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Comments on the 5G auction

The 5G auction brought in $853 million in the government’s coffers, while this is a lot of money the total amount of the spectrum sale is lower because of limited competition, partly because of the restrictions there were put on Optus and the nbn company regarding the amount of spectrum they can have in metropolitan areas. Both these companies have already reached the limit of metropolitan spectrum that telcos can buy.

Furthermore, the overall price was subdued because of the announced merger between Vodafone and TPG, which further limited the level of competition that could have driven the price higher. Without these impediments the government could have cashed in well above $1 billion. But the government correctly went for a more balanced approach.  Smaller players known as Mobile Virtual Network Operators (MVNOs) were disappointed that the government hadn’t gone a bit further and included a requirement in the spectrum auction to also make mobile network capacity available on a wholesale basis, this would have further stimulated mobile competition, especially as after the Vodafone/TPG merger competition will be reduced.

But perhaps more importantly, the more I think about 5G the more I ponder that it is a fabulous plot of the telecommunication equipment vendors to get the operators to buy a whole new set of gear worth billions and billions of dollars to them, while in all earnest there is very little the operators can do to increase their mobile revenues. As I mentioned in my analysis from a few days ago , users are very happy with their current 4G service and for them there would not be a reason to pay extra money to switch over to 5G. The only thing that is in it for the operators is a more efficient infrastructure, while important, the question is if that is worth the large investment? On top of the spectrum they just bought, billions of dollars will need to be invested in 5G infrastructure.

Newcomer Dense Air was a bit of a surprise, but that further confirms my thoughts, the relative small amount of spectrum they bought indicates that they will look at niche markets where there would be an early demand (and a premium price) for the much talked about new IoT services, however the big operators are not so interested in niche markets and they are also not good at servicing such markets, they are mass markets operators, and to develop a mass IoT market will take a very long time.

Potential (mythical) new revenues for them might appear 5 to 10 years down the track when millimetre wave spectrum and technologies are added (again at extra costs) for the sort of IoT services Telstra mentioned at their recent launch (autonomous vehicles, smart cities, e-heath, etc).

Paul Budde

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