Discussion of the results of some recent spectrum auctions

Transcription

1 Discussion of the results of some recent spectrum auctions Aetha Consulting Limited Coton Hall, 10 Brookfield Road Coton, Cambridge CB23 7PT United Kingdom Latin America Spectrum Conference, 2011 Mexico City, 7-8 September 2011

2 0 Background 1 Assessment of recent spectrum awards 2 Lessons and outlook 2

3 There s no one-size-fits-all solution for striking the balance between competition at auction, and competition afterwards Sub 1 GHz spectrum is very interesting for this region If the digital TV switch-off can be expedited, then MHz will be ideally suited to boosting broadband in areas of low population density Higher frequencies, despite their worse propagation properties, will also be of growing importance In August Colombia managed to generate interest in spectrum at 1.9GHz despite potentially unfavourable competitive conditions 3

4 A body of interesting empirical data points is building up outside the region As operators and regulators in Latin America design and refine award processes, best practice will be a moving target This presentation assesses the results of recent awards outside the region in analogous bands to those of most interested to mobile operators here Where possible, we will look to explain the main drivers causing differences in market prices, e.g. differences in market competitiveness institutional factors (auction format, spectrum caps, ) the intriguing possibility that bidders are more confident when they can forecast mobile broadband data with more certainty 4

5 and will continue to build up in the months ahead Approximate schedule for ongoing / upcoming European spectrum auctions Q Q Q Italy 800MHz 1800MHz 2.1GHz 2.6GHz Sweden 1800MHz Hungary 900MHz 1800MHz Denmark 800MHz France 2.6GHz Belgium 2.6GHz 5 Switzerland 800MHz 900MHz 1800MHz 2.1GHz 2.6GHz France 800MHz Ireland 800MHz 900MHz

6 0 Background 1 Assessment of recent spectrum awards 2 Lessons and outlook 6

7 Price (EUR/MHz/pop) Auction results for the 700/800MHz band Competitive auction, as O 2 bid aggressively to ensure that it gained access to two blocks of 800MHz Limited competition with only 3 national mobile operators taking part in the auction. This led to lower prices for the 800MHz spectrum. 0.0 United States Germany Spain Sweden In all European auctions, the winning bidders gained access to 2 lots of 2 5MHz each. There has not been an auction where 7 bidders only took away 2 5MHz.

8 Price (EUR/MHz/pop) Auction results for the 900MHz band The 900MHz band can be used for HSPA+ services. Also, low frequency spectrum is particularly valuable in Hong Kong to achieve superior in-building penetration in densely populated areas Of the 3 lots available, 2 lots were acquired at reserve price and 1 lot remained unsold. Likely reasons were sub-1ghz spectrum caps for operators of 2 20MHz Hong Kong Spain Poland Denmark Spectrum was earmarked for operators without holdings in the 900MHz band. This reduced the level of competition in the award processes. The auction result in Spain provides some indication that the second block of 800MHz might have been more valuable than a third block of 900MHz, for all operators. 8

9 Price (EUR/MHz/pop) Auction results for the 1800MHz band Lack of alternative bands? Own valuations high due to greater BP certainty on data? Confirms 1800MHz as key LTE band ? ~10x Limited competition as there was only 1 lot which was part of a beauty contest. Only operators without spectrum holdings in the band could apply for this lot Limited competition for this band in the German auction due to the availability of various substitute high-frequency bands Spectrum was sold at the reserve price to the only applicant S.Korea Spain Germany Denmark 9

10 Price (EUR/MHz/pop) Auction results for the 2.1GHz band Auction was conducted as a first-price sealed bid auction. This is likely to have led to an increase in bids as bidders trade-off bid discounts and the risk of not winning the auction. In addition, there was limited supply of spectrum as only 2 lots of 2 5MHZ were made available Regional licences and large number of operators (7 winning bidders + 2 public operators) led to strong competition in some (urban) areas which drove up prices France India Belgium Germany 10 Option to substitute for other high-frequency bands reduced competitive pressure. At the same time, prices fetched were about 4 times higher than for other high frequency spectrum (1800MHz and 2.6GHz)

11 Price (EUR/MHz/pop) Auction results for the paired 2.6GHz band Unpaired spectrum auctioned at the same time went for a (much lower) minimum price As in Denmark, four MNO competitors, plus in this case Intel Capital Big bang multi-band auction, combined with SMRA auction, allowed MNOs to spread their demand for LTE spectrum over several bands. Unusually tight spectrum caps were set, favouring new entrants. This got the desired post-auction market structure: entrants with 2.6GHz spectrum Denmark Sweden Germany Netherlands 11

12 Price (EUR/MHz/pop) Auction results for the unpaired 2.6GHz band Spectrum was initially acquired by Intel in an attempt to stimulate WiMAX deployment. It has recently been sold to Hi3G. Unpaired spectrum was sold at a price significantly below the paired spectrum in the 2.6GHz band Sweden Norway Germany Poland 12 Spectrum was acquired by WiMAX operator at a price similar to paired spectrum. Lack of price differential is likely to be due to limited competition during the auction. Spectrum may have been used by bidders to park eligibility point cheaply during the auction. No significant competition and fragmented outcome (4 winning bidders)

13 0 Background 1 Assessment of recent spectrum awards 2 Lessons and outlook 13

14 A significant value difference between lowfrequency and high-frequency spectrum The auction results show that there remains a significant value difference between low-frequency and high-frequency spectrum prices for low frequency spectrum ranged from EUR0.35MHz/pop to EUR1.26MHz/pop* prices for high-frequency spectrum ranged from EUR0.02MHz/pop to EUR0.47MHz/pop* until last week s S. Korea result Low-frequencies have the fundamental technical advantage of better propagation so lower cost coverage networks However the emergence of 1800MHz as a generally accepted band for LTE will boost values above 1 GHz 14 * This excludes auctions where spectrum was sold at the reserve price or with favourable treatment to certain operators

15 Although not the only driver, competition during the auction is the key driver of prices The interplay between supply and demand seems to explain many of the differences observed this can be seen by the significant price gap between contested and uncontested auctions in the 800MHz band, the German and US auction raised about 50% - 100% more than the Spanish and Swedish auctions other bands have shown even more pronounced results (e.g. prices in the French 2.1GHz auction were nearly 5 times as high as in Germany) 15

16 Other drivers of auction prices are substitutability of lots, auction format, and bidder s valuation Substitutability of lots and the auction format play a key role in the German auction, prices for high frequency spectrum were lower as operators could switch their preferences for lots during the auction in France, the first-price sealed bid format did not leave significant room for bidders to discount their bids The S. Korea result emphasises the importance of how a business-planbased valuation of mobile broadband data looks, from the point of view of different kinds of investors in spectrum Despite TD-LTE gaining some traction in recent discussions, there has been limited evidence that there is significant interest for unpaired 2.6GHz spectrum auction prices did not increase about EUR0.04/MHz/pop In the recent auction in Spain, all unpaired spectrum remained unsold despite some competition In the for recent regional Spanish FDD blocks. auction, This all appears unpaired to indicate spectrum that remained few operators unsold do yet consider TD-LTE to be a viable alternative to FDD spectrum in the 2.6GHz band. 16

17 Lee Sanders Marc Eschenburg Amit Nagpal Graham Johnson