AFR: Red face, not red underpants

The just completed auction of radiofrequency spectrum for wireless broadband services has produced, by any measure, a disappointing result. It raised much less than $2 billion - after Communications Minister Stephen Conroy took the unusual step last year of directly intervening to set an extraordinarily high reserve price equating to nearly $3 billion. Conroy said the asset was the "waterfront property" of spectrum.

So confident was he of facing excess demand that he notoriously boasted that he could force executives of bidding companies to wear red underpants.

This spectrum is certainly valuable: it will be used by mobile phone operators to deliver the next generation of wireless broadband services - so called 4G or LTE (long-term evolution"). But while the government clearly hoped to raise as much revenue as it could to fill its yawning budget deficit, Conroy badly mishandled the auction. It ended after just one round, at prices barely exceeding the reserve - and onethird of the spectrum on offer did not sell. The only likely bidders were the three incumbent mobile operators, Telstra, SingTel's Optus and Vodafone, as the government itself conceded in a regulatory impact statement on the auction.

But when Vodafone said in late 2012 it would not bid, this removed all price tension. Given that Gillard government ministers routinely display a lack of basic commercial competence, this poor auction result is not particularly surprising. But in fact, the government made a more serious mistake: in setting out to make as much money as possible from the auction, it got things the wrong way round.

Auctions are used to allocate radiofrequency spectrum -a scarce public resource - to the purpose with the highest value to the community. Raising money is secondary. Everyone who uses mobile broadband services - and that is most of us - has an interest in this spectrum being allocated efficiently. The data delivered over mobile networks is exploding - industry regulator the Australian Communications and Media Authority estimates that demand will be 30 times 2007 levels by 2015, and
500 times by 2020. We need a competitive market in mobile broadband, with multiple operators prepared to invest the vast sums of capital needed to build and upgrade mobile broadband networks, and with vigorous competition among those operators to
achieve the best possible service at the lowest possible prices.

Thanks to Conroy's mishandling of theauction, that objective is at serious risk. By leaving some spectrum unsold, there is less mobile broadband capacity available - and we will hit mobile broadband bottlenecks more quickly than if all the spectrum were in use. By using a very high reserve price, Conroy has increased the capital spent by the two operators - Telstra and Optus - In setting out to make as much money as possible from the auction, the government got things the wrong way round. that did purchase spectrum, driving up prices these companies will need to charge consumers to get their return on capital. By setting a reserve price that the smallest mobile operator could not justify paying, Conroy has markedly reduced competition in the market for 700 MHz mobile broadband services. Over the past five years, most attention has been on Conroy's profoundly anticompetitive approach to the fixed-line broadband market But the troubling result of the 700 MHz spectrum auction means there are darkening clouds over
competition in mobile broadband as well.

Paul Fletcher is federal Liberal member for Bradfield and a former telecoms executive.