An upset in Norway following an auction of existing spectrum assets

In my article on spectrum renewal by auction, which was recently published on www.telecoms.com, I highlighted the potential risks that the Norwegian regulator, the NPT, was taking in renewing spectrum using a first price sealed bid auction. http://www.telecoms.com/197611/uncertainty-and-risk-the-results-of-spectrum-renewal-by-auction/ In the article I asked whether Norway would provide the first real upset and whether an incumbent would be deprived of key spectrum assets.

The NPT announced the results of the auction today and whilst incumbents Telenor and NetCom secured spectrum in the key 800, 900 and 1800MHz bands the other incumbent, Tele2, failed to win any spectrum at all. Tele2’s CEO, Mats Granryd made clear in the company’s press release that they regarded the auction outcome as an upset. Granryd said, “We are obviously not satisfied with the outcome of the auction, but we will continue to build on our strong position in Norway.” Instead of Tele2 securing spectrum, the mysterious Telco Data secured a robust portfolio of spectrum assets comprising 2×10MHz in the 800MHz band, 2×5MHz in the 900MHz band and 2×20MHz in the 1800MHz band.

So what contributed to this upset?

The choice of auction format is the primary candidate. In a first price sealed bid auction bidders effectively write a number down in an envelope and the highest bidders win and pay the amount they each bid. In such an auction it makes sense to bid less than the value you place on the spectrum or, as game theorists like to say “shade your bid.” The challenge, however, is to determine how much to shade your bid. Shade aggressively and if you are successful in the auction you create significant value. The risk, however, is that you shade too aggressively and someone with a lower valuation, but who shaded less aggressively, wins the spectrum.

Coleago Consulting has supported operators in over 60 spectrum auctions and we have worked on behalf of both incumbents and new entrants. As markets have matured it has become increasingly apparent that the business case for new market entry is not an attractive one and heroic assumptions are often required just to turn the business case positive. Tele2, as the smallest player in the Norwegian market, may well have taken the view that they only needed to outbid a new entrant and that a new entrant would have had a very low valuation. As a result Tele2 may have decided to shade very aggressively in the hope of securing spectrum at a low price and thus create significant value. The combination of very aggressive shading from Tele2 however and a super charged new entrant business case is likely to have generated the upset.

Written by Graham Friend, Managing Director at Coleago Consulting

New LTE Bands in European Version of iPhone 5S?

When back in September 2012, Apple launched the iPhone5, I commented on the fact that the Region 1 version (Europe and Africa) only included the 1800MHz band for LTE whereas Samsung and HTC already had triple band LTE models in the market with the 800MHz, 1800MHz and 2.6GHz bands.

This week came the announcement that Vodafone UK delayed its LTE launch to coincide with the launch of the iPhone 5S. This seems to indicate that that the new version of the iPhone will include three main Region 1 LTE bands.

It was reported that Vodafone’s Group CEO Vittorio Colao commented on the delayed launch: “End of the summer means when there’s going to be a good commercial moment for launching 4G … EE had a little bit of an advantage because of the iPhone at 1800MHz. To be honest that will go away as soon as we launch our 4G.”

The fact that Vodafone UK organised its launch date around a handset speaks volumes of the marketing power of Apple.  Many consumers make handset choices first and network choices second.  Mobile network operators would gain a lot from promoting Android and Windows phones to counteract the marketing power of Apple. 

Written by Stefan Zehle, CEO Coleago Consulting