Thu, Oct 04, 2018 - Page 10 News List

Italy sets record with two-week 5G airwaves auction

Bloomberg

Italy’s record US$7.6 billion sale of high-speed airwaves, while helping the populist government fund its election promises, gouges a chunk out of telephone companies’ finances before they embark on costly network upgrades.

The two-week bidding process that ended late on Tuesday saw prices of some of the most coveted airwaves soar as companies battled for a chance to offer the 5G services, which bring faster download speeds for videos and gaming, and will help to facilitate self-driving cars and connect a multitude of devices.

The industry’s final bill is more than twice what the government had expected and could leave investors wondering how the companies are going to turn a profit on 5G once the networks are installed.

Telecom Italia SpA and Vodafone Group PLC each committed to pay about 2.4 billion euros (US$2.8 billion) for the largest blocks.

The big winner from the auction is the Italian government, said Dhananjay Mirchandani, a senior research analyst at Sanford C. Bernstein Coy LLC in London.

Telecom Italia and Vodafone will ultimately have the advantage over CK Hutchison Holdings Ltd’s Wind Tre and France’s Iliad SA, he said in a note.

“Today, it stings. Longer term, the strategic benefit accrues to TI and Vodafone,” Mirchandani said.

The most fevered bidding in the two-week auction focused on 3.7 gigahertz airwaves that offer the strongest signals in built-up urban areas, according to a statement by the Italian Ministry of Economic Development.

That piece of spectrum alone attracted about 4.35 billion euros.

Iliad bid 1.19 billion euros for smaller chunks in a sign the new entrant is committing to Italy, Wind Tre bid 517 million euros and Swisscom AG’s Fastweb only committed 33 million euros.

The carriers are required to pay a portion upfront this year, followed by installments in subsequent years and the bulk of the fees are due in 2022.

The prices were the highest ever on a per-user and per-megahertz basis for 3.7 GHz spectrum. South Korea had the previous record.

Key bands of spectrum were relatively limited, helping to inflate the price.

However, the Italian industry is going to have less cash to spend on antennas and radio systems once the auction is paid for.

The 5G networks are designed to be denser and more equipment-heavy than current technology.

Italy’s biggest telephone companies had threatened to boycott the auction, saying the bidding rules were too rigid and the starting price was too high.

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