March 22 (Bloomberg) -- Brazil’s mobile-phone companies are getting a chance this year to add much-needed capacity with few strings attached, bidding in a government auction of 700-megahertz airwaves that may cost more than $3 billion.
The auction converts spectrum now used by television broadcasters into mobile-Internet signals. While auction winners will have to cover the TV stations’ moving expenses, they won’t be required to meet any goals for wireless coverage, said Joao Rezende, president of regulatory agency Anatel.
Wireless companies with overburdened networks are desperate to score more spectrum to serve their 268 million Brazilian mobile-phone users, the fifth-most in the world according to marketing firm MobiThinking. Airwaves in the 700-megahertz band are optimal for 4G service, which Rezende said will be the next growth area in a country where 3G use increased 75 percent in 2013.
Phone carriers, such as America Movil SAB, Oi SA, Telecom Italia SpA and Telefonica SA, will be competing most fiercely for swaths of spectrum furthest from the areas broadcasters occupy today, since they have fewer complications. Tests for interference with 4G wireless services will be concluded next week, Rezende said.
Companies can win two of the four segments available, for a total of 20 megahertz of bandwidth. For the 500 cities where broadcasters currently occupy channels on this spectrum, companies are expected to have the bandwidth ready for 4G mobile service by 2016; for the thousands of cities where 696 megahertz to 804 megahertz is unoccupied, it should be ready by 2015, Rezende said.
Auction winners will cover the costs for outfitting towers to move broadcasters to other spectrum and for filters to reduce interference. Those requirements will add up to more than 2 billion reais ($862 million) in expenses, part of total auction spending of about 7 billion reais, according to Luis Azevedo, an analyst at Banco Bradesco SA.
Past auctions of mobile-phone airwaves have required winners to meet requirements for coverage, especially as the government sought to improve service before Brazil hosts this year’s soccer World Cup and the 2016 Olympic Games. The current draft of the 700-megahertz auction rules has no similar conditions, for technical reasons, Rezende said.
The costs to clean up the spectrum and supply filters will be factored into the auction terms to be published 30 days before the bidding in August, resulting in a lower minimum bid.
“There won’t be any implicit costs in this auction,” Rezende said in an interview. “Everything is going to be spelled out in the auction terms, so companies will know exactly how much they’ll have to pay to clear the spectrum.”
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