Austrian telecoms regulator RTR raised just over €2 billion in an auction of spectrum in the 800MHz, 900MHz and 1800MHz bands. The 800MHz band provides 60MHz of additional spectrum for mobile operators in frequencies freed up from the move to digital terrestrial television. Since the 1990s, the 900MHz and 1800MHz bands had been licensed for GSM, but with the new licences these bands now become technology neutral. The licences for the 800MHz band expire at the end of 2029 while the 900MHz and 1800MHz licences expire at the end of 2034 due to longer transition period from the current licences.
Market leader Telekom Austria (which operates in Austria under the A1 Telekom brand) won the lion's share of spectrum; taking 2x20MHz in the 800MHz band, 2x15MHz in the 900MHz band and 2x35MHz in the 1800MHz band. It paid just under €1.03bn for this spectrum. Prior to the auction, A1 Telekom had 2x20.2MHz in the 900MHz band and 2x15MHz in the 1800MHz band.
T-Mobile Austria spent €654m on its portfolio of 2x10MHz in the 800MHz band, 2x15MHz in the 900MHz band and 2x20MHz in the 1800MHz band. T-Mobile previously operated with 2x12.8MHz in the 900MHz band and 24.8MHz in the 1800MHz band.
Hutchison 3 Austria won only 2x5MHz in the 900MHz band and 2x20MHz in the 1800MHz band. It paid €330m for its licences. 3 previously operated with only 2x0.8MHz in the 900MHz but 2x25.8MHz in the 1800MHz band, mainly accruing from its purchase of Orange in 2012.
All of the operators in this auction have publically criticised the regulator for its handling of the auction. Despite a lack of new entrants to the market and only three participants in total, this auction still managed to bring in the highest price per MHz per capita of all recent European spectrum auctions averaging €0.85.. For comparison, the next highest priced spectrum auction was Italy's where the 800MHz band on its own commanded a price of €0.82 per MHz per head of population. To generate the prices seen in this auction, the price of the 800MHz band would have to be at least €0.95 per MHz per head of population.
The RTR adopted a combinatorial clock format to its auction, similar to those employed in recent auctions in Ireland, the UK, the Netherlands and the ongoing auction in the Czech Republic. This format is desired as it enables operators to weigh different spectrum bands against each other and prioritise one band if another band becomes too expensive. This is achieved by operators bidding on portfolios of spectrum rather than on individual blocks.
While this structure has been used successfully elsewhere, the operators blame the Austrian regulator for the perceived structural failure of the auction. All operators complained about high reserve prices and steep increments in the auction phase. The clearest example of a system failure with the auction is in the 1800MHz band. Telekom Austria said it was able to pick up 40MHz (2x20MHz) in a supplementary round for only €30m after that bandwidth went unsold in the main auction. This spectrum went "unsold" initially even though the asking price in the 1800MHz block increased by more than 500 per cent during the auction.
It is likely that the 1800MHz bandwidth suddenly went from oversubscribed to highly undersubscribed quickly. Hutchison 3's press statement that it "got off with a slap on the wrist and could minimize the financial damage to the company" would indicate that it was the operator that pulled out of that part of the auction because of the rapidly rising prices. Furthermore, operators were not informed during the auction process how much a certain band was oversubscribed by on a round-by-round basis. The operators think this information could have been critical in understanding their competitors' strategies and minimizing the expense of the auction.
What is clear from this auction is that operators put a high value on defending their existing spectrum portfolios, as they already have invested in infrastructure for these bands and also have customers and revenue associated with that capacity. Telekom Austria was the only company able to significantly expand its spectrum holdings and is now well placed to dominate the Austrian mobile broadband market. It is the only European operator to own a 2x20MHz channel in the 800MHz band and this will make a large difference in supplying broadband to rural areas in particular.
On the other hand Hutchison 3 is left with only a single 2x5MHz block of the long range sub-1GHz spectrum after the auction. It had indicated that it would use 4G to attack the fixed line rural broadband market, but those plans will now need to be revised. While the operator has significant holdings above 2GHz, such spectrum has a short range and 3 realistically needed substantially more sub-1GHz spectrum to compete in the rural broadband space.
The Austrian mobile market is already very competitive with ARPUs on the decline. There is relatively low take-up of fixed superfast broadband too. As a result, investing such large amounts in spectrum for 4G services may not seem very wise in years to come.