Telefonica, Vodafone May Face New Rivals in Czech Auction

The Czech telecommunications regulator called for bids in a rerun auction for mobile frequencies that may allow a new market entrant and threaten incumbent operators who have vowed to dispute the process.

The regulator, known as CTU, said the auction, which includes frequencies that will enable providers to offer new 4G mobile services, wants to raise at least 8.72 billion koruna ($449 million) in the auction, CTU deputy Chairman Marek Ebert said today in Prague.

Telefonica Czech Republic AS, which competes with T-Mobile Czech Republic AS and Vodafone Czech Republic AS, may face potential newcomer PPF Mobile Services AS in a tender that CTU canceled in March because it considered bids totaling more than 20 billion koruna “excessive.” Current operators complain the auction rules for the new bidding favor the new competitor.

“The auction will be a milestone for a Czech telco market,” Cyrrus AS analyst Tomas Mencik said by phone. “After years, it may bring a new competition to the country and that’s not what the current players are used to.”

Operators across the globe are rushing to build faster networks based on Long Term Evolution, or LTE, technology that will enable consumers to shop online and stream videos faster and communicate better. After the Czech Republic’s March failure, mobile providers cut tariffs that, according to the Finnish consultancy Rewheel, had been the second highest in the European Union.

Share Weakness

Shares in the Czech unit of Spain’s Telefonica SA (TEF) fell 2 percent today to 295.9 koruna by 2:40 p.m. in Prague, taking its slump in the past 12 months to 27 percent. The stock touched the lowest price since 2003 five weeks ago at 255.50 koruna.

CTU head Jaromir Novak said raising revenue will not be the main goal of the auction. Rather, the regulator wants to allow new operators into the market and to improve services. Some of the incumbents have said they consider the rules unfair.

“I hope they will accept the invitation and will no longer question the Czech Republic’s right to have modern services and the effective use of frequencies and better competition in the telecommunications market,” Novak said.

Potential bidders should submit applications by Sept. 30 and the actual bidding via electronic tender should start in mid-November, CTU said. It said it expected to conclude the sale by the end of the year. CTU made new rules setting aside two blocks of 10 MHz in the 800 MHz band for new operators and two 15.8 MHz blocks in the 1,800 band range.

Bidders’ Battle

The watchdog also introduced a maximum cap of two blocks in the 800 MHz bandwidth, the most crucial for building a countrywide 4G network, for all players, meaning that if the three incumbents and PPF take part, at least one would be left out. The new auction may attract more bidders than just PPF, a Czech financial group. It participated in the failed sale, CTU’s Novak said on July 29, according to CTK.

Citigroup Inc. approached Novak last month to survey the conditions for entering the Czech market on behalf of an unnamed client, CTK reported. Prague-based Dial Telecom said it was considering taking part, Hospodarske Noviny said on Aug. 12.

While the existing operators said they may not take part in the auction under such conditions, PPF said the repeat auction has to happen as fast as possible so it can participate.

Telefonica and Vodafone already have been deploying LTE networks on existing frequencies in Prague and the second largest Czech city Brno. The operators cut fees -- in some cases by around half -- and offered their first-ever bundles of unlimited data and voice services for clients in April, a month after the first auction was canceled.

The new auction terms are “against our rights,” Telefonica Chief Executive Officer Luis Malvido said on a conference call with analysts on July 24. Telefonica plans to go to court and to the European Commission, as some of the measures lack substantiation, the executive said.

To contact the reporters on this story: Lenka Ponikelska in Prague at lponikelska1@bloomberg.net; Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net

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

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