Telcos may save up to $3.2b if not forced to bid for spectrum at auction
Companies pay billions of dollars for licences to access spectrum and make money from selling services that use it. (ABC News: Daniel Irvine, illustration by Eric Hao Zheng)
In short?
The Australian Communications and Media Authority is proposing renewing spectrum licences for up to $3.2 billion less than they were initially bought for.
Critics argue an auction would provide a better return for taxpayers, with consumer advocates saying a renewal would entrench dominant telcos.
What's next?
The government says ACMA is still consulting stakeholders on the future of spectrum licences.
Taxpayers could miss out on more than $3 billion if public airwaves are given to companies like Telstra and Optus at cut-price rates.
The Australian Communications and Media Authority (ACMA) is proposing to not hold auctions for 69 expiring spectrum licences bought for $8.2 billion, and instead renew them for between $5 billion and $6.2 billion.
"It's hard to know why they would do that and it's certainly not in the interest of the Australian taxpayer," said economist Richard Holden, scientia professor of economics at UNSW Business School.
"Why don't we just run an auction and find out what we get? If we get $5 billion, then fair enough. But if we get $10 billion or $12 billion, then that'll be better for the taxpayer.
"We're just leaving money on the table."
Richard Holden is concerned about ending spectrum auctions: "It looks very unusual and out of practice." (ABC News: John Gunn)
Spectrum refers to radiofrequency spectrum, occupied by different frequencies used for everything from broadcasting and mobile services through to maritime radionavigation and satellites, and its use is managed by ACMA.
Consumer advocates say Australians 'short-changed'
Consumers should be furious, according to Carol Bennett, the chief executive of the Australian Communications Consumer Action Network (ACCAN), which commissioned Professor Holden to analyse the proposal.
"Spectrum is worth billions and the consumer should be getting the best possible price," she says. "That's what we need to get.
"Taxpayers will be losing between $2 and $3.2 billion.
"That's short-changing Australian consumers."
Carol Bennett says a rollover would benefit "dominant telcos" rather than consumers. (ABC News: John Gunn)
The other impact is to lock out potential competitors.
An auction process means anyone can try their hand, including innovators and companies not currently offering Australian consumers their products and services.
"If we don't have new entrants into the market, we don't have increased competition and therefore we don't drive down prices and we don't enable the best new technologies to be available to the Australian consumer," says Ms Bennett.
"This may be a good deal for the dominant telcos, but it's not a good one for consumers.
"It locks in existing players, it locks out new players."
ACMA says rollovers offer the best deal
The regulator and companies that buy spectrum say the rollover would allow telecommunications firms to invest and not force them to raise consumer prices.
Spectrum experts see the flip side — that the licences are public property and worth far more, with the potential giveaway locking out competitors that could lower prices and push innovation.
Professor Holden says the telcos are immensely profitable and act in the interests of shareholders to make optimal investments.
"These are not capital-constrained companies that can't rustle up the money to make their network as good as it can be — they often compete on how good their network is, so this argument really doesn't pass the pub test."
In a statement, ACMA says this is the best way.
"Spectrum is a public asset for which industry should pay a fair price and from which consumers should gain maximum benefit.
"The ACMA's preliminary view is that the expiring spectrum licences that underpin Australia's three mobile networks should be renewed."
The agency says the assessment takes in five public interest criteria:
- competition
- service continuity
- innovation
- emerging technology developments
- connectivity in regional, rural and remote Australia.
"We are aware that there are a diverse range of views on the outcomes of this spectrum allocation, which is why there have been multiple opportunities for extensive public consultation," it added.
International markets suggest spectrum auctions becoming less lucrative
ACMA's report suggests rollovers could be a better idea because of a "downward trajectory" in international auctions for spectrum.
"This is consistent with international trends, which has seen spectrum values decreasing over time."
More than 110 international spectrum auction results in 36 different countries were analysed. The report also drew on advice provided by "spectrum valuation experts" Plum Consulting, as well as Frontier Economics and Ian Martin Advisory.
