6.6 Settlement

103. The standard terms for purchase at auction are settlement of the full purchase price shortly after the conclusion of the auction (for example, 30 days).

104. Some parties have argued that payment should not be required until one month prior to the management rights becoming available for use. This would recognise that whilst certainty is available from the auction date, the actual utility of spectrum only commences at a later date. A later settlement may ease financial hurdles for parties as they enter into equipment supply and installation contracts prior to spectrum commencing. Whatever date of settlement is applied, parties would be able and expected to factor the payment time into their bid levels.

105. On balance the Ministry does not consider that allowing for later payment is desirable. The following considerations apply:

• delayed payment means that the government acts as a banker by providing credit, which is not an appropriate role for government in this case.
• delaying payment encourages speculative purchasing (with the government financing the speculation) in the expectation that the value of the rights will increase with the passage of time; this risk is greater when trading is permitted at a relatively early date.
• the requirement for prompt payment should result in a lower price at auction than otherwise, reflecting the time-value of money.
• were a party to default on the purchase contract, an early settlement would allow that spectrum to be resold prior to commencement of the management rights.
• the proposed approach is consistent with that used in previous auctions.
• any new approach would have implications for future auctions.

106. Accordingly the Ministry proposes that normal settlement terms should continue to apply to all bidders (likely to be 30 days after completion of the auction and meeting the requirements of the Commerce Act). 

106. The Ministry also proposes to apply its standard provisions relating to deposits, whereby bidders are required to make deposits by way of currently dated Bank Cheque or by an irrevocable Bankers Certificate of Undertaking at the level of 25 percent of their expected bids. Bidders may top up their deposits during bidding if required to ensure continuing eligibility to bid.

Question 7: Settlement

Do you agree with the proposed settlement terms (30 days following completion of the auction)? If not, what other factors do you see as relevant?