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Optus trying to 'bargain' in the Digital Dividend, analyst says

On Friday Communications Minister Stephen Conroy set the reserve price for the 700MHz spectrum at $1.36 per MHz per person in Australia, with the spectrum to play a key role in the rollout of 4G networks.

Optus is using all its bargaining chips to try and get the lowest possible price for the 700MHz spectrum on the Digital Dividend, according to an analyst.

On Friday Communications Minister Stephen Conroy set the reserve price for the 700MHz spectrum at $1.36 per MHz per person in Australia, with the spectrum to play a key role in the rollout of 4G networks.

David Epstein, vice-president, corporate and regulatory affairs at Optus, has slammed the price, stating it is “unworkable and out of line with international outcomes”.

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Epstein told ABC’s AM program that the international benchmark for spectrum was 38 cents per MHz per person, compared to the $1.36 price the government has set.

Guy Cranswick, advisor at IBRS, told Computerworld Australia Optus is trying to do what it can to get the best possible price for the spectrum.

“They want the lowest possible price and they’re trying to make some sort of lobby or PR claim that consumers will ultimately be unfairly charged for something that the government has priced at an unfair rate…” he said.

Optus is now lobbying for a price drop on the spectrum, Epstein told AM, and said the telco was not reliant on the 700MHz spectrum and may drop out of the race.

“We would hope that some realism is brought to the process … these are not the only options before us and we can look at other ways of doing things other than acquiring spectrum,” he said.

“So we just have to assess what we're going to do now. One company has already done that and they've said they’re not going to participate. At this stage our minds are open.”

However, acquiring the 700MHz spectrum could be crucial to Optus’ plans to roll out 4G.

Paul O’Sullivan, Optus chief executive, has previously stated the 700MHz spectrum would be “vital for delivering 4G LTE, especially in regional Australia, because of its ability to deliver LTE over longer distances”, and the telco has already been involved with trials on the 700MHz band in Bendigo, Victoria.

Chris Coughlin, analyst at Telsyte, believes Optus needs the spectrum or else it won't be able to match Telstra's dominance in regional cover.

“Secondly, the renewal price of $1.23 per MHz pop for the 850MHz spectrum established an expectation on the 700MHz spectrum and ... this was done after extensive benchmarking and consultation,” he said.

“The 700MHz spectrum is more valuable, so a 10 per cent premium on the 850MHz spectrum is probably not an unreasonable expectation from the government.

“I feel that Optus was expecting to pick the spectrum up for a bargain due to VHA non-participation. This non-participation is what has pushed [Conroy] to set the reserve price at an expected sale price, as without competition the spectrum would have sold for whatever reserve price was set.”

Despite efforts from Optus to reduce the reserve price, Cranswick said it was unlikely the government would budge from its price by any substantial amount.

Instead, he believes the government has priced the spectrum according to what it is worth, what financial analysts have priced the spectrum at and what the potential use of the spectrum is.

“But of course, the risk for government is that no one turns up and you’ve got something you can’t do [anything with] and then you have to go through the whole expensive process [again],” Cranswick said.

Cranswick said it could be likely Optus would follow through with its threats of not taking a seat at the Digital Dividend.

On Friday, Vodafone also stated that it would not participate in the auction under the current terms, confirming earlier predictions the telco would pass on the auction as it already has sufficient spectrum to operate its 4G network on.

This would leave Telstra as the only bidder.

“A two-bidder auction is not as good as a three-bidder [auction] because you’re not going to get more for it, so more than likely you’ll hit reserve price or it gets passed in. That looks likely at the moment,” Cranswick said.

“It doesn’t look very good, but it’s still early days and Conroy is a very able politician and stare at his opposition until someone else blinks.”

Follow Stephanie McDonald on Twitter: @stephmcdonald0

Follow Computerworld Australia on Twitter: @ComputerworldAU

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