New 4G spectrum looks pricey, warns 2degrees

2degrees chairman and new chief executive Stewart Sherriff.

Mobile phone operator 2degrees is questioning the government's minimum reserve price of $198 million for new fourth generation (4G) mobile spectrum, saying it's well above prices being paid for existing spectrum.

Communications Minister Amy Adams announced the auction of spectrum in the 700 Megahertz range from October 29, after spending $157 million clearing the spectrum of analogue television broadcasting to allow mobile phone operators to meet fast-growing demand for ultra-fast mobile broadband services.

"The spectrum's been priced at a premium to the $157 million cost of clearing the band, well ahead of Treasury's $119 million valuation and about double the price we paid recently for 15MHz of 1800MHz spectrum," said newly confirmed 2degrees chief executive Stewart Sherriff in an emailed statement to BusinessDesk.

"That's beachfront spectrum, which we can use now," said Sherriff of 1800MHz spectrum, which competitors Vodafone and Telecom are also already using to offer 4G services. The 700MHz band is expected to be particularly useful for spreading 4G to rural areas because it requires fewer cell-sites to provide coverage.

The 700MHz auction is offering nine "pairs" of 15MHz spectrum at a reserve price of $22 million, about double the price 2degrees paid for 1800MHz spectrum it bought last year..

"The spectrum cost $15 million and had eight years left on the licence," said Sherriff. "Converted to an 18-year term, that amounts to around $33 million for 15MHz paired versus the $66 million in today's reserve."

Adams said that "in setting the reserve price, we have balanced generating a fair return on the sale of the spectrum rights with the significant investment required by mobile network operators to build the 4G network infrastructure" and "the value to New Zealand of having 4G connectivity widely deployed."

While 2 degrees welcomed the government's willingness to take staggered payments for new spectrum over five years, Sherriff said "paying a premium right now - even with terms - for spectrum we can't use for some time, is a challenge for all players but particularly 2degrees as a late entrant."

"We're investing heavily to deliver competition to a market dominated by two players controlling 90 per cent of the industry's revenue. We're still building our network and will deploy 4G next year using the 1800MHZ," he said.

"Affordable 700MHZ spectrum was crucial for future mobile competition. We hope the government keeps sustainable competition in mind throughout this process," Sherriff said.

Meanwhile, Telecom welcomed the auction but warned that, at this stage, there were no handsets available from international manufacturers to operate on the 700MHz band.

"Current indications are that suitable devices will start becoming available in mid to late calendar 2014 at the earliest," the company said.