Credit crunch has affected Hong Kong auction, says Analysys Mason

According to Analysys Mason, the global telecoms adviser, the credit crunch is the likely reason behind the ‘lack of interest’ by foreign investors to the Hong Kong spectrum auction last week.

The Office of the Telecommunications Authority Hong Kong (OFTA) last week concluded its auction for spectrum in the 2.3GHz and 2.6GHz bands with 2.6GHz paired spectrum being price at (Hong Kong Dollar) $2.44 MHz/pop, or Euro 0.24 MHz/pop.

This outcome exceeds prices paid in other recent 2.6GHz auctions in Norway and Sweden, in line with expectations.

Bart-Jan Sweers, consultant at Analysys Mason, commented: “Despite the achieved prices, it is likely that the credit crunch has affected the auction. The crunch has impacted the lending capability of operators, which in turn may explain the lack of interest from foreign bidders and the consortium formed by competitors Hutchison and PCCW.”

Given the ongoing and worsening economic climate, the Hong Kong auction has surprised many by increasing prices further. But Sweers suggests two key reasons for this. “The most obvious one follows from Hong Kong’s high population density, which leads to larger cost savings from using additional spectrum on a per pop basis. Cities like Stockholm and Oslo are less densely populated than Hong Kong, which justifies higher prices in the latter.”

He continues: “The second reason is the fact that in Hong Kong, there were even more incumbents than in Sweden, competing for less paired spectrum. Moreover, this spectrum was split up in only three licenses, less than the number of incumbents competing in the auction.”

Sweers explained that comparing auction outcomes is always a tricky exercise, in which factors like licence requirements, auction design and local market conditions all play a role. “Still, it can be argued that recent auctions, including the just-concluded auction in Hong Kong, seem to give quite a consistent picture of spectrum prices if such factors are taken into account,” says Sweers.

The low outcome of the Norwegian auction in November 2007 (Euro 0.03 MHz/pop for paired spectrum) can largely be explained by the fact that the Norwegian market only has two incumbent players. Incumbent operators are the ones who typically value spectrum the most, so limited competition for spectrum among these players causes prices to remain well below value.

In the May 2008 auction in Sweden, a substantially higher price was paid for paired spectrum (Euro 0.16/MHz pop). With four incumbents, collectively owning only a relatively modest amount of spectrum before the auction, the higher price did not come as a surprise.

“Unpaired spectrum seems to be a different matter altogether though.
Perhaps the most interesting aspect of the outcome of the Hong Kong auction was the total lack of interest in this type of spectrum. None of the available lots was sold. Judging by the spectrum markets, investments in WiMAX startups clearly do not go down well in the current, risk-averse climate,” added Sweers.

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