The auction of the prized 700MHz band spectrum may struggle to...

The auction of the prized 700MHz band spectrum may struggle to deliver the windfall expected by the federal government, with the process likely to be a two-horse race between Vodafone Australia and Optus.
Touted as the “beachfront property” of the mobile world, the 700MHz spectrum is crucial for mobile operators as they continue to reinforce their 4G offerings.
Originally used for the delivery of analog TV services, the low-frequency spectrum is ideal for getting a signal through walls and buildings, as well as carrying it across large distances.
The blocks — 2x10MHz and 2x5MHz — were left over from the 2013 “digital dividend” auction that failed to live up to its potential, leaving the Labor government a billion dollars short after Vodafone decided against entering the bidding war.
The Australian Communications and Media Authority started the latest auction process yesterday.
This time Vodafone is in the box seat to pick up the spectrum left on the table in 2013, according to Goldman Sachs analyst Kane Hannan.
“We expect Vodafone and Optus to secure the remaining spectrum,” he said in a client note.
With the total reserve price set at $858 million, Mr Hannan said Vodafone was likely to pursue the 2x10MHz blocks, with Optus bringing up the rear.
“The 2x5MHz block is insufficient to build a new network or justify upgrading an existing network, so (we) see Optus as the logical bidder for this less competitive block.”
However, with Telstra excluded from the auction and TPG Telecom coy about its involvement, the lack of competitive tension may reduce the value the government can extract from the spectrum.
Telstra was forced to sit out the process following guidance from the Australian Competition & Consumer Commission, which prevents a single mobile network operator from owning more than two 20MHz blocks of the 700MHz spectrum.
Telstra picked that up in 2013, and the latest auction will lower the “spectrum advantage” that it has enjoyed so far, according to Mr Hannan.
The wildcard of the pack is TPG, which has stated its intentions of becoming the fourth player in the mobile market. TPG picked spectrum in the 700MHz and 2.5GHz bands in 2013 but may not have the ammunition to knock Vodafone out of contention.
According to Mr Hannan, a combination of time constraints and an immediate focus on building a metro-focused mobile network is likely to see TPG pass on the opportunity.
TPG, which is currently working on building a mobile business in Singapore, indicated last month that it wasn’t keen on raising fresh capital to fund its bid.
“We are conscious that it has been widely speculated that we may need to raise capital to pursue such a strategy,” TPG chief financial officer Stephen Banfield said in March.
“So we’d like to state that it is our strong desire not to raise capital.”