Telstra must take part in 4G spectrum auction

Poised to call Government bluff.

Telstra's inclusion in future 4G mobile spectrum auctions is essential for competition in the mobile market, analysts told the 4G Summit yesterday, despite Communications Minister Senator Conroy's threat to restrict Telstra's participation unless the national telco structurally separates.

Speaking at the summit, Corrs Chambers Westgarth partner James North said that Telstra's restriction from the spectrum bidding process would be detrimental to a well-functioning market.

The Government is  expected to allocate LTE [Long Term Evolution] spectrum in the 2.5 GHz and/or 700 MHz bands; the latter currently used for analogue TV which is due to be switched off in 2013.

Under the Radio Communications Act, the Communications Minister has the power to exclude parties from the allocation of spectrum licences.

"The Radio Communications Act is about economic efficiency," North explained. "It makes clear that acquisition of spectrum is applied under section 50 of the Trade Practices Act."

But North argued that "one of the risks in excluding Telstra in that process is that right now we have a very vigorously competitive mobile market.

"If you take Telstra out of the picture, you'd be left with two major players [Optus and VHA] instead of three," he said.

North noted that there was precedent for Telstra being excluded from a spectrum auction when the company was restricted from bidding for 3.4GHz spectrum in 2000.

He said Telstra's exclusion restriction was "more appropriate" in 2000 as Telstra was by far the largest player in the fixed line market, and its constraint from bidding increased market competition.

In any case, spectrum winners Austar and Unwired left much of their obtained spectrum bands unused, and Telstra ended up acquiring spectrum in the 3.4Ghz band anyway - to provide voice and data to rural areas, he said.

Ovum analyst Nathan Burley agreed that the consequences of excluding Telstra from the LTE spectrum auction are too great for the government to take.

"It's very unlikely that Telstra will be excluded from buying dividend," he told iTnews.

"Telstra is the largest investor in mobile infrastructure, so its exclusion means that services would take longer to reach rural Australia."

Burley said that the big losers in Telstra's exclusion from the auction would be taxpayers, as the auction price would fall as a result of less bidding competition.

"Telstra is going ahead assuming it will be able to access this spectrum. The auction won't be until at least 2013 and there is still a lot in the air politically," Burley said.

He said that should Telstra be excluded from the 4G spectrum auction, the telco already has access to other spectrum bands to deliver LTE, or could purchase spectrum from other players.

James North concluded that Telstra would be highly unlikely to miss out.

"Telstra has certainly made clear many times that it sees [a future] 4G network as the jewel in the crown," he said.