin SummarySpecial Report: The spectrum auction circus
Why are telcos around the world paying billions at auction for spectrum? Simon Vandore looks at the allocation of bandwidth for wireless local loop and 3G, examining the consequences for Australia.
When the Australian Communications Authority (ACA) auctioned off 3.4GHz radio spectrum last month, the government banned Telstra from bidding on most of the bandwidth offered. The 3.4GHz band will most likely be used for wireless local loop services, meaning the provision of everyday phone connection and high-speed data access using radio waves. Telstra was prohibited from entering this field in cities and towns as it already possesses fixed-line phone and high-speed data services, along with about 48% of the national mobile phone market.

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