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Could the spectrum bubble hit operators again?

LTE prices started modestly but recent auctions have echoes of the disastrous prices of the turn of the century


Published: 29 October, 2013


Regulators round the world are expressing concern that LTE spectrum prices, which started modestly in the first round of auctions, are now spiralling, risking a bubble effect, and making it hard for new entrants to gain licences. While governments in Canada, India and many other countries are trying to earmark spectrum for smaller players, this too often results in a situation where the new entrant does not secure sufficient frequencies to be competitive, and get snapped up by a larger operator anyway. But where the free market is operating, the relative shortage of spectrum in the coveted sub-1GHz bands is starting to create price wars.

In the early LTE auctions, the opposite fears were voiced by governments - that 4G spectrum was not achieving the hoped-for windfalls for recession-hit treasuries. However, this was because the early sales were mainly in the 2.5GHz band, which will be vital for future capacity, but is an expensive option for building out a carrier's initial, coverage-focused network. So prices were often below expectations, and the TDD frequencies even went unsold in some markets, especially in Europe, where the currency crisis was hitting cellcos too. However, even high frequency spectrum has been gaining value recently while the overall pricing trend is upwards in most regions of the world as LTE roll-outs accelerate and regulators increasingly offer sub-1GHz licences along with 2.5GHz.

There are still exceptions, such as the UK, but several regulators are now worrying about the effects of rising spectrum fees. In March, the Czech regulator suspended its spectrum auction when prices got too high and will restart it with tougher rules to protect new applicants. Now similar issues have arisen in Austria and Taiwan, and many fear inflated price wars will become a feature in countries which did not manage to sell their 4G spectrum in the early days of the market, when prices were hit by uncertainty about the business model and global recession.

Austria's three main operators are complaining that they have paid among the highest prices for spectrum in Europe, even though their market has some of the lowest mobile tariffs in the region.

And once again, Hutchison Whampoa's 3 group failed to win any spectrum in the coveted 800MHz coverage band. In many European markets, there have been only three low frequency licences on offer for four established cellcos, and generally it has been the smallest operator (3 is in that position in several countries), as well as new entrants, that have lost out. The losing player will often have to merge with a rival to gain sufficient LTE spectrum to remain viable, as seen in Germany, where 800MHz loser E-Plus is combining with Telefonica O2.

Such events strengthen the arguments of those who believe there is too much competition in many European markets, although consolidation has started to take place in some, such as the UK. In Austria, the situation is even more extreme as there are only three incumbent cellcos, after the recent merger of 3 Austria and Orange Austria, but only two managed to get 800MHz concessions. That may reduce the competitive capability of 3 despite its merger, though at least it will be relieved that no new player was ushered in by the auction process.

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