Netherlands Spectrum Auction Raises "Overpayment" Issue, Again

As you might expect, most of the new 4G spectrum that recently was won in the Netherlands spectrum auction were the biggest mobile service providers in the Netherlands. That happened despite restrictions on how much new spectrum the leading mobile service providers could acquire. 

In the auction, two spectrum blocks in the 800 megahertz band and one in the 900 MHz band will be reserved for new entrants. That was the provision that allowed Swedish mobile operator Tele-2 to secure 20 megahertz of spectrum in the 800 MHz band. 

Vodafone and KPN spent the most, with T-Mobile spending about 66 percent of what Vodafone and KPN invested. Tele-2 spent about 12 percent of what Vodafone and KPN spent, but also acquired a modest chunk of the new spectrum.

KPN has about 47 percent market share , while Vodafone has about 29 percent and T-Mobile has about 24 percent. Tele-2, a Swedish operator, also is entering the market. 

The 3.8 billion euros ($4.97 billion) proceeds were much higher than observers anticipated, far surpassing  the EUR400-500 million the government had expected.

That might have implications for spectrum auctions elsewhere in Europe,  In the United Kingdom,  4G spectrum auctions will be available in the first half of 2013, for example. 

KPN argues it won “a better package than Vodafone”, having picked up about 30 megahertz more spectrum than Vodafone acquired, the Financial Times reports. 

Auction results

Frequency Band	800	900	1800	2100	1900	2600
KPN	2x10	2x10	2x20	2x5		30
Vodafone	2x10	2x10	2x20	2x5
T-Mobile		2x15	2x30		4,9+9,7	25
Tele2	2x10

Vodafone spent 1,380,800,000 euro (1.381 billion); KPN 1,351,852,000 euros (1.352 billion);
T-Mobile 910,681,000 euro (910.8 million) and Tele2 euro 160,813,000 (160.8 million). 

Whether spectrum caps actually work is debatable, though policymakers are fond of the concept as a way to "stimulate competition" in the mobile market. In the recent Netherlands instance, one new operator was enticed to enter the market, but the overwhelming amount of new spectrum was won by the three firms that already lead the Netherlands market. 

One might argue that either spectrum caps or set-aside policies to encourage new entrants "work" as a matter of prudent public policy. In other words, "it sounds good." Whether they actually are beneficial in the long run is probably a bigger issue. Over time, market consolidate. 

Whether a small spectrum holding ultimately benefits consumers, or only enriches investors in the new firms, is a matter of debate. Some might even argue consumers do not benefit in the short term. 

It would be hard to make the argument that spectrum policies aimed at promoting new entrants have done anything to stop concentration in the U.S. mobile industry, for example. 

On a more prosaic level, European mobile service provider executives might now start to worry about what new Long Term Evolution spectrum might wind up costing, across the continent. Mobile service providers have been through ruinous spectrum wars before, precisely caused by the bidding for 3G licenses that nearly bankrupted a number of major European service providers. 

If the Netherlands prices are replicated elsewhere, that danger is emerging again. If so, we might someday find out that the real "winners" of the upcoming LTE 4G auctions were the firms that "lost" the spectrum auction.