New entrants could lift prices higher in 4G auction: analyst
CNATAIPEI--The bids in a public auction Taiwan opened Tuesday for the fourth-generation (4G) spectrum are expected to be two to three times higher than the base prices set by the regulator due to competition from new entrants, according to a brokerage firm.
September 4, 2013, 2:20 am TWN
Bank of America Merrill Lynch estimated that bid prices would be similar to those in Taiwan's 3G auctions in 2002, which would mean an average unit cost of NT$4 billion (US$134.4 million) for 1800 megahertz (MHz) bandwidth, NT$6 billion for 900MHz and NT$10 billion for 700MHz.
That would bring the total value of the 4G bids to NT$78 billion, more than double the combined base price of NT$35.9 billion set in May by the National Communications Commission (NCC), Taiwan's telecom regulator, the bank said in a research note dated Sept. 2.
“The new players will most likely prefer the 700MHz, because the savings on capital expenditure and operating expense could outweigh the higher costs on spectrum,” said Sydney Zhang, a Merrill Lynch analyst in Hong Kong.
“As competition will likely push up the auction prices, we expect one or two new players will likely exit the auction, so the final winners might be less than seven,” he wrote in the note.
The NCC has completed preliminary assessments of seven entities that have submitted applications for the bidding, including four existing operators -- Chunghwa Telecom Co., Taiwan Mobile Co., Far EasTone Telecommunications Co. and Asia Pacific Telecom Co.
The three new players are Ambit Microsystems Corp. backed by the Hon Hai Group, and two other companies backed by the Ting Hsin International Group and the Shinkong Group.
“We think Hon Hai Group has the best chance to succeed as a 4G new entrant because it has an experienced management, strong financials and synergies with its other existing business,” Zhang noted.
On the other hand, the 4G spectrum auction will have a big downside for Taiwan's three biggest telecom operators because of the higher-than-expected spectrum prices, while new entrants could launch disruptive data tariffs and take away market share, he said.
The entire 4G spectrum auction process is expected to be completed in November, taking much more time than for the previous 3G license that involved 180 rounds of bidding over 19 days, according to the NCC.