Telcos look at smaller slice of the 3G cake

By PAULA OLIVER

Leading telecommunications companies appear to have found a way to divide up the third-generation (3G) spectrum that will save them cash.

Vodafone, Telstra Saturn and Clear Communications each hold a 10MHz chunk of the lucrative 3G spectrum, which is believed to be the key to offering future mobile services, such as video, on wireless handsets.

When the Government set up its spectrum auction, it tried to divide 3G into three blocks of 15MHz each, because that was seen as the optimum amount a telco would need to build a network.

To encourage competition, a 15MHz limit was placed on each bidder.

It now appears that the telcos could be willing to try to build a network with the minimum requirement of 10MHz - a tactic that will avoid a costly bidding war.

While Telecom holds the maximum 15MHz chunk, the other bidders have not changed their stance for more than 10 rounds.

The Ministry of Economic Development changed the auction's rules this week in an effort to propel it towards an end.

One change was to close the auction after just one round clear of bids, meaning there are no second chances for bidders who take a gamble by sitting out a round.

Maurie Dobbin, managing director of Sydney-based Teleresources, said the three bidders were probably happy with what they were holding.

If they were not, he said, they were taking a big gamble in not making a bid to change their position.

"If they went for the full 15MHz, they would probably recognise that the others are determined and therefore they would all pay more for the spectrum," he said.

"You can build with 10MHz. It's not ideal, but you can do it."

Mr Dobbin suggested that enough second-generation (2G) spectrum was up for grabs to enable the bidders to use a combination of 3G and 2G to offer exciting new services.

"You will find a few years down the track that they will have 3G systems that work in that 2G spectrum."

He doubted that New Zealand was large enough to support two new networks to compete with Telecom and Vodafone, meaning that other options, such as partnerships or leasing the spectrum, could be looked at in the future.

The Government has placed a restraint on winning bidders that prevents them from selling 3G for three years after the auction, but leasing it is an option.

Clear Communications spokesman Ross Inglis said his understanding was that a network could be built with just 10MHz.

He said the three companies had not discussed tactics.

Bids now total $177 million, with Telecom the biggest spender on $53.4 million.