Deposits help define 3G spectrum gains

date: 18th February 2001, source by: FT.com

The Federal Government will on Monday receive a clearer picture of whether proceeds from the sale of third-generation telephony spectrum will meet its budgeted estimates, with buyers due to lodge deposits reflecting their demand levels.

Following the lodging of applications with the Australian Communications Authority last Monday, the seven potential auction participants will each make a maximum refundable eligibility deposit of $141 million.

It is expected to confirm at least four bidders for the two national licences up for grabs. Under the ACA rules, individual spectrum lots can be aggregated to construct another two 15MHz licences that provide equivalent national network coverage.

Incumbents Telstra, Cable & Wireless Optus and Vodafone Pacific should bid for national licences. It is anticipated Telecom Corp of New Zealand, through its domestic subsidiary AAPT, will follow suit.

Hutchison Australia, backed by Hutchison Whampoa, is likely to bid for selected metropolitan spectrum that is complementary to its existing 1.8GHz network.

Industry observers will be watching United States mobile technology groups Qualcomm and ArrayComm, which each lodged applications.

Neither are seen as likely owners of Australian networks unless it emerges that other parties are involved in their respective bids.

If the two US groups prove to have limited interest in Australian 3G spectrum, the ACA's auction process is not expected to involve significant price tension. Under such a scenario, total proceeds from the auction may be well under the Government's budgeted forecasts of more than $2 billion.

In a report last week, Merrill Lynch said the potential for consolidation in the domestic mobiles landscape may eliminate some bidding pressure, with potentially only $250million per 15MHz licence achieved. C&W Optus is in the midst of a strategic review which may see its assets purchased by either Vodafone Pacific, TCNZ or Singapore Telecommunications.

Investment bank JP Morgan holds a different outlook on the auction, maintaining that the "two national licences will each achieve a $300million to $400 million target", thus putting the Federal Government on track for its $2 billion-plus target.

The licences are for a term of 15 years, starting October 12, 2002. A 3G network is estimated to cost a carrier about $2 billion for a national roll-out.

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