3G LICENCES (Auction)

Assoc. Prof. Toh See Kiat asked the Minister for Communications and Information Technology how the Government intends to conduct an auction for four 3G licences if only four or less than four bidders indicate interest, since an auction presumes that there are more bidders than licences available.

The Minister for Communications and Information Technology (Mr Yeo Cheow Tong): Mr Speaker, Sir, Infocomm Development Authority (IDA) proposes to conduct a simultaneous multiple round ascending bid auction; ie, the four 3G licences will be put up for auction concurrently. If there is only one bidder for each of the four licences, IDA will allocate licences to the bidders at the reserve price, and there will be no auction.

However, bidders may not assign identical values to the four licences because the spectrum band allocated to each licence has different technical and operational characteristics. It is possible that even if there are a total of four or fewer bidders, more than one of them may prefer a particular spectrum band. If so, the auction for that licence will proceed in order to determine the successful bidder.

Assoc. Prof. Toh See Kiat (Aljunied): Sir, with the dampening of the 3G auction market and with the low prices that have been coming in, if not the failure of some of these auctions in other countries, and particularly in view of the very lukewarm response from the players in the field to IDA's draft auction rules, is the Government still optimistic that there will be a good response to the auction?

Mr Yeo Cheow Tong: Sir, staff from IDA and EDB have been going round to discuss with possible bidders on their interest in coming to the Singapore market. I think we are quite confident that there will be enough bidders to make the 3G market in Singapore a successful one.

Assoc. Prof. Toh See Kiat: Sir, what is the Minister's comment to the remarks of British Telecom that the process actually should best be a beauty contest in view of the experience that they overpaid for the licence and therefore this would have to be passed to the consumer and ultimately the consumer is going to suffer and the development of 3G may not be well done?

Mr Yeo Cheow Tong: Sir, the comments of British Telecom's CEO should be taken in the context of the extremely high bids made for the UK's 3G licences and I am sure, having bidded for such a high price, many of them would hope that the UK government would come up with a mechanism to return part of the licence fee to them.

Mr Simon S. C. Tay (Nominated Member): Sir, the Minister said that the Ministry officials were asking around and expected a good enough bid. Given that this is a market mechanism, there needs to be enough interest. Could the Minister indicate how many people he anticipates or hopes to come forward to bid?

Mr Yeo Cheow Tong: Sir, whilst some of the companies have expressed interest, we will only know for sure what the actual interest will be when the final invitation for bidders to come forward is given out.

Mr Chng Hee Kok (East Coast): Mr Speaker, Sir, the Minister is confident about the bidding system. Why is there a reserve price and how was the $150 million reserve price arrived at?

Mr Yeo Cheow Tong: Sir, there is a need to have a reserve price to ensure that if there are too few bidders, we will still get a reasonable economic value for the limited spectrum that is available. The feedback from the countries that have proceeded with the auction without a reserve price or with a very low reserve price is that they regretted doing that and, on hindsight, they should have established a reserve price that reflects the economic value.

Mr Chng Hee Kok: My question was: how was the $150 million reserve price arrived at and, at the same time, which are the countries that have this reserve price and the bid was too low?

Mr Yeo Cheow Tong: Sir, for the reserve price, we hire a consultant firm that has experience in this sector to do a study for us on what would be a reasonable price. They gave us a range and we discounted the low-end of the range further and came up with $150 million. Members should note that the licence is for 20 years. The reserve price that we are establishing is only slightly higher than what we would be getting from a 2G licence. So for the 3G licence with a much broader spectrum that is available, we do not think we would have fetched a very high premium versus a 2G licence. What is your second question?

Mr Chng Hee Kok: Which are the countries that have the reserve price problem?

Mr Yeo Cheow Tong: Several countries had very low reserve price. The one that had a very low reserve price was Switzerland. Switzerland started with a reserve price of US$29 million and the Netherlands started with a reserve price of US$40 million. And the final price in Switzerland was only slightly higher than the reserve price.

Mr Chng Hee Kok: In the Minister's opinion, this does not reflect economic value. In other words, the bidder might think that was the market price.

Mr Yeo Cheow Tong: Sir, bidders would not necessarily push up to what is the proper economic value unless there are a number of bidders. So when we have very few bidders - in the case of Italy, they only had one bidder more than the number of licences - there is really no market for them to push up to what would be a reasonable market price. I am sure they all have established in their mind what they are prepared to pay. Where they can get away with paying much lower than that, why not.