The government should be on alert amid skyrocketing bid prices for the nation’s forth-generation (4G) spectrum. The bids have already soared to NT$93.92 billion (US$3.2 billion) in the latest bidding round yesterday, making the price 2.6 times the floor price of NT$35.9 billion after 28 days of intensive bidding.
The bid price indicates that local telecoms have to pay at least NT$696 million per megahertz (MHz) as the nation plans to sell 135MHz during the bidding that is expected to end by end of next month. That cost has greatly exceeded the NT$117 million per MHz license cost paid by telecoms in Hong Kong at a 4G spectrum auction earlier this year. It also approaches the NT$850 million per MHz paid by German telecoms during a 4G spectrum auction in 2010.
This cost comparison shows that Taiwan’s 4G license cost is expensive and it could take more time for local telecoms to profit from selling 4G services, given Taiwan’s smaller market. Taiwan has less than a third of Germany’s 81.89 million people.
Taiwan’s market is three times as large as Hong Kong’s, but its 4G bid price has soared to 6 times that of Hong Kong’s 4G license fee. And the price is expected to rise further to close to a warning mark of NT$100 billion mark as the bidding process is still on going.
This is in spite of National Communications Commission pricing rules designed to avoid just such overheating. Apparently, the rule does not work as expected. To prevent the bidding price from surging out of control, bidders are only allowed to submit a new bid that is at most 6 percent higher than the bids in the previous round.
CLSA Asia-Pacific Markets has warned that rising 4G auction bids will negatively impact the business prospects of local telecoms. The brokerage said high 4G spectrum fees will become a financial burden on local telecoms as it will take longer to recover the cost. CLSA expects shares of local telecoms to come under selling pressure once the price surpasses NT$100 billion.
The 4G bid price yesterday was also much higher than the NT$48.9 billion paid in the 3G auction in 2002, when the final auction price was only 45 percent higher than the floor price. Local 3G operators already struggle to turn a profit, and some have been operating at a loss since the 3G spectrum opened, only now turning a profit.
As it is becoming difficult to create new 4G applications in addition to high-speed data transmission, new 4G license holders will again face a challenge of turning 4G into a profitable business. Increasing service charges will be the easiest solution, but that means passing the costs onto consumers.
The government should beware that the high 4G license costs will lead to expensive 4G services, or even hamper its popularity.
Apparently, the six 4G bidders including the big three telecoms firms — Chunghwa Telecom Co, Taiwan Mobile Co and Far EasTone Telecommunications Co Ltd — will continue to increase their bids for the 4G spectrum because they cannot afford not to get a 4G license as their role as data transmitters becomes a cash cow.
In this pivotal moment, the commission must intervene and call a time-out before this 4G “gambling,” as some local telecoms have called the auction, gets out of control.
The auction will certainly result in a boost to the national coffers, but the cost of that cash infusion might be the health of the nation’s telecoms industry, or the dwindling bank accounts of millions of consumers.