Spectrum allocation: auctions for developing countries
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The document discusses key considerations for developing countries regarding spectrum auctions. It notes that while auctions can efficiently allocate spectrum, developing countries must carefully consider how auction rules and pricing can impact investment, competition, and consumer prices. The document outlines factors such as balancing incentives for investment with public interests, setting an appropriate reserve price to avoid unsold spectrum or dampened investment, and ensuring competition through caps or trader rules.
Spectrum allocation: auctions for developing countries
- 1. SPECTRUM ALLOCATION: AUCTIONS FOR DEVELOPING COUNTRIES FINAL PROJECT FOR GSMA ADVANCED SPECTRUM MANAGEMENT COURSE
- 2. Summary Spectrum is a scarce resource that is critical for the development of a nation Arguably, the most efficient allocation is through spectrum auctions However, for a developing country that is considering spectrum auction, it needs to consult widely on the following: Incentives that can encourage investment need to be balanced with public policy objectives Administrative allocation vs market-based allocation Effects of high spectrum price on investment and consumer prices Measures to ensure competition
- 3. Spectrum regulation In allocating scarce spectrum, the regulator has to balance between many different objectives and many stakeholders Transparency is paramount: every action must be transparent Non-discrimination must be seen to be upheld Consultation with stakeholders is critical on: The spectrum roadmap The method and rules to allocate spectrum (i.e. beauty contest, auctions) The spectrum licence details This is essential to ensure certainty in the industry and would encourage investment and ultimately benefit end-users Source: wik-Consult (2005), Study for the Federal Network Agency: Towards more flexible spectrum regulation, pp.6,7
- 4. Balancing between objectives Market-based incentives Granting operators technology neutral licences For example: allowing 4G networks to be deployed on 900MHz or 1800MHz spectrum (originally for 2G spectrum) Sufficiently long licences This will ensure allow operators to be able use the spectrum and have certainty in recouping investment Hence, this leads to continual investment and upgrading of networks and allow end users to enjoy the benefits Public interests Public interest requirements to be met For example: spectrum set aside for emergency services, military and other uses for public interests For example: rural coverage may be important for regulators but there is less commercial incentive for operators Interference to be minimized For example: use of frequencies for different services may lead to interference Hence, the freedom of use of spectrum by different operators needs to be balanced with public interests Source: wik-Consult (2005), Study for the Federal Network Agency: Towards more flexible spectrum regulation, pp.6,7,14
- 5. Spectrum allocation mechanisms Administrative allocation Market-based allocation The price is set by the market - involves spectrum auctions and spectrum trading (in secondary market) More efficient allocation of spectrum as it is allocated to the operator that most highly values it Theoretically this means that the operator that won at an optimal market price will not immediately sell it off and obtain windfall gain Potentially free from political interference However, the regulator can influence the prices through setting the reserve prices (for example) The regulator set the price based on recovery of cost for spectrum management For example: costs to issue spectrum licences, maintain databases, conduct spectrum monitoring, international coordination and enforcement Administrative incentive pricing can also be used This reflects the opportunity cost of spectrum while also incorporates incentives and is used in the UK. Developing countries start with this method and later move to market- based approach Source: ITU(2017), Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules, pp.3,4,13
- 6. Spectrum pricing principles (based on ITU recommendation) All users should pay spectrum charge which is: Calculated fairly and without discrimination Be proportionate to the amount of bandwidth used Reflect value to society (i.e. frequencies used for public services may be subject to lower charges) Spectrum users should be consulted on adjustments in charge The pricing structure: Should be clear, transparent and comprehensive Should reflect scarcity of spectrum and level of demand The cost of spectrum regulation should not be born by the state The spectrum charge should be used to recover costs of spectrum regulation and not to maximize government revenue The spectrum charges should be specified in law Source: wik-Consult (2005), Study for the Federal Network Agency: Towards more flexible spectrum regulation, pp.36-37
- 7. Spectrum price components These components should be considered in an aggregate manner: Upfront reserve price – Some countries such as Sweden and Germany set modest but non-trivial to deter frivolous bids; others such as France set reserve price closer to perceived value of spectrum Competitive premium – This is determined by the market, often used in combination with upfront reserve price Annual fees – These cover the administrative cost of managing spectrum Upfront reserve price Competitive premium (in auction, if any) Annual fees Source: GSMA (2017), Effective Spectrum Pricing: Supporting better quality and more affordable mobile services, p.2 Source: GSMA (2017), Effective Spectrum Pricing: Supporting better quality and more affordable mobile services, p.2, 3
- 8. Effects of high spectrum price Dampens investment incentives Too high spectrum reserve prices can result in spectrum being unsold (depriving consumers of benefits) For example: France’s 3G auction in 2000 where there was difficulty to allocate the 3rd and 4th licences Reduces return of investment to operators resulting in overall reduction in investment GSMA’s study found a correlation between lower spectrum costs and higher wireless scores (i.e. in terms of coverage, number of subscribers and average speed) (p.29) Spectrum cost is an important factor in differentiating network investment of different countries Increases consumer prices Too high spectrum reserve price favours the incumbent to the detriment of new entrants or smaller competitors For example: Smaller Mexican operators bought lesser spectrum (or did not participate) in Mexico’s 2016 AWS auction High spectrum prices combined with lack of competition could result in higher prices paid by consumers GSMA’s study found a correlation between lower spectrum costs and lower consumer prices for data services (p.31) Higher spectrum costs directly affect competition between operators Source: GSMA (2017), Effective Spectrum Pricing: Supporting better quality and more affordable mobile services, pp.13,14,29,31,40,42,45
- 9. Ensuring competition in market Preventing a monopoly of spectrum being held by a single operator (i.e. the incumbent) Spectrum hoarding that prevents others from using it Impose spectrum caps or create certain licences with a fixed minimum amount of spectrum; Rules on spectrum trading The regulator can withdraw spectrum usage rights Source: wik-Consult (2005), Study for the Federal Network Agency: Towards more flexible spectrum regulation, pp.32-36
- 10. Concluding remarks Spectrum allocation and in particular, spectrum auctions are complex in nature This is because the regulator has to balance between many different opposing objectives Learning from other countries’ success stories is a starting point: The criticality of ensuring a transparent and non-discriminatory process The importance of spectrum price (spectrum reserve price and annual fees) on investment and consumer prices The safeguarding of competition in the market Balancing with other public interests
- 11. Bibliography GSMA (2017), Effective Spectrum Pricing: Supporting better quality and more affordable mobile services International Telecommunication Union (ITU) (2016), Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules wik-Consult (2005), Study for the Federal Network Agency: Towards more flexible spectrum regulation