2014/07/04 Slovenia’s spectrum auction could secure the two leading operators’ market position for the next 10 years

The first ever spectrum auction in Slovenia ended on 28 April 2014 with the award of several frequency bands to three mobile operators. It was a multi-band combinatorial clock auction (CCA), following the trend of other recent European auctions, but several aspects were unusual. Some spectrum was reserved for operators with low market shares, there were specific coverage obligations and one mobile network operator (MNO) did not participate.

The two largest operators acquired the most spectrum

The incumbent, Telekom Slovenije, and Si.mobil fared better than Tušmobil in terms of spectrum acquired (see Figure 1). The two leading operators – which accounted for 54.6% and 29.8% of SIMs, respectively, at the end of 1Q 20141 – paid a similar price per MHz per population.2 Telekom Slovenije gained 2×5MHz less than Si.mobil in the 1800MHz band. Interestingly, it was Si.mobil rather than the incumbent that won the blocks in the 800MHz band that are subject to specific coverage obligations.

Si.mobil also won the 2100MHz TDD blocks, which are not currently used in Europe because of the lack of handsets and ecosystem. This is likely to have been a gamble given the very low reserve price of the spectrum, but it remains to be seen whether it will pay off given that the spectrum is not used anywhere else. The only FDD block of 2×5MHz that was for sale in the 2100MHz band went unsold, possibly because operators are satisfied with the amount of spectrum they currently have in this band or because the reserve price of EUR1.8 million for this block was perceived to be too high.

Figure 1: Multi-band spectrum auction results, Slovenia, April 2014 [Source: Analysys Mason, 2014]

1 Including coverage obligations, which require the licensee to provide mobile broadband services at a bit rate of at least 10Mbps downlink outdoors to at least 95% of the population and to cover 225 specific settlements out of 300 settlements defined by AKOS within 3 years.

Tušmobil, which had a 12.7% market share at 1Q 2014, acquired spectrum at the reserve price (excluding the EUR365 000 paid at the assignment stage) because:

• it was the only MNO eligible to bid for the 2×10MHz of reserved spectrum in the 800MHz band
• the spectrum cap of 2×15MHz in the 900MHz band allowed it to get the seventh available block of 2×5MHz at reserve price
• supply exceeded demand in the 1800MHz band (bidders acquired only 13 of the 15 available blocks).

The auction raised EUR149 million, in line with the government’s expectations of between EUR100 million and EUR200 million. At reserve price, the value of the spectrum was EUR105 million. The assignment stage raised only EUR700 000 overall – less than 0.5% of the total price – possibly because bidders were not concerned about getting specific lots to avoid interference issues in some bands (800MHz and 2600MHz) and were satisfied with assignments that were similar to their current holdings in others (for example, 900MHz and 1800MHz). They may also have run out of budget during the primary and supplementary rounds.

The price per MHz per population in Slovenia’s auction is relatively low in comparison with other CCAs held during the past 3 years. However, it is similar to those in Slovakia, Switzerland and the UK, which featured a similar proportion of spectrum below 1GHz (see Figure 2).

Figure 2: Price and share of spectrum below 1GHz in selected CCA auctions, by country, 2012–2014 [Source: Analysys Mason, 2014]

The smaller operators have arguably emerged from the 4G auction in a weaker position

Slovenia’s fourth operator – T-2, which had a market share of only 2.9% at 1Q 2014 – announced prior to the auction that it would not participate because it had enough spectrum to serve its subscribers. It holds 2×15MHz in the 2100MHz band and has only launched a 3G network, although it supplements this with a national roaming agreement with Si.mobil.3  T-2’s decision made it the first 2G/3G operator in Europe to not participate in an auction to acquire 4G spectrum. The only other example we are aware of worldwide from the past 5 years is Vodafone in Australia, which publicly stated that it was abstaining because of high reserve prices and its ability to use its 1800MHz holdings to roll out LTE.

Tušmobil has arguably emerged weaker from the 4G auction despite acquiring 2×10MHz in the 800MHz band because it is set to lose some of its established 2G spectrum when the licences expire in January 2016. As a result, its spectrum holdings will decline from 2×10MHz to 2×5MHz in the 900MHz band, and from 2×15MHz to 2×10MHz in the 1800MHz band. Both Telekom Slovenije and Si.mobil currently own 2×12.5MHz in the 900MHz band, so it was inevitable that at least one operator in the market would lose spectrum when the national regulator, AKOS, split blocks into 2×5MHz. As Tušmobil currently runs a 2G and a 3G network using its 900MHz spectrum, it will face the challenge of redesigning and optimising its network by the end of 2015, as well as attempting to compete in the LTE market while mainly using 2×10MHz in the 800MHz band.

It is not clear why Tušmobil did not acquire the 2×10MHz block of 1800MHz spectrum that remained unsold at the end of the auction. It may have had problems with funding or its auction strategy, or it could have adopted a new commercial and/or technical strategy, with a different technology mix or a reliance on national roaming. The operator also did not acquire any spectrum in the 2600MHz band. It remains to be seen whether using the 800MHz band for an LTE network will be enough and will allow Tušmobil to compete with the other operators.

The outcomes for T-2 and Tušmobil will result in the two main operators holding a greater spectrum share (see Figure 3). This may hamper the smaller operators in terms of technology options and market positioning. Despite AKOS’s efforts to maintain a given market structure, the gap between the top two players and the other two players is likely to become larger.

Figure 3: Spectrum holdings of mobile operators before and after the April 2014 spectrum auction, Slovenia [Source: Analysys Mason, 2014]1

1 Spectrum above 1GHz includes also TDD spectrum in the 2.1GHz and 2.6GHz bands.


Source: Analysys Mason