Europe’s Telecoms Goldrush: Czech Books At The Ready?

Last week, the Czech authorities aborted a long-awaited auction of spectrum that would enable telecoms companies to offer affordable mobile broadband services. Bidding stopped when offers exceeded US$1bn and it appears that an over-enthusiastic offer from an inexperienced party, combined with an overly-complex bidding procedure, was to blame.

A similar situation played out – unchecked – in the Netherlands last year. KPN suspended dividends while Vodafone and T-Mobile’s share prices were hit badly, too. Already there is talk of passing costs on to the consumer in order to ensure adequate return on investment. Dutch operators may forego extending services into rural areas. This runs counter to the aim of increasing competition and consumer choice. That’s why the Czech government stopped the bidding. They will have another go at auctioning the spectrum once they figure out what went wrong and what tools can be used to prevent irrational bidding.

The spectrum in question – mainly the 800 MHz and 1,800 MHz frequencies – is highly desirable because signal propagation is better at lower bandwidths than the higher frequencies already auctioned for 4G purposes. The better the propagation, the fewer transmission towers you need to build and the better your profit margins.

Governments want to get as much as they can from spectrum sales as this is a cash windfall that can prop up an ailing economy. Witness the disappointment that UK operators bid conservatively in the recent 4G spectrum auction, leading to a shortfall in the government’s planned income for the year. While we are encouraged that the Czech authorities had the courage to intervene, it does bring into question the way in which spectrum is priced. The problem is that existing players already own spectrum in varying amounts and in diverse bands: acquiring additional resources to ‘fill the gaps’ means their valuations will vary considerably, and it is imprudent for regulators to decide what is a ‘safe’ limit on pricing.

This is a hot topic at the moment, and we have covered spectrum auctions nearly every day in Business Monitor Online over the past fortnight. Many investors are concerned about the spectrum allocation processes and resource valuations. They understand the need for operators to future-proof their businesses to cope with projected growth of non-voice (data) traffic but, they also fear that excessive investment in spectrum will weigh on profitability for years to come. And they’re right to be worried, given that there is then the additional cost of building networks to support the new services.

However, not playing the bidding game is equally foolhardy from a business development perspective. That’s why we expect strong interest in upcoming spectrum auctions in Slovakia, Slovenia, Austria and other markets, despite tepid market growth expectations.

This blog is tagged to:
Sector: Country Risk, Telecommunications
Geography: Austria, Czech Republic, Netherlands, Slovakia, Slovenia

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