5. Summary

Modelling optimal spectrum quantities

• It is very expensive for an operator to provide nation-wide coverage without 800 or 900MHz spectrum.
• As an operator’s spectrum in the 800 or 900MHz band increases from 5MHz to 20MHz, the cost to that operator continues to decrease slightly. In other words, if the incumbents lose spectrum in the 800 and 900MHz bands, their costs will increase slightly, assuming they can use their spectrum in higher bands. In particular, if Telecom is unable to use its spectrum in its higher band the cost of having lower spectrum is significant.
• The lowest overall cost (for both operators in a spectrum band together) is obtained when both operators have equal amounts of that spectrum, although there is not much difference overall between splitting the spectrum evenly (10MHz:10MHz) and providing 5MHz to one operator and 15MHz to the other (5MHz:15MHz).
• The actual costs of the individual operators varies between the operators for two reasons:
  • it is assumed that the incumbents already have a number of sites at the start of the licence period. These sites are not included (they are treated as sunk costs). It is assumed all new operators’ sites are included
  • the amount of spectrum in the higher 1.8GHz and 2.1GHz bands has an effect on the total cost, especially in later years when the traffic levels increase.

Current utilisation

Telecom is using three 1X carriers and one EVDO carrier in its CDMA network utilizing the AMPS-A band. It occasionally expands some sites to six 1X carriers due to short term demand. We conclude that the spectrum substantially used is between 5MHz (four carriers) and 8MHz (seven carriers) (excluding guard bands).

Telecom’s D-AMPS network, using the AMPS-B band, has decreased to about 5% of the customers it had at its peak. Assuming Telecom has not decommissioned any (or many) sites and the current frequency plan is efficient, the spectrum substantially used would have correspondingly dropped from about 18MHz to about 1MHz. We therefore conclude that the spectrum substantially used is at least 1MHz.

While Vodafone may be currently using its entire allocation of 21MHz, it is possible it may not actually all be needed, because:

• Vodafone has offered Econet a portion of its spectrum
• [Withheld under the Official Information Act 1982]
• comparing spectral efficiency with CDMA indicates about 18MHz would be needed to support the same traffic that Telecom supports on 4 carriers.

Thus, the amount of spectrum substantially used could be as low as 14 to 16MHz (5 to 7MHz less than its full allocation of 21MHz).

Comparisons with other countries

Both Telecom and Vodafone New Zealand have a relatively generous quantity of spectrum in the 800/900MHz bands (Exhibit 4.8), in comparison with the other operators within our benchmark sample. At the same time a simple comparison does not take into account any factors that may vary from operator to operator, and which may justify the amount of spectrum held.

To normalise for these factors we undertook regression modelling. The model suggests that in comparison to the operators within our sample, both Telecom and Vodafone New Zealand have a relatively generous spectrum allocation within the 800/900MHz bands, given adjustments for various factors that differ between New Zealand and the other countries. Applying New Zealand data to the regression model results in a estimated allocation of 2 × 9.4MHz for Telecom and 2 × 10.7MHz for Vodafone, which is less than the actual holdings of the operators.