One of the two possible outcomes of the auction is that the government will receive exactly that reserve price, covering exactly its outgoings for the ‘digital switchover’.
The auction process for the allocation of the ‘digital dividend’ 700MHz spectrum is expected to kick off on Labour Day.  In a $200 million dollar plus process, there is much at stake for all parties.

It is important for those rural people who rely on mobile telcos for their fixed broadband services.  As the auction bids go up, so goes the price they must pay.

This contrast with the benefits of falling prices accruing to those in urban areas.

The wholesale broadband price for urban services are capped either by regulation (for copper-based services) or contract (for fibre-based services).  In addition, and driven by strong competition, retail broadband prices in urban areas are declining.

The auction is important to mobile broadband users.  The burgeoning demand for mobile data, which is near doubling every year, could not be sustained without the 700 MHz spectrum being made available to them.

It is central to the growth strategies of the mobile telcos, Telecom, Vodafone and 2Degrees.  They each desire the 700MHz spectrum because it is a less expensive band to roll out new mobile broadband services in.

For 2Degrees, it is even more important because their spectrum holdings are limiting their growth potential.  Which makes it important to the other two who would doubtless prefer that competition be limited to the established cosy duopoly.

Amy-Adams-auctioneerIt is fiscally important to the government.  Their cost to clear the spectrum was $176 million to which must be added the $30 million sop to Maori for their ‘cultural’ interest in the radio spectrum.  Coincidentally, perhaps but unlikely, that totals just under the auction reserve price of $198 million.

One of the two possible outcomes of the auction is that the government will receive exactly that reserve price, covering exactly its outgoings for the ‘digital switchover’.

A spokesperson from MBIE has confirmed that there are only three registered bidders and that there are no mechanisms within the auction process to prevent such an outcome.

This outcome will occur if the three mobile telcos each bid for the acquisition limit of three lots at the reserve price.

Three lots to each of three bidders at the minimum price equals auction concluded in round one.

Would New Zealand be any better off should this happen?  Yes – retail prices will be minimised and retail competition will be maximised.

There is another possible outcome to the auction process: two of the mobile telcos win the bidding for the maximum permissible four lots each, with the third winning just one lot.

This will occur if the well-established mobile telcos see a competitive advantage in raising the investment costs to the third telco by bidding to high levels.

Again, there is no mechanism within the auction process to prevent this happening.

Would this outcome benefit New Zealand?  Yes in that government revenues will be higher and available mobile broadband peak speeds will be higher.  But no in that retail prices will be maximised, broadband services will be concentrated in fewer providers and retail competition will be seriously harmed.

These two possible outcomes have always been clear to those who wanted to see it.

Yet the government, Steven Joyce and Amy Adams in particular, have chosen to sell an asset of the Commons to the incumbent mobile telcos.  This may maximise immediate returns to the Crown but is at the long term cost of all New Zealanders.

In particular, rural people and businesses will again pay for their short sightedness in not considering alternative uses of the ‘digital dividend’.