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Czech Telecommunication Office Starts Drafting New Auction Rules

The Czech Telecommunications Office started preparing rules to replay a radio frequency auction as bidders in a failed first tender are given the chance to appeal its March 8 cancellation.

“We started drafting the new auction terms and we expect to be able to announce a new sale in months,” telecom watchdog spokesman Frantisek Malina said by phone.

The office, or CTU, declined to provide details on the new conditions until the 15-day appeal period lapses. T-Mobile Czech Republic AS (DTE), Telefonica Czech AS and Vodafone Czech Republic declined to say if they would appeal, while PPF Mobile Services AS spokesman Radek Stavel said his company wouldn’t file one.

CTU canceled the sale of 800 MHz, 1,800 MHz and 2,600 MHz spectrum because of a belief that “excessive” bids totaling more than 20 billion koruna ($1 billion) would be passed on to customers in the form of higher charges for fast Internet services. While governments across the region are cutting spending to meet austerity needs, they are also concerned a simultaneous rising cost of living is creating voter anger.

In Bulgaria, soaring energy costs sparked more than two weeks of protests that led to action against Czech utility CEZ AS and brought down the government of Premier Boyko Borissov.

Officials from the Czech telecom regulator decided to halt the auction as the price exceeded the original estimates and the companies would have problems to finance building the new networks. It also considered protecting customers more important than completing the process, CTU head Pavel Dvorak said in a statement on March 8.

No Appeal

The new auction will probably go ahead without any of the four bidders lodging a protest, said Cyrrus AS analyst Tomas Mencik.

“In my view, it’s unlikely that anyone will complain and complicate the situation, which is already pretty unclear,” he said in a phone interview.

The cancellation was also more “positive” for the existing operators than for new industry entrant PPF because they now have more time to develop their networks for fast Internet, Mencik said.

The high bids in the previous tender indicates the importance of LTE technology for the existing operators on the Czech market and the newcomer’s enthusiasm, London-based Citi analyst Dalibor Vavruska in a note to clients. LTE, or Long Term Evolution, allows operators to provide improved mobile data speed for customers and offer new services such as broadcast video or on-demand movies.

‘Globally Unprecedented’

He called the watchdog’s decision to give up the potential revenue from the auction “globally unprecedented.” The money would have gone to shore up the state budget and cut the deficit.

Earlier LTE auctions that were completed in countries like Germany, France, Italy indicate operators highly value the 800 MHz spectrum, according Arthur D Little. Depending on the auction rules, market operators either “aggressively” push for the 800 MHz spectrum or side step and deploy the LTE 1,800 MHz or 2,600 MHz spectrums if available.

The Czech auction included six blocks in the 800 MHz band and the four bidders would need two blocks each to build a full-fledged LTE network.

CTU’s Dvorak told Czech TV on March 8 that he would consider it a “good” result if the auction is restarted in two or three months. Dvorak, whose term as CTU chairman expires at the end of April, estimated the “real” total price of all the spectrums to be as much as 15 billion koruna, CTK reported on March 8.

Industry and Trade Minister Martin Kuba told Mlada Fronta Dnes on March 10 he wants to replace Dvorak when his term is finished.

Telefonica Czech started an LTE pilot project in the Czech Republic last year. T-Mobile Czech also started testing LTE networks in Prague and Mlada Boleslav, in the eastern part of the country.

To contact the reporter on this story: Lenka Ponikelska in Prague at lponikelska1@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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