ITP Techblog

The Government has foregone an auction process to allocate precious spectrum for 5G mobile services, instead allocating the three major telcos parcels of spectrum with 20-year usage rights.

“With the expiry of short-term rights on the horizon, long-term rights must be allocated,” Digital Economy and Communications Minister David Clark said today.

“As part of the new agreement, our three major mobile network operators – Spark, 2degrees and Vodafone - will be required to increase the pace of the 5G roll-out to small towns across New Zealand. There is also an expectation they will continue efforts to improve rural connectivity,” he added.

That’s the only catch in today’s announcement. The telcos may be spared from writing cheques for millions of dollars to secure radio spectrum, but will have to up their investment via the Rural Connectivity Group, which is delivering broadband from mobile towers in the regions.

Shared network infrastructure provider, Dense Air, will also have access to the 3.5 GHz spectrum band as part of this deal. This is seen as crucial to supporting the build-out of 5G services in hard-to-reach places.

Spark's $24 million rural investment

Spark said today that it had “reached agreement in principle on key terms” for a direct allocation of C-band spectrum offering the telco management rights to 80 MHz (megahertz) of 35. GHz spectrum.

In return, Spark will invest an additional $24 million in the RCG to expand mobile coverage further in rural areas and fill in black spots on state highways. Vodafone and 2Degrees haven’t yet revealed the terms of their agreements with the Government to obtain spectrum management rights.

“We look forward to working with Government on the finalization of the binding management rights deed, and on the future allocation of 600MHz and mm-wave, which will be particularly important for rural 5G coverage,” Spark CEO Jolie Hodson said in a statement.

The reasoning from the Government to bypass a spectrum auction in favour of direct allocations seems to be that the cost outlay would only hit the telcos’ ability to invest in rolling out 5G in the cities as well as in rural areas.

No auction windfall

That’s a pragmatic move in terms of expanding 5G coverage as rapidly as possible. But the windfall in auction fees could have allowed the Government to invest in targeted digital divide projects.

The three telcos collectively paid $176 million plus GST for 4G spectrum rights back in 2014, with the deals requiring mobile network operators to expand coverage and upgrade their existing rural cell sites to 4G capability within five years. Spark would eventually spend $149 million in total on spectrum rights in a bid to become the largest player in the 700 MHz band radio spectrum band for mobile and fixed wireless services.

In Australia, 5G spectrum auctions raised AU$647.64 million from five operators in a spectrum auction for 5G services last year and there’s more radio spectrum to be auctioned off.

A good deal for us?

The question then is whether New Zealanders are getting full bang for buck from this valuable resource. The Government seems to have set a precedent that the spectrum auctions of the past are simply that, a thing of the past.

Still, looming in the minds of ministers and policy analysts will be the fallout from the massive European spectrum auctions of the early 2000s which saw billions of euros raised in auctions, but which crippled many telcos with debt.

Today’s announcement doesn’t include details of another direct permanent allocation of radio frequency which has been reserved for Māori in a deal with the Government worth $75 million. Access to current short-term 3.5 GHz rights expires at the end of October 2022, but the new deal extends those rights until June 2023, when the new management rights agreements will come into effect.