1. Summary

1. The Ministry has invited cross-submissions on how much spectrum current operators and potential new entrants require over the period from 2011 to 2031.
2. We also take this opportunity to consider who is likely to be the highest value user of this spectrum, and to comment more generally on the proposals of TelstraClear and Econet in relation to renewal.

Demand for 900 MHz spectrum is very uncertain

3. The demand for services that will use 900 MHz spectrum in the future is highly uncertain. Demand is driven by future technologies, future services and future business models, all of which are subject to a high degree of uncertainty over the next three years, let alone the next twenty-five.
4. The question posed by the Ministry is therefore not really capable of being answered with sufficient precision to be useful, although we do seek to address some of the issues in this response to the extent that we can.
5. What we can say is that, generally speaking, for any particular technology, having more spectrum is better than having less since it allows lower cost operation. But, of course, it depends on the price of the spectrum on offer.

The Ministry is rightly focussing on how to maximise the value of this spectrum to society

6. The task of the Ministry is to try to ensure that the system allocates spectrum to the firm that will maximise its benefit to society (the highest value user). This is likely to be the firm that is willing to pay the most for it. The requirement to pay for spectrum is a sensible way to test the competing claims of firms that 900 MHz spectrum is highly valuable to them and that, if allocated to them, it would be put to good use.
7. In our view we are likely to be the highest value user of this 900 MHz spectrum in the future just as we have been the highest value user in the past. We will continue to make large investments in technology that uses this spectrum. We expect to use 900 MHz spectrum, for example, to roll out our 3G broadband network beyond the cities.

There are dangers in the Ministry trying to influence the allocation of spectrum directly

8. TelstraClear and Econet are proposing that the Ministry effectively allocate 900 MHz spectrum to them at less than Vodafone is willing to pay for it. They argue that there would be major competitive benefits from reallocating this spectrum that outweigh the losses caused.
9. The core of their argument is that Vodafone’s current spectrum rights operate as a barrier to entry to the mobile market. This is not true.

• We have built a 3G network out to almost 50% of the population using 2.1 GHz spectrum. TelstraClear is planning to offer services from its own network in Tauranga from the middle of 2007 using 2.1 GHz spectrum. Econet has been planning its network for some time, presumably also using 2.1 GHz spectrum.
• There seems to be general agreement that 900 MHz spectrum does not make a great difference to the business case for entry in urban areas. TelstraClear and Econet have not outlined plans for the rolling out of networks outside the metro areas.

10. We see a substantial risk for the Ministry that TelstraClear or Econet would simply on-sell to Vodafone, presumably at a profit, any 900 MHz spectrum they might in future be allocated, rather than themselves using such spectrum to roll out networks outside the cities.
11. In addition, it is very late in the renewal process to be suggesting reallocation of rights. We are very concerned that the question now being asked by the Ministry indicates a late shift in approach, and is contrary to Vodafone’s reasonable expectations about the process for the renewal of its existing spectrum rights.