Swedish 2.6GHz auction put realistic value on spectrum

The second European 2.6GHz spectrum auction concluded last week in Sweden. With auctions coming up in other European countries, including the UK, Austria and the Netherlands, the outcome of the

Swedish auction provides much needed information on the price that operators will pay for 2.6GHz spectrum throughout Europe.

The Swedish auction concluded at a price of €0.13/MHz/pop, with unpaired spectrum going for just below EUR0.04/MHz/pop and paired spectrum for €.16/MHz/pop.

Clearly prices fetched at the 2000/2001 European UMTS auctions, especially in the UK and Germany, are unlikely to be repeated. On the other hand, operators are reporting a rapid uptake of mobile broadband dongles and new WiMAX players may be eager to enter the arena, suggesting that prices may still be substantial: the prices achieved in the Swedish auction were considerably higher than the recent Norwegian 2.6GHz auction (€0.03/MHz/pop).

Interestingly, the Swedish auction may be a more reliable indicator of prices in other upcoming European auctions than the Norwegian experience. The situation in Sweden is more competitive with four mobile players - as have most European countries - whereas Norway has only two. Yet there are plenty of specifics in the Swedish situation that should lead to caution when using this auction result as a benchmark.

For example, taking the viewpoint of a bidder for paired spectrum in a

country that adopts the CEPT band plan (2 ´ 70MHz of paired spectrum plus 50MHz of unpaired spectrum), two factors need to be taken into account when considering the Swedish outcome.

Firstly, just as in the Norwegian case, Sweden has a very low population density compared to most European countries. Consequently, it has a relatively low traffic density, meaning lower spectrum demand and lower prices. Secondly, later auctions may be affected by rising expectations in the industry regarding the uptake of mobile data and the anticipation of LTE approaching commercial availability.

Bidders for unpaired spectrum also need to factor out the effect of the

Regulator's decision to auction the unpaired spectrum in one block. This decreased the liquidity of the spectrum and potentially decreased its value.

Some European countries (such as the UK and the Netherlands) plan to deviate from the CEPT band plan by using a flexible band plan, in which the split between paired and unpaired spectrum is not fixed but varies according to demand at auction.

In theory, this will enable a more efficient allocation of spectrum among FDD and TDD operators, so could lower prices overall, but at the same time could lead to higher prices for paired spectrum.

The Swedish result suggests that competition between bidders for paired and unpaired spectrum will be minimal, given that the price fetched for unpaired spectrum was four times lower than for paired spectrum.

Having suggested that the Swedish auction may ultimately prove to be at the lower end of 2.6GHz auction prices, it is important to stress that operators should remain conservative in their assessments of spectrum value.

The upcoming 2.6GHz auctions are not the only way for operators to prepare for future demand. Refarming of 2G spectrum, the digital dividend and general easing of spectrum restrictions improve the supply side of spectrum, while femtocells may well relieve any capacity issues. Operators should carefully consider alternatives when valuing 2.6GHz spectrum.

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