Czechs pull plug on 4G spectrum auction after carriers bid too much

Radio spectrum auctions are generally supposed to be about assigning spectrum in the most efficient way, so that new mobile services run as well as possible. That said, they also make money for governments, and some see this as their primary purpose.

Not so the Czech telecoms regulator, CTU, which has suspended the country’s auction of spectrum in the 800MHz, 1800MHz and 2.6GHz bands because the carriers bid too much. The private equity firm PPF and the local businesses of telecoms giants Deutsche Telekom, Telefonica(s tef) and Vodafone(s vod) had collectively bid 20 billion crowns ($1.03 billion) before the regulator pulled the plug, saying investments of that level would mean unreasonably high prices for consumers.

“When announcing the conditions in the first half of last year, we stressed that the main motivation of the auction was the quick availability of a 4G network for Czech citizens and the possible entry of a fourth operator — never about profits for the state,” CTU chairman Pavel Dvorak said in a statement (I’ve used an English translation of the quote from Reuters).

Even though the reserve for the Czech auction was only $377 million, the billion-dollar figure doesn’t appear that high on the face of it: the UK spectrum auction last month pulled in $3.6 billion, and the Dutch auction in December accrued $5 billion.

What’s wrong with raising too much? At the extreme end of the scale, we have the 3G spectrum auctions of a decade ago — there, carriers paid tens of billions for their licenses, effectively causing an industry-wide crash from which they and their vendors took years to recover. Let’s remind ourselves of what EU digital agenda commissioner Neelie Kroes had to say back in January, in reaction to the Dutch result:

“Was nothing learned from previous auctions for UMTS [3G] frequencies, when the share price of KPN dropped substantially and the ecosystem of small supply companies in the telecom sector was severely damaged? … Telecom companies paid high prices. KPN saw a further decline in its credit rating. Prices for attracting money for infrastructure investments are expected to rise. The rollout of high-speed internet will slow down and the suppliers will be put out of business. This ‘Christmas gift’ could be a huge burden for the sector, and for all other businesses, entrepreneurs and citizens who need super-fast mobile internet.”

Dvorak cited Kroes in his statement, pointing out that allowing excessive auction revenues would clash with his agency’s mandate of creating conditions for efficient investment. And so, the Czech Republic can look forward to a rebooted spectrum auction, hopefully sometime later this year.