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French gov trousers hefty wad in 4G spectrum sale

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France's 2.6GHz auction has raised a shade under €1bn in an auction apparently designed to wring revenue out of the usual suspects rather than spurring innovation or competition.

The auction comfortably exceeded the €700m reserve, but contained no surprises as the existing and announced operators shelled out more than €200m apiece (except SFR, which bagged a bargain) for half the spectrum they need to run a 4G network. That ensures they'll all bid for the other half in December, and makes sure no more new entrants rock up at the last minute.

Free Mobile and Orange France will pay €271m and €287.1m, respectively, for 40MHz of FDD spectrum (20MHz in each direction), Bouygues and SFR will hand over €228m and €150m for 30MHz bands, with everyone except SFR having to agree to carry virtual network operators as part of the deal.

The disparity in pricing isn't down to the locations of the bands - the exact frequencies will be dictated by the French regulator - but is instead down to the design of the auction, as highlighted by the chaps at Coleago Consulting back in June when the process was announced.

Rather than having public rounds of bidding, or even anonymous bids shared only between those taking part, the French adopted a single sealed bid approach where interested parties write a number on a bit of paper and the biggest number wins.

That puts companies under enormous pressure to bid the right amount, as it's extremely easy to overpay for spectrum. Where such a model is adopted it's common to ask the winner to pay the next-highest bid price - to prevent huge disparities that might upset the market - but that's not an approach that appealed to the French.

So the only people likely to bid for the bands are those who have a very good idea of what the spectrum is worth as evidenced by the similarity of their bids, though SFR still got itself a bargain by second guessing the market and saving itself €70m.

But to run a 4G network it's generally accepted that one needs high-end spectrum for use in urban areas, where low range and high capacity is the driver, and low-end spectrum to get coverage in rural areas, so this auction is only half the process. In France the second half (the digital dividend at 800MHz) will be auctioned off in December, with a reserve of €1.8bn.

Spectrum auctions are normally defended on the grounds that the company that pays most for radio spectrum has the greatest incentive to make use of it. That argument is undermined by UK examples, such as Qualcomm's ownership of L-Band, and UK Broadband, who are only now proposing to fill their 3.4GHz band following a decade of ownership, but supporters argue those are anomalies and the underlying concept is still valid.

In the UK we'll see both 2.6GHz and 800MHz auctioned off at the same time, almost certainly with multiple rounds of bidding so companies can test the water and new entrants are encouraged to have a bash too. The end result may well be the same, but the process is at least more interesting.

In France the four winners will have to bid again in December, and have to make the reserve, but other than filling French coffers it's hard to see what good such an auction structure serves. ®

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