Fletcher Flubs Complaint Over 4G Auction Reserve Prices

With the impending cessation of analogue television signals in Australia, the government are preparing to auction the RF spectrum that will be freed up at that time.

This spectrum is expected to predominantly be taken up for use in commercial cellular mobile networks for data and voice services.

Late last year, the reserve price was set for the auctions, and there has been some discontent with the announced pricing within the industry.

Mobile carrier Vodafone immediately signaled their intent not to participate in the auction, and the two other major players – Telstra and Optus – hinted they also might consider not participating.

Today, not to be outdone, federal opposition backbencher, the member for Bradfield, and former Optus executive Paul Fletcher, jumped in with a piece that appeared both on the Australian Financial Review website, and his own website, berating the reserve price set by Communications Minister, Stephen Conroy, labelling it a “greedy grab”.

Fletcher’s main argument was that the price was significantly higher than a similar auction of the 1800 MHz spectrum, which took place in 2000:

“Conroy’s reserve price implies expected proceeds of nearly $2.8 billion; the highest amount previously raised was a bit over $1.3 billion when 1800 MHz spectrum was auctioned in 2000 (albeit for two thirds as much spectrum as next year’s auction).”

His statements were presented and analysed by Renai Lemay, on his popular technology site Delimiter.

It wasn’t until people started commenting that the true foibles of Fletcher’s argument really became apparent.

I personally started the ball rolling with this comment:

“In making his argument, he destroys his argument.”

“If ‘two thirds’ of the amount of spectrum to be sold next time, was sold last time – if the same amount of spectrum were sold this time, $1.3 billion would become $1.95 billion this time.”

“That’s $850 million less in direct comparison.”

“Add into that inflationary pressures over 12 years, increased competition in 2013 in comparison to 2000, and greater scarcity of the commodity, $2.8 billion doesn’t actually seem that unreasonable.”

I had no idea of how to exactly compare “Year 2000 dollars” with “Year 2013 dollars”, but felt that the comparison between the price 13 years ago should be pretty close to the $2.8 billion price tag for this years 700 MHz spectrum auction.

Up popped ”Dean” with the following comment:

“In fact, according to [http://www.rba.gov.au/calculator/annualDecimal.html] $1.95b in 2000 is $2.71b in 2011 (the last year it goes up to). So it seems today’s reserve price is exactly the same as the reserve price back then!”

The calculator provided by the Reserve Bank of Australia may become a most interesting tool when testing financial claims being made by politicians in an election year.

Try it out – it’s quite interesting.

If you pop “1,950,000,000” in as the starting dollars, set “2000” as the year you’re starting from, and set “2011” as the year you want a comparative figure for, you get a value of “$2,708,447,009.44”.

That’s $2.708 billion dollars. So $1.95 billion dollars in year 2000 dollars, is $2.708 billion dollars in 2011 terms.

Now, 2011 is the last year you are able to select as the target year on the calculator, so we have to consider that it will have gone up a little further still since 2011.

So it’s going to be pretty damn close to the $2.8 billion price tag Fletcher is complaining about.

So is Fletcher really complaining about the price being effectively the same in 2013, as it was in 2000?

It sounds like it.

So what’s your argument Paul, or are you just ignoring reality for a cheap political point?