The ACMA has set the starting price in terms of $/MHz/pop, and in these terms the price for spectrum is uniform between regional and major population areas. The lots are divided into generic pairs, with each pair representing 2 X 5MHz of spectrum. The spectrum is Frequency Division Duplux (FDD) spectrum where transmit and receive are in different frequency bands, hence the paired nature of the spectrum offered. The different ACMA spectrum products in which the lots will occupy is as per the following table.
The prices are as indicated in the following table, $1.15/MHz pop for 850MHz expansion and upper 900MHz bands, and $0.75 for the lower 900MHz band.
Both TPG and Optus were successful in their applications for some set-aside spectrum, they both have the opportunity to purchase 2 X 5MHz of spectrum in the upper 900MHz band at a set price of $1.44/MHz pop, a 25% premium over the auction starting price.
The ACMA says, "A set-aside applicant must elect to take up both, or neither, of those set-aside lots. If it takes up the set-aside lots, those lots are allocated to it immediately before the start of the pre-bidding phase, although specific frequencies for the set aside lots will not be assigned until the assignment stage in the auction." Optus and TPG will have to purchase both a regional and major population lot, they cannot just choose to purchase the regional, or major lot.
An early decision, that both TPG and Optus must make; does $1.44/MHz pop represent good value and should they take-up the set-aside spectrum? If we consider the last time this spectrum came up for purchase, $1.44/MHz pop seems to represent good value. When the 850MHz was last renewed it was at the price of $1.30/MHz pop, if this was real estate the market would value it at upwards of $2.60/MHz pop. The similar performing 700MHz digital dividend spectrum was sold a short time later for $1.36/MHz pop.
While attention has been focused on 5G and mmWave spectrum, the low band spectrum is particularly valuable. It cannot provide the capacity due to the quantity, or bandwidth of spectrum available compared to the mid-band and mmWave bands, but it's better propagation means it is ideal for:
- The blanket coverage in cities and penetrating inside buildings.
- Providing good affordable coverage in regional and rural areas.
The recent Telstra Ericsson longest 5G call of 113km was done in 850Mhz spectrum.
In past high value spectrum auctions, many of the Telcos have engaged experts ranging from economists that specialise in auctions and consultants on auction strategies. Getting what they desire within their capital budgets is strategically important in the long term.
In the past some of the spectrum auctions have gone a little crazy, with egos rather than business sense playing out. The most prevalent I recall was a 1800MHz auction in around 2000. Two new entrant CEO's, with big egos, were wanting to win at any cost and contesting over 2 X 5MHz of spectrum; their ego's cost both organisations around $200M in additional capital; 12 months later one of them failed going into liquidation. This sort of behaviour is unlikely to occur in this auction, as the operators will have hard capital budgets set, and will bid in a rational manner.