5. Other rights

5.1 Cellular telephony

5.2 Other Rights, including VHF-TV

5.1 Cellular telephony

74. Current management rights allocated for cellular telephony use (21-24, 39, 176, 181, 187 and 188) are likely to continue to be used for mobile services in the foreseeable future. High levels of investment in existing networks and the existing customer base suggest that ongoing use will be for services referred to as "1G" (AMPS-A), "2G" (GSM and AMPS-D) and "2.5G" (GPRS and CDMA).

75. Following the launch of "3G" networks at 2GHz, existing networks will continue to be used. 3G handsets are likely to be multi-band, using existing networks for voice and lower-bandwidth data services or when a 3G network is unavailable.

76. Management rightholders are likely to redeploy 800/900MHz and, later, 1800MHz spectrum to higher value uses over time (e.g. "3G", "4G" etc). This occurred when digital networks GSM and AMPS-D, and subsequently GPRS and CDMA, were implemented in this spectrum, originally allocated with analogue services AMPS-A and TACS in mind.

77. On the information currently available, the Ministry is not satisfied that the price-setting formula gives a fair approximation of market value, and seeks further input from interested parties.

78. Covec advised in its report that application of the formula to mobile telecommunications rights was complicated by the immaturity of the mobile market, data limitations and potential for technological change. Covec proposed either an amended form of the existing formula or a detailed valuation exercise for mobile rights. In its peer review PwC stated that basic tests for application of the formula were not met for mobile rights, and that a full valuation of the business would generate a better approximation of the true value.

79. Vodafone and Telecom have suggested that cellular telephony rights should not be treated differently from other rights, and they appear to favour the price-setting formula as a starting point. Vodafone supports use of the price-setting formula for "mobile" rights, subject to adjustment of input parameters in consultation with relevant rightholders. Vodafone suggested that the offer price should approximate market (auction) value, not the deprival value to the current rightholder. Vodafone went on to argue that V1 prices should be adjusted to reflect change in market opinion, on the basis that lower clearing prices for the 1800MHz spectrum indicate that the actual V1 prices for 900MHz spectrum were too high.

13. Should the price-setting formula approach be applied to mobile rights, and if so, what adjustments to base prices are appropriate?

14. When and on what basis should the growth factor ("z") be calculated?

5.2 Other rights, including VHF-TV

80. Rights not noted above will be considered closer to the time a scheduled offer is due.

81. Spectrum licences used for VHF television broadcasting expire in August 2015, with offers due under the current policy in 2010. Decisions on the reallocation of VHFTV rights will be deferred until closer to 2010.

82. The Ministry notes that, as a majority of VHF licences were provided under incumbency provisions of the Act, there is little or no relevant market information available from which to assess the value of these rights. Further, widespread rollout of digital television has the potential to affect demand for these rights, as might the advent of digital audio broadcasting, an alternative use for this spectrum.

15. Do you wish to comment on the applicability of the price-setting formula to rights expiring after 30 April 2011, including timing of offers to existing rightholders?