Optus Suspects Government’s Revenue May Get Hurt In 5G Spectrum Bidding War

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The Australian government may have to cough up approximately $850 million in the 5G spectrum auction, warned the second largest telco company Optus. The auction is slated to take place at the end of this month.

Andrew Sheridan, Optus’ Vice-President of Regulatory and Public Affairs, stated that due to TPG-Vodafone merger the government has lost one bidder which could potentially impact the bidding prices. He added that due to the risk of lower demand than supply there are chances that spectrum will be sold at either reserved prices or remain unsold. 

It seems the merger of two competitors Vodafone Hutchison Australia and TPG will carve-out the hundreds of millions from government’s pocket. Due to the lack of competition in the industry, the bids for 5G spectrum are expected to close at lower rates. This, in turn, will hurt the government game plan under which reserve price for the auction was set unexpectedly low with an anticipation to get fueled up in the bidding war among three giant telecommunication providers Telstra, Vodafone and TPG.

To fix the situation, Optus suggested that auction should be paused to review the auction settings that ensures that right competition is set for the bidding process and that genuine market prices are quoted.

Through this auction telco companies are enabled to buy the area-specific spectrum after which they can provide next-generation 5G mobile services to their users. As per the terms of 5G auction, the spectrum is divided geographically that will allow the telco to purchase the specific amounts of the valuable spectrum both in metropolitan and regional areas. As per Australia Communications and Media Authority, 125MHz spectrum will be sold with a limit to 60 MHz allocation in metropolitan areas.

The government’s rulebook for auction was published before the unexpected $15 billion merger of Vodafone Hutchison Australia and TPG, who otherwise were seen as two separate major bidders. Moreover, the other telco giant Optus is already out of the bidding war, as it holds more 5G spectrum than what government is offering in the auction, i.e. 60 MHz in metro areas and 80 MHz in regional areas. Altogether this has narrowed down the competition expected in the bidding process for which reserve price is fixed to 8¢ a MHz per population in metro and 3¢ in regional areas. However, looking to the historical demand it wouldn’t be a surprise if the auction ends at higher prices, setting the competition right.

In today’s trading session, Telstra’s stock price edged up 0.99% to close at $3.060 on 6 November 2018. Whereas, rival TPG Telecom Limited drifted lower as stock price slipped by 1.03% to last trade at $7.690 on 6 November 2018.


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