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Centre for TelecommunicationsInformation Networking
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Centre for Telecommunications Information Networking (CTIN)University of Adelaidewww.ctin.adelaide.edu.au
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Market Mechanisms for Spectrum Allocation
Presented to Spectrum Allocation, a Network Insight seminar
Professor Reg Coutts
Director,
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Summary
• Review of market mechanisms• Some recent licence allocations of interest• Difficulties in the process• Conclusion
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Commercial spectrum allocation
• By application– First come first served (if sufficiently well dressed)
– Appropriate, provided that supply exceeds demand
• By beauty contest– Transparency of process a problem
• By market mechanisms– Auction or tender
– Transparent?
– Efficient?
APPLICATION
BEAUTY CONTESTAUCTION
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Why auction?
• “Commercial users have best understanding of commercial value”
• Efficient– Minimal bureaucracy
– Fast allocation
• Fair– Transparency
– Tends to reduce distortion
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Other Objectives...
• Bidders and “market value”– Enhancing global reach
– Protecting related investments
– Blocking additional competition
• Governments and “efficient allocation”– Promoting competition (e.g. new entrants)
– Social benefit
– Raising revenue
– Recognising industry objectives
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Spectrum prices in PCS Phase I (1998)
• 800MHz– Sydney/Melbourne/Brisbane: $0.30/MHz/pop– Adelaide/Perth/Canberra: $0.08/MHz/pop– Regional and Remote: $0.04/MHz/pop
• 1800MHz– Sydney/Melbourne: $0.12/MHz/pop– Brisbane: $0.06/MHz/pop– Adelaide/Perth/Regional: $0.03/MHz/pop
Prices in $US
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PCS Auction Phase II
• 24 January to 15 March 2000
• 30MHz in 2.5MHz lots in 5 cities
• 138 rounds– Siemens did not bid
– Primus withdrew at round 83
– Optus withdrew at round 105
– Telstra spent $78.6 million
– Vodafone spent $55.3 million
– One.Tel spent $523.1 million
– Hutchison spent $670.9 million
• Total revenue $1,327,735,500 = $US 756 million– 4 times government estimate!
Optus resale, no infrastructure. No public
plans. Data network?
Optus resale, rolling out GSM1800. Now active
No mobile. Competes with One.Tel in long distance.
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Prices in Phase II
• Sydney– $US1.78/MHz/pop (1420% increase)
• Melbourne– $US1.60/MHz/pop (1420% increase)
• Brisbane– $US0.25/MHz/pop (310% increase)
• Perth and Adelaide– $US0.11/MHz/pop (270% increase)
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Lessons from Australian PCS Auctions
• “Values” very different at different time– Depends very much on the immediate market
• Commitment can be costly!– One.Tel spectrum essential to support network
under construction
• Hutchison very aggressive– First real international indication of
Hutchison’s intent
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3G Licences
• Auctioning– Licences
• Specific or highest value• Highest amount or % of revenue
– Blocks or lots
• Beauty Contests– Technical requirements– Social requirements– Financial requirements– Licence fees
A B C D E
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European 3G auctions
• UK– Auction structure to force new entrant
– Extraordinary prices!
• Holland– Allegations of unfair play
• Germany– Problems of transparency
• Italy– Auction structured to raise revenue
– Ignored the 2G market structure in Italy!
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3G beauty contests
• Sweden– Incumbent failed to win licence
• Litigation in process...
• Korea– Technology-specific requirements
• France and Belgium– Very high licence fees based on German
prices
– Licences left unallocated!
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Hong Kong 3G Beauty Contest + Auction
• Beauty Contest pre-condition
• Royalty payment scheme
• Open Network policy
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The Globalisation Push
Deutsche Telekom
Sonera
France Telecom
Vodafone
British Telecom
Centertel
Dutchtone
Wind
Xfera Mobilcom
Telefonica
IPSE
KPN Libertel
3G Blue Andala Omnite
l
T.mobil
Mannesmann
MobilfunkPTC
Polkomtel
Team 3Gdspeed
Swisscom AG
E-plus
Connect Austria
Tele.ringOne-2-
One
Airtel
Viag Interkom
Telfort
Japan Telecom
MAX.mobil
Vivendi
Tele Danmark
Broadband
MobileEnitel
Diax
BEN
Enel
HutchisonNTT DoCoMo
TIW
AmenaMobilkom
Austria
TIM
Austria Telekom
Telecel
3G Company Relationships
Europolitan
Hi3G Access
Group 3G
OniWay
Telenor
Orange
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Bureaucratic process
• Policy– Often unclear
• Consultation process– Infrequent and not transparent
– Lobbying by self-interested parties, not LTIE!
• Issues– Packaging/bundling of spectrum and licences
(including caps etc) distorts market
– Difficult to find an independent view!
LICEN
CE
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Auction process
• “Right” model for each situation• Must run its course
– Initial stages: Posturing
– Intermediate: Declaration of intent
– End game
• Little evidence yet of resale market– Certainly not “open” resale!
• Spectrum comes with technology attached– Distorts auction process
– A means by which governments extract monopoly rent
AUCTION
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Future alternative?
• Online exchange for radio frequency spectrum rights– Macquarie Bank: Spectrum Desk
• Creation of secondary radio spectrum market– Both buyer and seller auctions take place between
anonymous participants on website
– Charge brokerage based on value of transaction
• Benefits– Reduced barriers
– Increased liquidity
– Concentrated demand
– Greater market integrity
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Conclusion
• Admin versus Market?– Both have their “war” stories
• Australian process appears functional– Right mix of “market” and “admin” process
– Technology neutrality - a managed “illusion”
• Auction process has been consistently distorted internationally– Monopoly rent-seeking focus by some governments
• 3G in Europe
– Both market and admin failure in evidence
