Auction 12, Cellular management rights in the 700 MHz band for LTE (4G) cellular networks

Auction 12 was for 9 lots comprising 2 x 5 MHz spectrum in the bands 703-748 MHz and 758-803 MHz. It was held over several months in 2013, and was completed in 2014.

Background

The 700 MHz spectrum was freed up as part of the transition from analogue to digital terrestrial television broadcasting. Over a series of consultations between 2009 and 2013, it was determined the best use of this spectrum was for LTE (4G) cellular mobile networks — with the band configured according to the Asia-Pacific Telecommunity (APT) band plan.

The first consultations in 2009 — run jointly by Radio Spectrum Management (RSM) and the Ministry for Culture and Heritage — resulted in the decision to reallocate the 700 MHz band to new uses.

The Digital Dividend in New Zealand — Scoping paper 2009 [PDF, 148 KB]

Digital Futures Planning for Digital Television and New Uses — Discussion Paper 2009 [PDF, 320 KB]

In 2011, we consulted on the best way to allocate the 700 MHz band, including band planning and any public policy set-asides.

Digital Dividend: Opportunities for New Zealand — Consultation document 2011 [PDF, 263 KB]

Consultation on the detailed auction design was run by RSM, also in 2011.

700 MHz Auction: Consultation on Auction Design and Implementation Requirements, and Execution [PDF, 194 KB]

At the same time, we released a technical report into coexistence between 4G-LTE in the 700 MHz band and existing fixed links in the KK band above 806 MHz.

Coexistence of LTE in the 700 MHz band and Fixed Service systems in the KK band [PDF, 866 KB]

Auction design

The APT band plan for the 700 MHz band enabled 2 x 45 MHz to be auctioned for 4G network. The spectrum was configured in nine lots of 2 x 5 MHz spectrum

The auction was structured as a simplified combinatorial clock auction (CCA) with 3 phases:

  • Phases 1 and 2 identified how much spectrum each bidder would purchased.
  • Phase 3 identified where in the band their spectrum would be placed.

The CCA was a new auction design for New Zealand, following similar auction designs used overseas.

700 MHz auction process: MBIE proposal [PDF, 105 KB]

700 MHz: Auction Catalogue [PDF, 1.7 MB] (includes detailed auction rules)

700 MHz Management Rights Agreement — Draft [PDF, 446 KB]

700 MHz auction: Potential scenarios [PDF, 30 KB]

Acquisition limit

An acquisition limit or “spectrum cap” was applied to each bidder, which restricted the amount of spectrum any one bidder could obtain through the auction. In addition, implementation requirements were imposed on all lots to ensure that the spectrum was put to use in a timely manner for the benefit of consumers.

700 MHz Implementation and Coverage Requirements [PDF, 139 KB]

Payment terms

Successful bidders were also able to pay for their spectrum over 5 years. While common internationally, this auction was the first time such payment terms had been used for cellular management rights in New Zealand.

700 MHz Auction: Payment plan terms [PDF, 158 KB]

Allocation phases

The 3 phases of the auction were:

Phase 1: Clock Allocation Phase

Bids were invited for the 9 lots of 2 x 5 MHz of generic spectrum at the reserve price of $22 million (plus GST). Bidding continued until demand was equal to or less than supply. For this phase, an acquisition limit of 3 lots was imposed.

Phase 2: Supplementary Allocation Phase

If there were unsold lots after Phase 1, the government had the discretion to raise the acquisition limit to 4 lots and offer the unsold lot(s) again, starting at $22 million (plus GST). Bidding continued until demand equalled supply. Bids were conditional on clearance by the Commerce Commission, if a bidder chose to apply for such clearance prior to the phase commencing.

Phase 3: Combinatorial Assignment Phase

In Phase 3, bids were placed in a single round for bidders preferred placement (frequencies) in the band. The outcome was decided by the combination of bids that achieved the highest revenue.

Placement combinations were advised by the government. Lots purchased by each bidder were placed in contiguous frequencies. The government retained the right to not offer some placement combinations which it exercised in this round.

700 MHz Auction: Combinatorial Assignment Round Options/Outcomes [PDF, 137 KB]

Ministerial briefing — 700 MHz Auction: Combinatorial Assignment Round Options [PDF, 545 KB]

Additional Ministerial briefing — 700 MHz Auction: Combinatorial Assignment Round Options [PDF, 677 KB]

Auction 12 results

Three bidders registered to bid in the auction — 2degrees, Telecom (now known as Spark), and Vodafone.

  • In Phase 1, Telecom and Vodafone each bid for 3 lots, and 2degrees bid for 2 lots, at a reserve price of $22 million (plus GST) per lot. This left one lot unsold.
  • In Phase 2, in the 62nd bidding round, Telecom won the bidding at a price of $83 million (plus GST). Telecom applied for clearance from the Commerce Commission for their acquisition, which was subsequently granted on 30 May 2014.
  • Phase 3 resulted in Telecom being assigned the bottom position in the band, Vodafone the middle, and 2degrees the top.
Bidder Phase 1 results (price) Phase 2 results (price) Phase 3 results (price) Total lots won (total price)
2degrees 2 lots
2x10 MHz
($44,000,000)		 – 738-748 MHz
793-803 MHz
($0.00)		 2 lots
2x10 MHz
$44,000,000 +GST
Telecom 3 lots
2x15 MHz
($66,000,000)		 1 lot
2x5 MHz
($83,000,000)		 703-723 MHz
758-778 MHz
($9,100,000)		 4 lots
2x20 MHz
$158,100,000 +GST
Vodafone 3 lots
2x15 MHz
($66,000,000)		 – 723-738 MHz
778-793 MHz
($2,000,174)		 3 lots
2x15 MHz
$68,000,174 +GST
TOTALS 8 lots
2x40 MHz
($176,000,000)		 1 lot
2x5 MHz
($83,000,000)		 $11,100,174 $270,100,174 +GST

700 MHz Auction: Notice of Provisional Results [PDF, 140 KB]

Government announcements