Here is why Telecom NZ paid $83m for 4G spectrum

Telecom NZ paid NZ$83 million dollars for the last slice of 700 MHz 4G spectrum. The company beat Vodafone to secure the final 2 x 5 MHz block left on the table from the first round of bidding.

Overall Telecom NZ picked up four blocks or 2 x 20 MHz while Vodafone purchased three blocks and 2degrees acquired two blocks.

The size of a block in the 700 MHz band is significant because more 4G spectrum means faster data services.

That should give Telecom NZ a competitive boost against Vodafone which has a head start in rolling out 4G. For now Vodafone’s 4G network covers a wider area than Telecom’s.

Not just 700 MHz

700 MHz spectrum should not be seen in isolation. As Paul Brislen points out on the Tuanz blog:

…when you look at the overall spectrum holdings you’ll find that 2Degrees has just under 100MHz of spectrum, Telecom has double that and Vodafone has nearly 300 MHz of spectrum available to it right across the managed spectrum range.

While the 700 MHz band is prime real estate, having an extra 2 x 5 MHz does little to address the overall balance.

 Did Telecom NZ pay too much for 4G spectrum?

NZ$83 million is a high price considering the other similar-sized blocks went for NZ$22 million a piece. No doubt the government will be pleased with the windfall.

Telecom NZ’s willingness to pay a high price is as much a reflection of its need to deny the spectrum to Vodafone as the opportunity it brings.

What about the price? When analysts compare international prices paid for spectrum they measure the cost per Megahertz per head of population. Because this work is often done in Europe, comparisons are made in euros.

High by European standards

Last year Analysys Mason compared European spectrum prices and found on average carriers paid between €0.5 and €0.6 per MHz per person.

10 MHz of spectrum for a population of 4.4 million means Telecom NZ paid NZ$1.9 per person per MHz. That’s roughly €1.2 or twice the average paid per person per MHz by European carriers.

On that basis, Telecom NZ paid too much.

When you aggregate Telecom NZ’s entire investment in the 700 MHz band you get a total of €0.85 per MHz per person. Again that’s above the European average.

For perspective, Vodafone’s 2 x 15 MHz block works out at €0.5.

Clearly there’s a premium for denying the 2 x 5 MHz block to a competitor, but on a simple calculation it appears Telecom NZ paid a high price to have a little more spectrum. The pressure is now on the company to make it pay.