The Dutch government has started the consultation on the spectrum auction planned for Q2 2020. The most important news is the minimum proceeds of EUR 915 million. This is on the high side, suggesting the government expects only three bidders, little scarcity and a short auction. This will likely keep the total cost for operators under EUR 1 billion. We expect the 3.5 GHz auction, planned for 2022, will also raise less than EUR 1 billion, but there is more uncertainty for that band.
The 2020 auction will offer 220 MHz in total, opening up the 700 MHz and 1,400 MHz band to mobile operators for the first time as well as re-issuing the 2,100 MHz band. The Ministry of Economic Affairs assumes at least three bidders and proposed reserve prices worth in total EUR 915 million. Winners need to ensure at least 98 percent geographic coverage, with a minimum speed of 100 Mbps at the network edge. The government also issued an administrative decree covering new security requirements for critical network elements, which must be procured from reliable vendors. To clear the 3.5 GHz band, the intelligence services are expected to move their listening station abroad, making the spectrum available for mobile services from September 2022. A separate auction will be held earlier in 2022 for this band.
Reserve prices suggest short auction
The big question is what the final price for the licences will be. The proposed reserve prices are an important indicator, as these are much higher than the last spectrum auction in 2012. In that auction, the minimum price was EUR 420 million, while this auction is more than double that, despite less spectrum up for sale. This points strongly to the expectation of little scarcity to drive up prices and a quick auction. The most important frequencies are the 60 MHz in the 700 MHz, and with three blocks of 20 MHz for the three existing operators, the bidding should be over quickly. By setting the reserve prices high, the government avoids a disappointing outcome for itself.
Risks: more bidders and irrational behaviour
There is still the risk of a much higher price for the licences, for two reasons:
- More bidders. According to media reports, the ministry plans to try and attract newcomers to the auction. However, without conditional support, such as required national roaming with an existing network, it seems unlikely any new entrants would be tempted.
- Irrational bidding behaviour. The recent German 5G auction raised in total EUR 6.55 billion. The end result after 497 rounds of bidding was little different than the results after 60 rounds, when the total cost was EUR 801 million (newcomer Drillisch had just as much 3,600 MHz spectrum as Vodafone then but ended the auction with less), or EUR 5.75 billion less.
Cost of 3.5 GHz band well under EUR 1 billion, unless. . .
The 3.5 GHz band will be more important for 5G. As seen in Germany and Italy, this band will be much more expensive, due in part to the large amount of frequencies available (290 MHz in the Netherlands), but the per capita cost per MHz is roughly half that of low band spectrum. This could mean the auction raises less than EUR 1 billion. Nevertheless, the chance of a newcomer is greater in this band, partly due to expected easier coverage requirements. Private networks and neutral hosts could enter the market using these frequencies. And that could mean a whole different price tag for the spectrum.
