Column: Managing risk in spectrum auctions

Nov 07 2013, 04:49 IST
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SummaryA more flexible design for allocation is needed to preserve interests of all stakeholders

The Telecom Regulatory Authority of India (Trai) recently reiterated its proposals for the forthcoming auction of radio frequencies or spectrum for 2G wireless services. By mostly accepting them, the government will bring back bidders and break the impasse in the sector. However, recent experiences in India and abroad show that while spectrum auctions remain the best bet for transparency, additional handles may be necessary to minimise other risks.

Several governments and regulators are taking measures to deal with unwelcome auction results. In March this year, Czechoslovakias regulator CTU called off an auction for LTE mobile broadband spectrum when the bids were still rising after reaching $1 billion. CTU argued that bids were too high and discouraged new competitors. It has proposed a new auction which would inter alia focus on creating the conditions for the entry of another operator with nationwide operations by reserving one spectrum slot for new entrants.

In the UK, the government received barely 66% of its revenue target from the last auction for 4G (800 MHz and 2.6 GHz spectrum). The UK national auditor is undertaking a review to benchmark the conduct and outcome of the auction against good practice and the results of similar auctions in other countries. Separately, the UK government directed the sector regulator, Office of Communications or Ofcom, to set new licence fees for 800 MHz and 900 MHz spectrum since the rules now permit holders to deploy them more flexibly following the spectrum liberalisation. The government wants the new spectrum licence fee to reflect the current market price, with particular regard to sums bid for licences in the 4G auction. Ofcoms proposals envisage raising spectrum licence fees for 900 MHz and 1800 MHz by over 300%. This will be finalised after the mandatory consultation with stakeholders.

The success of auctions, of course, depends on their design. Relevant parameters, including the reserve price, the proportion of available spectrum being auctioned, the type of bidding (e.g. open or closed, single- or multiple-stage), the method of payment (upfront or staggered), the obligation to rollout services, permission to share or resell, etc , are set with auction goals in mind.

However, not all goals (revenue targets, rollout targets, competition, etc) are, or can be successfully reconciled or factored in the design chosen. Stakeholder objectives vary in importance and urgencythe consumers look for affordable services, the government is keen on maximising revenues to contain

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