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Telecom NZ and Vodafone have the opportunity to bid for the remaining 5 MHz paired block of the 700 MHz spectrum.

The carriers each won three 5MHz paired blocks during the first round of the spectrum auction last month. Underdog mobile carrier 2degrees only purchased two blocks leaving an unsold block of spectrum on the table.

Both Telecom NZ and Vodafone have applied for Commerce Commission clearance to boost their holding to 20 MHz paired.

Assuming they are both granted clearance – and there’s little indication that won’t happen – they will be able to bid.

2degrees is also eligible to bid. However, that looks less likely now as the price of the remaining spectrum is now likely to be higher than the $22 million reserve that would have secured it for the company last month.

Bidding in the new auction starts at that price. Picking up the extra spectrum will be more expensive again for Telecom NZ or Vodafone because the terms of the auction say carriers taking three blocks must build at least five new cell sites each year, for five years. Any carrier taking four lots will have to build ten new cell sites each year for five years.

The government’s decision comes as no surprise. A second round was pencilled before the first round in case the entire spectrum failed to sell.

After the first round there was lobbying from 2degrees and others to leave the unsold spectrum on the table.

One argument against selling the final block is that it will tilt the market in favour of whoever wins the additional spectrum. Carriers are able to deliver fast data services or service more customers with larger spectrum blocks.

The winner may be in a position to do both. It will certainly be able offer considerably better speeds than 2degrees. On the flip side, there’s an argument that 700 MHz spectrum is too useful and valuable to leave unused.

Writing in the organisation’s blog, Tuanz CEO Paul Brislen says: “From a competition point of view this is the worst outcome on offer”.

As he points out Telecom NZ and Vodafone are likely to get into a bidding war because neither will wish to see the other buy the strategic advantage that extra spectrum will bring.