Telecom has bought the largest share of the radiospectrum being sold by the government for new generation mobile services. The acquisition, however, remains subject to Commerce Commission clearance.

The radiospectrum was auctioned by the government, starting in late 2013. It is aimed at being used for new 4G services – essentially bigger data, faster.

Telecom, Vodafone and 2degrees bid for the auction. In the initial stages of the auction, 2degrees purchased approximately 22% of the spectrum available with Telecom and Vodafone acquiring a third each. One 5 MHz block, or approximately 11%, of the auctioned spectrum, was left unsold. This block was auctioned in subsequent rounds, with Telecom and Vodafone competing. Telecom ended up bidding $83 million (plus GST) for the final bock of spectrum.

Telecom's bid is optional on it obtaining clearance from the Commerce Commission. A clearance is a sign-off from the Commerce Commission that an acquisition does not breach the prohibition under the Commerce Act 1986 against acquisitions that substantially lessen competition in a market.

Telecom applied for the clearance application in October 2013 before the auction commenced, but a Commission decision is not due until 14 March this year.

The Commerce Commission decision will be interesting both for the Commission's views on competition in markets and its approach to counterfactual analysis.

In its statement of preliminary issues, the Commission invited comment on whether the acquisition will limit competitors ability to compete in retail mobile markers and, in particular, in 4G mobile services. The Commission has cleared previous acquisitions of mobile spectrum, but 2degrees has provided an economic report to the Commission that claims the acquisition would limit its ability to compete for customers, thereby substantially limiting competition.

The Commission's decision will depend on a counterfactual analysis, comparing the level of competition of an acquisition. In its application, Telecom put forward a couple of counterfactuals. Given the results of the auction rounds, the relevant counterfactual appears to be that of Vodafone acquiring the final 5 MHz block. If Vodafone had done so, however, its acquisition would also have required clearance, in which the counterfactual would likely have been Telecom acquiring the final 5 MHz block. It will be interesting to see how the Commission deals with this circularity.

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