CallPlus

Ministry of Economic Development Radio Frequency Auction 2.3GHz & 2.5GHz Bands – Discussion paper

Comment from CallPlus

Introduction

CallPlus thanks the Ministry of Economic Development (MED) for the opportunity to provide comments on the “Radio Frequency Auction: 2.3GHz & 2.5GHz Bands” discussion paper issued by the in August 2007.

Question 1: Considerations relating to lot design

a. Expected Technical developments and likely demand

CallPlus’ view on WiMAX is that the focus for deployments in these bands will be TDD / “e” as this is where the CPE will be focussed. We view an FDD deployment of WiMAX in these bands as unlikely.

b. Size and location of managed parks

The bandwidth allocation for the managed parks is generous. CallPlus would prefer that rather than multiple blocks for a managed park in the 2.5 GHz band that a single block is established at bottom end of the band adjacent to the current unmanaged spectrum.

Furthermore CallPlus believes that the MED is giving too much weight to the view that CMAR (community access rural radio) services need to be in

these band. The bulk of these are already located in the 1.5GHz Band and we believe that there should be plenty of alternatives for this service. This is not a growing market with increased demand for the service and there is no need to compromise the 2.3 & 2.5 GHz spectrum which is critical for BWA. If a party believes that this is the only option, which we doubt, it should bid for spectrum like other players and it should be counted in the acquisition limit.

c. Acquisition limits

CallPlus views the proposed limits as reasonable and supports the approach of ensuring adequate spectrum is available to ensure 6 operators as a minimum can acquire spectrum. Furthermore it is likely that if more spectrum is required in future then this will become available as we see rationalisation in the future. If not then we have the best outcome which is multiple-operators and a competitive market.

e. Preferences regarding auction type

CallPlus is of the view that an SAA auction across the two bands at the same auction is the preferred approach to the auction. As noted this process would facilitate a better, fairer price discovery and improve the chances of bidders obtaining the lots they want.

We would however urge the Ministry to look at ways in which this auction can be run without running the risk of a long, protracted process.

CallPlus has also had concerns in the past that ‘associated parties’ have sought to bid in previous auctions. Given the importance of this auction we would suggest that parties wishing to bid be made public ahead of the auction and parties are pre-qualified ahead of the auction. This is particularly important if an “SAA” auction is proposed.

Question 2: Proposed lot design

CallPlus prefer option A as the configuration best suited for a WiMAX deployment. Option C is not in our view an optimal solution and would

introduce complexity into the process. CallPlus would have serious concerns with option B which has too many lots & is open to parties gaming or disrupting the spectrum or smaller players get single lots and fragmenting the spectrum thereby reducing the opportunity for significant deployments. This applies across both the 2.3 & 2.5 GHz bands.

Question 3: Maori interests

The proposed quantity of Managed Park is very generous and should be more than adequate to accommodate the needs of special interest groups.

Question 4: Eligibility to bid

CallPlus acknowledges that by making 6 blocks across the 2 bands available for bidding at the same auction the Ministry have gone some way to address concerns however we are still of the view that incumbents with large existing spectrum holdings should be excluded. A portion of the 2.3 GHz spectrum may not be available until 2010 so the number of usable lots in 2008 will not be six.

We would like to reiterate the following points:

• The distinction between ‘cellular’ and ‘mobile broadband” service solutions is vanishing with the advent of HSDPA for GSM and EV-DO for CDMA. The benefits of one technology over the other tend to be short term and within the timeframes over which this spectrum will be utilised and any current advantages of one over the other will be minimal and short lived. Developments such as the usage of OFDM, MIMO and emerging standards such as WiMAX 802.16e, UMTS long term evolution (LTE) and EVDO Rev C will result in multiple methods to achieve the same results of 4G wireless broadband access.
• Effectively by allowing Vodafone or Telecom to acquire spectrum in the 2.3 & 2.5GHz band the ministry is simply providing another mechanism to deploy mobile broadband services – a capability they already have sufficient spectrum to achieve.

CallPlus is also concerned that whilst some parties will elect to make their 2.3GHz spectrum available earlier than 2010 others will not. In order to ensure a level playing field for the auction CallPlus suggests that any party who elects not to release existing spectrum rights prior to the auction therefore hold spectrum which should be accounted for in their acquisition limit.

As such they should not be eligible to bid for any lots which would result in them having access to more than the 35 MHz limit at any time.

Question 5: Duration of Acquisition limits

CallPlus supports the proposed expiry of acquisition limits 1 year before the use or lose it clause is satisfied. This will discourage speculative bidding by smaller players although has little impact on deep pocketed incumbents.

Question 6: Use or lose provisions

CallPlus proposes that the use or lose it date be set at December 2016. This takes into account the following: -

• The auction has acquisition limits and accommodates 6 bidders
• There are significant risks around the technology roadmaps & timings.
• Some spectrum not available until 2010.

The ‘test for use’ can similarly be less prescriptive. CallPlus would support the more flexible approach offered by option A. Option B is too prescriptive in its approach. CallPlus would support the deferral of a portion of the payment of the purchase price pending implementation. That portion becomes payable if services are not implemented by the use date. This acts as an incentive to build and will be built into pricing levels of the auction.

There should not be an additional penalty levied as loss of renewal rights should be sufficient for smaller competitors and the penalty is unlikely to change the behaviour of large incumbents.

Question 7: Settlement

CallPlus is strongly of the view that it would be unreasonable for the Ministry to expect payment at the conclusion of the auction. Since lots are not available immediately and availability dates vary by lot then payment one month prior to the management lot becoming available is the only reasonable solution. This aligns payment with access to the service and encourages smaller players who are investing ahead of the spectrum becoming available.

Whilst settlement may be a minor issue for large incumbents CallPlus, for example, is considering investing substantial amounts in LLU and regional WiMAX and should not be required to tie up capital ahead of the spectrum becoming available. To not take this approach would be contrary to encouraging competition to develop. The timing of payments will be taken into account when bidding for the spectrum and will increase the value of lots according to their attributes.