Dutch auction may be already at EUR 2 bln after 13 days of bids

KPN's share price continues to fall and is now worth about a third of what it was a year ago. While we have written previously about the various problems plaguing the Dutch operator, one specific reason for the fall in recent days may be the ongoing spectrum auction in the Netherlands, which will redistribute key frequencies until 2030. 

The auction started on 31 October and will have three phases. The current phase has already been underway for 13 work days, and once phases 2 and 3 are completed a week after, we will know the winners, their frequencies and the prices. In the mean time, there is little to say - the number of bid rounds is not known, nor the bids achieved in each round. 

Earlier auctions in Europe can give an indication. During our recent Mobile 2012 conference, we presented figures on the possible outcome, based on what's been paid in other countries per MHz, per capita and per year. This gives a range of EUR 0.5-4.5 billion for the Dutch auction. Notably the UMTS auction of 2001 still falls in the range, with proceeds of EUR 3.3 billion after correcting for inflation. Based on the most recent auction in Europe, which ended 15 November in Ireland, we estimate the proceeds of the Dutch auction at EUR 3.15 billion. 

In the German auction in 2010, prices were set by bidding round. After a cautious start, with bid increases of less than EUR 10 million per round, the pace suddenly accelerated on the eighth and ninth days. Bids then increased by around EUR 60 million in each round, and after these two days, total bids were almost EUR 1 billion higher, at EUR 1.32 billion. After day 16, the aggressive bidding slowed, only to resurface again at the end. The auction ended after 27 days and a total 224 rounds, with total proceeds of EUR 4.38 billion. 

We can use this pattern to estimate the progress in the Dutch auction. Assuming bids started at the minimum of EUR 478 million and there are six rounds per day, we estimate that after 13 days and around 80 rounds, bids now total EUR 2.0 billion. With five bidders participating, KPN likely accounts for a quarter of this amount, or around half a billion euros. We stress however that this is all speculation at this point. 

In the mean time KPN's market capitalisation has sunk to around EUR 6.5 billion. It's understandable then with every day the auction continues, the company will lose more of its value. And the share price will fall further.