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Dutch operators: Ugh, we really overdid it on the 4G last night...

Punters wake up with empty wallets after spectrum auction

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Dutch operators are waking with something of a hangover following panicked bidding on 4G telephony licences in the overcrowded Netherlands market. The country’s 4G spectrum auction altogether generated nearly €3.8bn.

Vodafone shares tumbled 2.8 per cent and KPN said it wouldn't be able pay its promised end-of-year dividend as it scrabbled around to find the €1.35bn it bid for 120MHz of 4G spectrum covering the Netherlands, while Vodafone's woes were brought on by its €1.38bn bid for 70MHz of (admittedly prime) spectrum in the same market, as the auction overall raised over three times the expected price.

The other bidders were T-Mobile, which spent €911m, and new entrant (and currently virtual operator) Tele2, which coughed €161m for a slice of 800MHz 4G goodness to go with the chunk at 2.6GHz it already owns. The auction completed last month, but the numbers have only recently been announced - on Friday - and the impact is ongoing.

It's widely believed that the Netherlands isn't big enough for four national operators, and historical evidence would back that up, but the business model of cellular is changing, so it would be a mistake to dismiss the newcomer out of hand when so much is in flux.

The numbers will be welcome in Whitehall, which is hoping our own mega-auction will bring in some much-needed cash. That's not the point, of course, the point of auctions is to ensure that the winning bidder has an incentive to deploy quickly, the wedges of cash are just a happy side effect.

KPN is certainly desperate to recover the investment, promising to have 4G services up and running within a couple of months, and the competition can't afford to be far behind, but analysts are popping up all over the place saying what a disaster this is for the Dutch operators and by extension the Dutch mobile customers - who will ultimately have to foot the bill.

It's not clear why the numbers went so high; there were a couple of other new entrants who dropped out when things started getting silly and that probably motivated the others to bid high and ensure they had a holding. Many operators around Europe have also started deploying network infrastructure in the bands they intend to win, to give them the jump on the competition after the auction, but that means entering the auction with specific lots in mind - never a good thing as anyone familiar with auctions will attest.

Those planning to bid in the UK's auction will have already registered with Ofcom early last week, so the regulator will know if we're going to have any new entrants (unlikely but not impossible). Some operators are certainly deploying 4G kit in bands they don't yet own, which could compromise their bidding strategy, but it's hard to image the UK auction raising three times the expected figure somewhere in the region of £5bn. The reserve is £1.3bn so the auction could raise considerably less. A bonanza result would give the UK's treasury more wiggle room in managing the economy, but it's worth remembering that we all end up paying for it in the end, one way or another. ®

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