ACMA, understandably, backs its perspective on not running auctions for future spectrum licences: "We are confident in our preliminary views, including on pricing."
Professor Holden, however, disputed the financial analysis, much of which was based on auctions that occurred in the chaotic early period of the COVID-19 pandemic in 2020 and 2021.
"They make this specious argument about, if you give it away then more money will get invested in the network," he says.
"The submissions from the telcos — they wanted to get it for free. That's what they were asking for."
Industry says higher costs would be passed on
The peak body for the mobile industry is the Australian Mobile Telecommunications Association (AMTA) and its submission is clear that the process of renewing the licences should "ensure the continuity" of existing players.
AMTA chief executive Louise Hyland says it is simple: whether licences go in an auction or a rollover, the cost is passed on.
Louise Hyland says price rises for spectrum lead to price rises for consumers. (ABC News: John Gunn)
"There's a direct relationship between the price that's paid for spectrum and ultimately the price the consumers pay for their services," she says.
"The two key costs in terms of building networks are spectrum and infrastructure.
"I can't underestimate how important the cost of spectrum is and the direct relationship it has to future investment — and the prices consumers pay for their mobile service."
In a statement, Optus said it was looking forward to working with the ACMA during the consultation process.
'"Renewal of spectrum licences will enable Optus to continue to supply essential public communications services and deploy networks and equipment to respond to evolving usage and data demands," a spokesperson wrote.
The German option: Nein auction? Then boost services
Jochen Zenthöfer is the spokesperson for an international initiative called Save Our Spectrum (SOS), which aims to preserve spectrum for use by the media and cultural organisations.
For example, when theatre actors or arena rockstars sing, wireless microphone spectrum is used to communicate that sound to speakers and the audience.
Jochen Zenthöfer says there "are pros and cons" to selling spectrum at auction. (Supplied: Sven Muhlen)
"Prices at spectrum auctions have dropped internationally. There is less revenue," he says.
"One reason is that the telecommunications companies no longer have as much money."
As a result, Germany, for example, no longer holds auctions.
But in return for rolling over the spectrum licences, regulations force telecommunications companies to expand their network: for example, improving the strength of coverage in rural areas.
"In principle, however, auctions are a very good way of allocating frequencies," he notes.
"Auctions are open to everyone and enable competition. Even if groups have little money, they can still bid, simply at a lower level."
Dr Zenthöfer says Australia is lucky: as an island, it has no land borders and can control its own system and spectrum allocation.
But if ACMA chooses to roll over the licences, it should not be without conditions.
"I would include an inflation clause in the sum so that there are benefits [to taxpayers] if inflation rises in the next few years," he adds.
ACMA guided by 'long-term public interest'
In a statement, the Australian Communications and Media Authority says imminent decisions about spectrum will influence the lives of Australian consumers for the next 20 years.
ACMA deputy chair Adam Suckling said options in the agency's proposal would give the "greatest benefit" to the community.
"The considerations are complex, but the long-term public interest guides our thinking.
"That means keeping in focus every Australian who uses a mobile phone, catches a train, or relies on free-to-air news, including for information on natural disasters such as the recent Cyclone Alfred," he says.
"Competition and choice, potential alternative use, service continuity for end users and operators delivering on investment, innovation and coverage all informed the ACMA's approach.
"Further, we have consulted extensively with stakeholders as part of coming to our preliminary views."
The proposal also suggests licences used for rail communications and for television outside broadcasts should continue, but through a different licence type that would put them on the path to new technologies that do not use existing spectrum.
ACMA has finished seeking feedback from members of the industry and the public before finalising its policy, which will be used for future licence renewal application processes.
Communications Minister Anika Wells covers the sector in the re-elected Albanese government, and could potentially intervene on how spectrum is sold.
A spokesperson for the government says ACMA is still consulting stakeholders about the future of spectrum licences, "including views on renewal of the spectrum licences" and how they would be priced.
"Spectrum is a finite, valuable resource and a wide variety of factors have to be considered in maximising public benefit," the statement reads.