Between the lines: Auction a comedy of flaws

You put the money in, you take the money out, you put the money in and you shake it all about. You do the hokey-cokey ... for seven and a half months.

The farce - the 2 gigahertz spectrum auction - is finally over. Never before have so many shaken it all about for so long for so little. The result is a paltry $133 million for Government coffers and an example to the rest of the world of how not to carry out a spectrum auction.

A simple rule penalising the withdrawal of bids could have seen the auction completed in about three weeks. Instead the Government has delivered consumers a delay on anyone using these valuable airwaves. That's some seven months longer New Zealanders will have to wait for a wider choice in mobile and fast internet services.

The delay will please Telecom and Vodafone, who have gained extra breathing space before competitors invade their territory. Neither can really be blamed, although at one stage Telecom did engage in the ridiculous, by bidding over itself. Clearly at fault were the rules.

The auction was a spectacular example of how the free market and poor regulations can collide.

Give business a loophole and it will take it every time. Get the ground rules wrong and the playing field tilts, in this case, in favour of the incumbent players and those with the deepest pockets.

Once many of the smaller players had been scared off, the big fish suddenly realised they could manipulate down the amount they paid for each band of spectrum. The end result was a range of remarkably similar bids.

Then there's the question of when this spectrum might actually be used. The Government has resisted a "use it or lose it" clause, which means Telecom and Vodafone have little incentive to actually build a 3G network and can hoard this valuable resource until potential competitors such as Clear and Telstra make a move.

But the news is not all bad. Walker Wireless, one of the few players with real plans to use spectrum, did manage to secure frequency in the 1098 band. That, combined with previously auctioned frequency it acquired from others who bought it at rock bottom prices and hoarded it until they could make a killing, means it can move ahead with plans for a wireless, fast internet, phone and TV capable network.

Perhaps, albeit seven months delayed, Telecom may soon face fiercer competition on its near-monopoly on telephone wires to our homes.

Let's hope the Government has now learned that for a free market to work properly, good rules and good management are required.