Vodafone chief warns governments on ‘artificial’ 5G auctions
European countries urged not to follow short-term thinking of Italian spectrum sale
Nick Read, the new chief executive of Vodafone, has warned governments not to gouge the struggling telecoms sector by designing “artificial” spectrum auctions designed to boost their cash-strapped coffers.
The comments were made in the wake of the Italian 5G auction, which set a record price for 5G spectrum. The 14-day auction, which closed Tuesday night, generated €6.5bn but has led to fears that the country’s four mobile networks will need to raise prices or invest less in 5G upgrades to offset the high acquisition cost.
Mr Read, in his first week as chief executive of Vodafone, was forced to sign a €2.4bn cheque for his Italian business. He hit out at the short-term approach taken by the Italian government.
“Auctions should be designed to balance fiscal requirements with the need for investment to enable economic development . . . It is critical that European governments avoid artificial auction constructs which fail to strike a healthy balance for the industry,” he said.
Italian networks paid eight times more per megahertz for spectrum than networks did in Spain in its 5G auction earlier this year and 10 times more than in Finland, which had its auction this week.
Some networks fear that the Italian approach could set a dangerous precedent for other countries looking to the airwaves to fill holes in the budget. That could undermine the European Union’s dream of a booming digital economy based on 5G technology.
“5G needs to be at scale. If countries opt-out and try to cash in then Europe is going to miss out on the vision of creating a pan-European 5G network of scale,” said the head of spectrum at one of Europe’s largest telecoms companies.
The Italian government structured the 5G sale so that most of the spectrum was sold in two very large blocks with two much smaller lots offered to the bidders that missed out. That meant that the country’s three largest networks — Telecom Italia, Vodafone and Wind Tre, which is owned by CK Hutchison — had to compete fiercely for the largest blocks alongside Iliad, the new entrant that forced the price up.
Other countries broke the spectrum lots into much smaller pieces so that all the competing networks could amass enough spectrum without any one company dominating the auction. The Italian method, according to a person directly involved in the auction, was the equivalent of a children’s game of musical chairs where there were fewer chairs, and prizes, than there were people playing.
Dhananjay Mirchandani, an analyst with Bernstein, said that a “two-tier market structure” was now entrenched in Italy with Vodafone and Telecom Italia securing the most spectrum, paying €2.4bn and €2.5bn, respectively. Wind Tre now faces long-term market share decline given its lack of radio frequencies, according to the analyst. Wind Tre paid €517m, while Iliad spent €1.2bn.
Stephane Beyazian, an analyst with Raymond James, said the “crazy auction” was disastrous for all of the Italian operators as it would add about 15 per cent of debt to already strained balance sheets. He pointed to a 2012 spectrum auction in the Netherlands that had forced KPN, the local incumbent, into a distressed rights issue as a precedent.
The next big 5G auction is set to take place in Germany in the spring, but telecoms companies are reassured that local regulators have taken a pro-industrial view in the run-up to the sale. Other 5G auctions coming up include Australia, Romania, Hungary, the Czech Republic and the UK.