The Commerce Commission has cleared Telecom to acquire the final
amount of 4G mobile spectrum the government is auctioning. The
decision allows the government to complete the auction, and
Telecom, Vodafone and 2degrees to use the spectrum for new 4G
services, but raises some interesting Commerce Act issues.
Telecom will acquire two 20MHz blocks of spectrum, Vodafone two
15MHz blocks, and 2degrees two 10MHz blocks, half as much as
Telecom. Telecom says that its larger holding will enable it to
offer greater coverage, greater peak speeds and better service than
The Commission's decision comes after at least four
extensions of dates and over five months' deliberation. While
some of this delay no doubt arose from the need to await the
results of early rounds of the auction, it could also signal that
the Commission was concerned that Telecom's acquisition
breached the Commerce Act.
In previous spectrum auctions, the Commission gave its clearance
relatively easily, usually finding that sufficient spectrum exists
elsewhere to allow competition. In its latest decision, the
Commission has taken a more detailed look at what would happen if
it did not grant clearance.
Total revenue from the auction to date is $259 million, but more
might be obtained in the final allocation round. The Government has
spent $147 million clearing the 700MHz band to allow the spectrum
to be used for 4G mobile networks.
The clearance decision
In giving its clearance, the Commission relied on government
decisions on where the government would place the different
spectrum blocks, if Telecom's clearance application were to be
refused. The placement of the spectrum blocks is important, because
they are far more useful to mobile phone operators if they are
contiguous. If the blocks owned by an operator are spread around
the 4G band, the operator's is not able to offer the best data
speeds and quality of service.
If the application had been refused, Telecom would still have
been able to buy two 15MHz blocks, but a final 5MHz block would
have been unsold. The government said that in this scenario it
would not make the unsold 5MHz block available to 2degrees, but
might consider other uses such as for emergency services, wireless
broadband or by electricity network operators.
The government also said that it would place the 5MHz block away
from the two 10MHz blocks acquired by 2degrees.This would mean
that, even if 2degrees wished to acquire the unsold 5MHz block,
2degrees would not be able to acquire contiguous blocks. As a
result, the Commission thought it unlikely that 2degrees would want
to acquire the unsold 5MHz block.
On that basis, the Commission considered that Vodafone and
2degrees would each hold the same amount of spectrum, whether
Telecom acquired the spectrum or not. The Commission considered
that Vodafone and 2degrees would effectively provide the same level
of competitive constraint in both cases. The Commission was
therefore satisfied that Telecom's acquisition would not breach
the Commerce Act.
Questions on the Commission's approach
Two aspects of the decision might be questioned.
First, the Commission's view that Vodafone and 2degrees
would effectively provide the same level of competitive constraint,
regardless of whether Telecom acquired the final 5MHZ block, seems
to ignore the benefits to Telecom of this additional block. Telecom
bid to pay $83 million plus GST for this 5MHZ block alone. As noted
above, Telecom's clearance application pointed to significant
benefits from the additional spectrum, which the Commission
acknowledged. The Commission's decision, however, does not
explain why it still considered that competition would be
Second, the clearance decision is interesting for its heavy
reliance on government policy decisions. Those policy decisions,
however, could be changed – at least up to the time that the
telco's begin building their networks and possibly after that.
The government's policy decisions are also themselves entirely
hypothetical. The policy decisions paved the way for the
Commission's clearance decision and as a result would never
have been tested. Finally, the policy decisions flew in the face of
the government's own advice, on which earlier spectrum
decisions have been based, that the best use of the spectrum would
be for 4G mobile telephony. The Commission's decision does not
appear to explore any of these issues. A query might well be raised
over whether the tests in the Commerce Act for clearance were
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