Guessing game on technology

By CHRIS BARTON

Estimates of the value of the four parcels of 2GHz spectrum due to go under the hammer in July - range from $54 million to $400 million.

Telecommunications analyst Paul Budde said it was hard to put a price on the value of licences but typically they made up 30 per cent of all costs.

The cost to roll out a nationwide third generation (3G) mobile network that would use the frequencies is estimated at between $100 million and $300 million - making each parcel of spectrum worth between $30 million and $100 million.

It could be more. Mr Budde said bidding processes in Australia had shown that some companies were prepared to spend as much as 50 per cent of their rollout costs on licences.

However, experience from the United States indicates the value of spectrum is declining.

In 1994-95, the US auctioned a 60MHz chunk of spectrum which drew $US7.7 billion ($15.92 billion) or an average of $US128.7 million for each MHz offered. But auctions in 1997 and 1998 brought a slump to $US450,000 per MHz.

If the New Zealand parcels were to fetch the same price, each 15MHz parcel would be worth only $13.5 million.

In February 1998 six "lots" of New Zealand airwaves were auctioned off for a paltry $3.4 million or $1700 per MHz. If that was the bid, the Government would get a mere $105,000.

Despite trials of 3G technology - including one in New Zealand by Ericsson using a temporary spectrum licence - the main concern is that it is still unproven technology with no proven business case.

"It's a bit like gambling," Mr Budde said. "It doesn't help to complain afterwards if it becomes clear that you lost a fortune. On the other side you might be the one that gets the lucky strike by just putting a few dollars on the table."

He sees the importance of high-speed 3G frequencies lying not in the multimedia content they may deliver to mobile phones, but in how they may replace land lines.

"With mobile call charges coming down, mobile will start substituting fixed lines. When this starts happening, in 2001-2002, we will see a desperate need from operators to deliver higher speed services. Not because people want internet on their mobile phones, but because wireless networks are becoming an alternative access route into the homes." Mr Budde expects bids to come from incumbent telcos Vodafone and Telecom.

Clear, which paid $800,000 for one of the frequencies sold in 1998, is also expected to show an interest, as is Telstra. It is possible local wireless data operators such as Walker Wireless and Radionet may also bid.

Because of the high cost of rolling out a national network, Mr Budde does not think outsiders will be involved.