Austrian operators slam high price of LTE spectrum

Austria's three main operators have secured more spectrum for the expansion of their LTE networks but said they have paid among the highest prices for spectrum in Europe in a market that has among the lowest mobile tariffs in the region.

Furthermore, Hutchison Whampoa's 3 Austria failed to win any spectrum in the prized 800 MHz band. Some analysts say this reduces the competitive threat of the operator, which recently merged with Orange Austria. On the bright side for the three operators, the auction did not wave in a new fourth entrant on the already hard-fought mobile market.

The Austrian Regulatory Authority for Broadcasting and Telecommunications (RTR) said it raised about €2.014 billion ($2.77 billion) from the auction of frequency blocks in the 800 MHz, 900 MHz and 1800 MHz bands.

Auction results

Operator

800 MHz Band

900 MHz Band

1800 MHz Band

EUR

A1 Telekom Austria AG

2x20 MHz

2x15 MHz

2x35 MHz

1,029,895.738.-

T-Mobile Austria GmbH

2x10 MHz

2x15 MHz

2x20 MHz

654,482.816.-

Hutchison Drei Austria GmbH

-

2x5 MHz

2x20 MHz

330,082.913.-

Sum

2x30 MHz

2x35 MHz

2x75 MHz

2,014,461.467.-

Source: Austrian Regulatory Authority for Broadcasting and Telecommunications (RTR)

While Telekom Austria, T-Mobile Austria and 3 Austria welcomed the extra frequencies and said they are now in a position to continue their LTE rollout strategies, all three said they have paid a high price for the privilege.

Telekom Austria's domestic unit, A1 Telekom Austria, paid the highest amount, €1.03 billion, and gained four blocks of 800 MHz spectrum, three blocks of 900 MHz spectrum and 7 blocks of 1800 MHz spectrum. Each block consists of 2x5 MHz.

"We are very happy about the excellent spectrum package we were able to purchase," Telekom Austria  and A1 CEO Hannes Ametsreiter said in a statement. "The high price we had to pay is a bitter pill to swallow, however."

A1 CTO Marcus Grausam added in the statement that the operator had specifically targeted spectrum in the lower frequencies in order to address coverage requirements. "The bids we made in the auction were clearly in the best interest of our customers, nevertheless, we ended up paying one of the highest prices in Europe, which slightly dampened the joy over this success," said Grausam.

According to Reuters, the cost of the spectrum will stretch the finances of Telekom Austria and is likely to pressure its credit rating in the short term. The operator has said it will finance the spectrum acquisition via existing cash as well as additional debt. Indeed on Wednesday Moody's said it has downgraded Telekom Austria's ratings to Baa2 from Baa1 following the operator's debt-financed acquisition of spectrum.

Analysts suggest that the gamble by the country's largest operator could be worth it to reduce the impact of 3 Austria in future:

"It appears to us that Telekom Austria has rolled the dice on a €1.03 billion gamble to corner the market for 800-1800 MHz spectrum in order to starve Hutchison (seen as the price disruptor) of network capacity," Berenberg analysts wrote, Reuters reported.

Deutsche Telekom-owned T-Mobile Austria acquired frequency packages in the 800 MHz (two blocks), 900 MHz (three blocks) and 1800 MHz (four blocks) for a total price of €654.5 million, and blamed the way the auction was structured for the resulting high fees. "The auction was designed in such a way that the fees would end up being especially high, despite the weak earnings situation in Austria," T-Mobile Austria CEO Andreas Bierwirth said in a statement.

3 Austria, meanwhile, claimed it "got off lightly" in the auction because it paid the lowest fee of €330 million for five blocks in the 900 MHz and 1800 MHz frequency bands.

"Compared to competitors we managed to minimise the financial damage to the company," said 3 Austria CEO Jan Trionow in a statement. Trionow added that the operator is now in a position to continue its growth strategy thanks to the additional spectrum. "However, the outcome of the auction is a disaster for the industry as a whole," he said.

3 Austria is nonetheless seen as being in a weaker position than rivals because of its failure to win 800 MHz spectrum. "The reality is Hutchison is in a significantly weaker condition than it was before the auction," Antonois Drossos, co-founder of Finnish telecoms advisory firm Rewheel, told Reuters. "Competition has weakened in Austria as a result."

Austria is Europe's most competitive mobile market, with 3 Austria's all-inclusive SIM-only plans starting from €7.50 per month. Reuters noted that 3 Austria now has a 25 per cent share of the market, while Telekom Austria has 44 per cent and T-Mobile Austria has 31 per cent.

For more:
- see this Reuters article
- see this separate Reuters article
- see this Bloomberg article

Related Articles:
Orange brand disappears from Austria as 'the new Three' emerges
EU's Kroes slams member states over 800 MHz delays
Telekom Austria reports Q1 slump as consolidation fails to halt price war
Report: Tele2 eyes LTE spectrum as Austria preps auction

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