Governments Squeeze Operators for LTE Spectrum

7:00 AM -- Some European governments have started a worrying trend for mobile operators by setting unusually high reserve prices for spectrum auctions in an effort to raise more money for their coffers.

Now, there's nothing odd or surprising about governments wanting to make money from spectrum auctions. But as Europe is gripped by the sovereign debt crisis, national governments desperately need cash. And the upcoming Long Term Evolution (LTE) spectrum auctions look like convenient sources of revenue.

For example, France hopes to raise €2.5 billion (US$3.5 billion) from auctions for 2.6GHz frequencies in September and 800MHz spectrum in December this year. But French regulator Arcep has chosen an uncommon format for the auction -- that is, first-price sealed bid -- which has a "risk to significantly overpay," and also set high reserve prices, according to Scott McKenzie, director of Coleago Consulting. (See Arcep Takes Applications for 4G Spectrum and Euronews: Vodafone Gets Smart.)

Compared to the reserve prices set for the LTE auction in Germany in May last year, Coleago calculates that on the basis of euro per MHz per head of population (€/MHz/POP) the French prices are 100 times and 25 times for the 800MHz and 2.6GHz bands, respectively. (See German Spectrum Auction Ends, Raises €4.4B.)

"Although high reserve prices do discourage frivolous participation they also undoubtedly favor the bidders with deeper pockets and it could be argued that if the regulator really believed in market forces (since they are holding an auction) then they should set a low reserve and let the market decide," wrote McKenzie in an emailed statement to Light Reading Mobile.

Another example is Greece, which was just rescued by a €100 billion (US$ 143 billion) bail–out package from other European countries. Greece has a goal of raising €50 billion through privatizations by 2015. And it has some spectrum to license.

Greece has taken the unusual decision to hold an auction for 900MHz spectrum, which is currently licensed to Vodafone Greece and Wind Hellas Telecommunications S.A. . These licenses come up for renewal next year. Typically, regulators simply renew such concessions for a €20 million ($28.5 million) fee, on average. But Greece plans to auction this spectrum and the reserve prices are reportedly understood to be €60 million ($85 million) and €90 million ($128 million) for each frequency block, at least more than double the average renewal price.

Since austerity measures are now the norm in Europe, governments need to raise additional revenue from somewhere. But European governments should not single out mobile operators as easy income generators. Mobile operators need spectrum and they are willing to pay a lot for this finite resource. But they can only make good economic use of it if they acquire it for a reasonable price.

— Michelle Donegan, European Editor, Light Reading Mobile

miglanc 12/5/2012 | 4:56:56 PM
re: Governments Squeeze Operators for LTE Spectrum

I think you need to be careful when you stick the label 'greedy'.
Every business like profits. And when license fees are high, then there are not many serious takers. Besides, the game also includes regulations which in every market creates uncertainty.
Radio bubble has burst. Some time ago ...

Sign In