Telecom Italia Is Top Bidder in Italian 5G Airwaves Auction

(Bloomberg) -- Telecom Italia SpA was the highest bidder in an Italian auction of airwaves for fifth-generation mobile services that raised at least $2.9 billion, as the industry piles into a technology whose commercial potential is yet to be tested.

The former monopoly offered 951 million euros ($1.1 billion) for four blocks of spectrum, followed by Iliad SA with 749 million euros and Vodafone Group Plc’s local unit with 716 million euros, Italy’s ministry for economic development said on its website Tuesday. As a newcomer, France’s Iliad had a special right to bid for a reserved package of 700-megahertz frequencies, the most valuable.

The carriers will be allowed to increase their offers on Sept. 13 as they vie for the scarce resource.

5G auctions across Europe represent a challenge for the region’s mobile phone carriers. Smaller players could see their business models come under strain if larger players squeeze them out of important spectrum, New Street Research analysts James Ratzer and Andrew Entwistle wrote in a note on Tuesday.

In Italy, “the auction will be an interesting test case of Iliad’s financing capacity and its longer-term commitment to the Italian market,” the analysts said.

Tuesday’s auction shows how much telecom companies are ready to pay for the frequencies that will power networks that provide much more capacity than current technology, promising speeds fast enough to download a full-length high-definition movie a few seconds.

For Italy’s government, 5G is a way to boost the digitization of public services and economic growth. The spectrum sale could also pull in 2.98 billion euros for the state, the New Street analysts said, higher than the government’s budgeted estimate of at least 2.5 billion euros. The preliminary bids totaled 2.48 billion euros.

Telecom Italia shares in Milan were up 0.6 percent at 2:19 p.m., while Iliad rose 2.1 percent in Paris.

Boycott Threat

Italy’s biggest phone companies had threatened to boycott the auction because they said the bidding rules were too rigid and the starting price was too high, people familiar with the matter said in June. They eventually relented.

Their concerns were driven partly by the slow payback from 4G spectrum sold in 2011, and concern that Iliad’s arrival will lead to the kind of protracted price war that already hammered industry profits in its home market of France.

A botched sale could have punched a hole in Italy’s accounts in a year where investor concerns have centered around the country’s future in the euro area after the Five Star Movement and the League -- two Euroskeptic parties -- formed a coalition government.

The starting price for the 700-MHz airwaves, currently used by TV broadcasters, was about 2 billion euros for six slots in total. Each bidder may try for a maximum of two. Those frequencies are the most effective in terms of covering large areas with a strong signal.

--With assistance from Tommaso Ebhardt.

To contact the reporter on this story: Daniele Lepido in Milan at dlepido1@bloomberg.net

To contact the editors responsible for this story: Rebecca Penty at rpenty@bloomberg.net, Kim Robert McLaughlin, Thomas Pfeiffer

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