Auction format to blame for Tele2's missed spectrum, says consultancyAuction format to blame for Tele2's missed spectrum, says consultancy
Specialist consultancy Coleago has said that Tele2's failure to win any spectrum in the latest Norwegian frequency auction—which has left the operator at a serious disadvantage in the market—is a direct result of the auction format.
December 10, 2013
Specialist consultancy Coleago has said that Tele2’s failure to win any spectrum in the latest Norwegian frequency auction—which has left the operator at a serious disadvantage in the market—is a direct result of the auction format.
In last week’s auction an anonymous new entrant, subsequently revealed to be backed by the owner of Norway’s rural-coverage focused challenger Ice.net, won the largest spectrum haul, while Tele2 came away empty handed.
Last month, Coleago Consulting’s managing director Graham Friend wrote in a Telecoms.com Soapbox piece about the potential risks that the Norwegian regulator, the NPT, was taking in renewing spectrum using a first price sealed bid auction. In that article, he suggested that Norway might see a situation in which an incumbent would be deprived of key spectrum assets.
Friend was proved right last week and in response to the outcome of the auction, he suggested that Tele2 had gambled—wrongly—that it would outbid any potential new entrant. In a first price sealed bid auction bidders effectively bid blind, with the highest bidders paying the amount they each bid. In such an auction it makes sense to bid less than the value you place on the spectrum, Friend said, something game theorists call “shading your bid.”
“The challenge, however, is to determine how much to shade your bid,” Friend explained. “Shade aggressively and if you are successful in the auction you create significant value. The risk, however, is that you shade too aggressively and someone with a lower valuation, but who shaded less aggressively, wins the spectrum.”
As a result Tele2 may have decided to shade very aggressively in the hope of securing spectrum at a low price and thus create significant value, he added.
“The combination of very aggressive shading from Tele2 however and a super charged new entrant business case is likely to have generated the upset.”
Tele2 has said it will “now further evaluate the situation after the auction and take the appropriate actions to strengthen its position in the country”.