Vodafone Hutchison Australia (VHA), the third-largest mobile operator in Australia, has posted net customer losses in three consecutive halves due to a lack of customer confidence caused by significant network problems.
VHA is currently in the process of replacing its entire mobile network at a cost of A$1 billion ($1.07 billion), and is facing spectrum renewal costs of approximately A$1.5 billion over the next four years. In addition, the operator will need to purchase spectrum for LTE at a competitive auction to be held in 2012.
Despite these significant challenges, VHA – a 50/50 joint venture between the Vodafone Group and Hutchison Whampoa – has stated that it will not exit the Australian market.
In February 2012, the Australian government added to Vodafone’s financial burden by setting high caps for spectrum in the 700MHz and 2.5GHz bands. In the meantime, Telstra and Optus have extended their leads over VHA in the Australian mobile market.
Spectrum caps play into Telstra’s hands
VHA has announced that it intends to bid for 700-MHz spectrum in the upcoming auction as it will be crucial for a large-scale LTE deployment.
The Australian regulator, the Australian Communications and Media Authority (ACMA), has announced that 700MHz spectrum will be sold in nationwide blocks of 5MHz, while 2.5-GHz spectrum will be sold in 5MHz regional blocks, thereby allowing a bidder to purchase 2.5-GHz spectrum in metropolitan regions only.
The spectrum caps announced by ACMA will be of significant concern to VHA and, to a lesser extent, Optus. The caps allow operators to bid for up to 2×20-MHz of spectrum in the 700-MHz band and 2×40MHz in the 2.5/2.6-GHz band. Ovum expects that Telstra will bid for the maximum 2×20MHz of spectrum in the 700-MHz band. This will cost it an estimated A$800 million, and will provide it with a significant market advantage over its rivals, which we expect will emerge with much less 700-MHz spectrum.