With spectrum, EU governments want to have their cake and eat it, too

It's not obvious to everyone in the wider world that huge sums of money change hands for the right to use airwaves that allow us to actually use our mobile phones. When you take a step back and look at the outcome of recent spectrum auctions, it is astonishing how much money changes hand for this natural and readily available resource, particularly when its use is meant to be for the benefit of all.

It's very easy to form the impression that governments in Europe really have not learned the lessons of 3G. The billions of euros spent on 3G spectrum caused major repercussions in the industry that are still being felt to this day, and some governments still seem intent on holding a gun to operators' heads, as Stefan Zehle, CEO, of Coleago Consulting, puts it.

Austria completed its auction of LTE spectrum this past week and raised more than €2 billion ($2.76 billion) in the process. Telekom Austria, the former incumbent in the market, spent over €1 billion to secure blocks in the 800, 900 and 1800 frequency banks. Because the operator had to finance some of this through debt, its credit rating was almost immediately downgraded. It's no wonder that Telekom Austria CEO Hannes Ametsreiter described the auction fees as a "bitter pill to swallow."

The outcome was even worse for Hutchison Whampoa's 3 Austria unit. Although the operator said it came off lightly (although somewhat tellingly the phrase used in the German also means to "escape with a black eye") by keeping costs to around €330 million, the operator did not manage to acquire any spectrum in the valuable 800 MHz band.

3 Austria CEO Jan Trionow described the outcome of the auction is a disaster for the industry as a whole, but in many ways it's a bigger disaster for 3 Austria. Indeed, analysts say the operator's competitive threat has now been reduced. At least it does not face the additional problem of a fourth new entrant in the market.

Austria is already one of the most competitive mobile markets in Europe and the high spectrum prices were demanded from operators in a market where mobile earnings are among the lowest in the region. T-Mobile Austria CEO Andreas Bierwirth was particularly critical of this aspect and blamed the design of the auction for the high fees.

Coleago's Zehle confirmed that Austria's operators paid a great deal more for their spectrum than operators in other markets, and suggested that the increasing value of spectrum as a resource means "governments can hold a gun to operators' heads and demand almost any price."

Governments clearly want to make as much money as possible from this resource. Yet then, as Ofcom's latest "Infrastructure Report" shows, they are also the first to criticise mobile operators when coverage is not what they expect it to be. The UK government is also now even trying to claw back money retrospectively for existing 2G and 3G licences, and is reviewing the LTE auction process because it believes it didn't raise enough revenue the first time round.

The situation on the Czech market comes as a refreshing change. Although the spectrum allocation process is in slight disarray after being postponed once, the reason it was postponed was because the government feared bids were getting too high.

In other markets, it seems that governments want to have their cake by lining their coffers with the proceeds from this natural resource, and then eat it, too, by castigating operators for slow rollouts and slow mobile broadband speeds. Mobile operators have their faults, for sure, but on the subject of spectrum costs they do seem to have a point.--Anne

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