Czechs consider auctions for spectrum sale - broadband wireless licenses - Government Activity

CommunicationsWeek International, March 6, 2000 by Emma Mcclune

The Czech regulator, flooded by applicants for broadband wireless licenses, has suspended awards in order to consider alternative procedures. A change of tack in this the first central European market to enter the race could cost some applicants dear.

Industry analysts suggest the Czech government may now abandon the first round of licensing by tender and instead auction off spectrum to the highest bidders.

But applicants from the first round are concerned that smaller operators will be bludgeoned out of the game by deep-pocketed giants, such as Deutsche Telekom, which can outbid rivals several times over.

"An auction will fetch the best price, but it may weed out the best candidates," said Matt Harp, a consultant at Telecentral Management, in Prague.

One applicant at least, BroadNet Holdings By, of Brussels, would prefer a beauty parade. It has won frequency in 42 cities in Germany and is currently negotiating for broadband frequencies in 21 countries across the region.

"Applicants should be selected on the basis of the best team. business proposal and services offered," said Robert Condon, founder and president of BroadNet.

But given the outcome of the recent tender for the third Czech mobile license, which is now being contested in court by a consortium of Orange plc and Brno-based GiTy a.s., a local telecoms company, the government may prefer the hard-and-fast rules of auction over a tender selection process, said Harp.

Tomas shollaert, telecoms lawyer with Linklaters & Alliance in Prague, suggests at least 13 companies applied for the licenses, and in the light of increasing interest in broadband, the government may suspect it had undervalued its own spectrum.

Last November, BroadNet said it would need the entire broadband spectrum to run a full range of services, but offered to invest only 2 billion koruna ($51 million) in a broadband network over two years.

Ambitious neighbor

An auction will certainly attract neighboring operator Deutsche Telekom, which is currently attempting "to buy up everything in sight in this region," according to Shollaert. Recently, the German giant outbid every applicant many times over in a contest for local ISP PragoNet a.s.

Broadband operators started applying for the Czech spectrum at the end of last year under the Czech Telecommunications Office's (CTU) standard first-come-first-served system with a fixed price tariff. The office then stalled for more time mid-February, sending out a letter to the applicants stating it needed a more "transparent and non-discriminatory" method of allotting frequencies in the broadband spectrum.

According to Karel Latacek of the regulator's frequency management spectrum department, the CTU expected "around four to six applicants," but received more than 10. The office has now handed the matter over to the ministry of transport and communications, which will reopen the application procedure under new guidelines, he said.

"We first thought of putting eight 25-gigahertz licenses at disposal, so if there had been four applicants, we would have awarded them two frequency units each," said Latacek. "In no case was it expected to give all the frequencies to one operator."

Auction advantage

Local operators will be hard pushed to compete in an auction, said Telecentral's Harp, even though in terms of local knowledge and experience they beat foreign operators hands down. But, as interest in the broadband spectrum booms, an auction may be the "only sure way" of discovering the real market value in a price-spiralling sector, he said.

"The Czech government is very [keen] to get as much money as possible for anything it can sell," said Linklaters' Shollaert. "It could be that it has only just realized how valuable these frequencies are."

One source close to the office has indicated that the entire worth of the frequencies may be around CSK1 billion.

Internet penetration in central and east Europe is still low, at l%-2%, with 80%-l00% growth projected in the next two or three years.