Bedfellow rumour follows ihug exit from auction

By PAULA OLIVER

Ihug called it quits in the Government's radio spectrum auction yesterday, adding fuel to speculation that the company may be about to partner a major spectrum bidder.

Meanwhile, another change of rules had bidders positioning for the closing stages and sent the total value bid soaring to a new high of $168 million.

Ihug director Nick Wood said the rising price was not the reason for his exit, although he was coy about future plans.

Rumours of an imminent takeover by Telstra Saturn have persisted since ihug laid off 60 staff last month.

Mr Wood said ihug had withdrawn from bidding because the four-month old auction had gone on too long, and the risks involved in entering the market were getting too high as Telecom and Vodafone built up strong market shares.

"We think the time is up from the competition point of view. It would have been good at the start of the year, but so much of the time has been eaten into that the practical risk of building something to compete in a tight market is a huge gamble," he said.

"Ihug's not the right sized company to do that - maybe if we were Telstra it might be a different story."

Mr Wood hinted that an announcement on ihug's future could be coming early in the new year.

Ihug has been stung by changes in pricing for internet service providers, and many in the telecommunications industry suggested it laid off staff to get its house in order for a takeover, or partial sale.

Telstra Saturn chief executive Jack Matthews said that from a strategic point of view, Telstra would always be interested in ihug, which has 75,000 local customers. But he indicated nothing was progressing right now.

Ihug has just entered into a partnership with Telecom to supply high-speed internet services to Wairoa, as part of a community development project. Industry sources suggested that if Telstra was not seriously interested in ihug, then Telecom could be a potential suitor.

But Mr Wood is a vociferous critic of the major telco, and its tactics in the spectrum auction.

He took a case to the High Court before the auction began to protest that existing telcos should be prevented from buying large chunks of second-generation (2G) spectrum.

"I would be very surprised if it [2G] doesn't all end up in the hands of the big guys," he said. "There is no real likelihood that anyone else is going to end up with it, because as soon as it gets interesting, these guys will pay whatever is required to keep it."

Carefully constructed rule changes gave the auction a long-awaited shake-up yesterday, as the Ministry of Economic Development moved to tidy up the lengthy saga.

The auction will now end after just one clear round of bidding.

The controversial practice of withdrawing bids will continue to go unpenalised, although changes have been made to send a lot's value back up quickly after a withdrawn bid.

Minimum bids have been increased to 10 per cent for third-generation (3G), and 20 per cent for 2G.

The number of rounds a day has decreased to four from six, to allow bidders to cope with the move to end the auction after one clear round.

Third-generation (3G) spectrum is still the target of four active bidders, Telecom, Clear Communications, Telstra Saturn and Vodafone.