In holding the RBI contract, there was never any way that Vodafone could not win its chunk of the 700MHz spectrum.
The auction of the 700 MHz ‘digital dividend’ spectrum rights was completed in June, 14 months after the sale process commenced.  This month, the purchasers have announced their plans to roll out new services based on that spectrum.

The digital dividend band became available when our analogue television networks were switched off last year.

rural 4GIn a “once-in-a-generation opportunity”, Minister Amy Adams had previously decided that the 700MHz spectrum would be used for 4G mobile networks and that all new towers built under the Rural Broadband Initiative (RBI), would be 4G ready.

To me, this decision pre-empted the competitive auction process used to sell the digital dividend spectrum.  In holding the RBI contract, there was never any way that Vodafone could not win its chunk of the 700MHz spectrum.

A chunk of the spectrum is made up of a number of contiguous blocks, each 5 MHz wide.  At a spectral efficiency of 15Mbps per MHz, a single block will realise theoretical maximum speeds of 75Mbps.  Two blocks will be required to achieve actual speeds close to the telcos’ touted 100Mbps for 4G services.

Owning more blocks will enable correspondingly faster broadband speeds.  So, in a competitive environment, mobile telcos have an incentive to grab as many blocks as they can afford.  Denying competitors from owning more blocks would be good for them too.

Telecom, Vodafone and 2Degrees competed for the spectrum.  With nine blocks available, an auction seemed unnecessary – simply allocating three blocks to each telco would have reduced the opportunity for anti-competitive behaviours by any one telco.

But with fostering service-level competition not on the government’s agenda, the terms of the auction were not simple.

Successful bidders who purchased three or four blocks would “… be required to build (respectively) five or ten new cell sites … each year for five years …”

There was no such obligation for a telco purchasing only one or two blocks.

With the government setting a modest reserve price of $22 million for each block, and given the acquisition limit of three blocks, it was not surprising that all blocks sold were sold at that reserve price.

However, one block went unsold.  So for that telco, the capital cost of meeting the obligation to build five additional cell sites each year for five years, was avoided.

It also meant that a competitive advantage would necessarily accrue to the telco with the deepest pockets that won the extra block.   This was highlighted by 2degrees CEO Stewart Sherriff who severely criticised Vodafone, saying “Vodafone’s campaign to secure the remaining 700MHz spectrum shows it will pay whatever it takes to stall true competition in mobile.”

The unsold block went to Telecom for an almost four-times premium on the earlier sales. With Vodafone already holding the largest hoard of spectrum, it seems that Telecom had a strong incentive to deny Vodafone an even greater competitive advantage.

The telcos are now announcing the roll-out of services based on their 700MHz spectrum purchases.

Telecom has announced it will launch the service in August, covering the town centres of Hamilton and Morrinsville as well as surrounding Waikato areas.

Their coverage will expand this year to adjacent rural areas that have a high broadband demand.  It is likely that a retail rural broadband service competing with Vodafone’s wholesale RBI will also be offered.

Vodafone rolled out its first 700MHz 4G site in Papakura earlier this month.  Their self-claimed focus this year is to expand the existing 4G network to rural New Zealand and for new RBI sites to be 4G capable.

Only time will tell how rural people will actually benefit from this spectrum.