Stratospheric spectrum auctions are so last decade - Mobile World Live

Stratospheric spectrum auctions are so last decade

24 MAR 2011

Regulators these days push the wider economic benefits from selling off spectrum. Even with Europe’s debt levels, no-one dares argue in favour of massive auction returns. Generating high returns from spectrum auctions has fallen out of fashion. Regulators now point to the boost the wider economy can receive from the release of new spectrum rather than the sums directly generated by an auction. Take FCC chairman Julius Genachowski as an example. Speaking at CTIA 2011 Wireless, he emphasised how new radio frequencies will be widely used for mobile broadband services rather than the billions of dollars generated in any sale. He reckoned the consumer benefits are ten times higher than the sums generated in the actual auction.

And no one in the UK would disagree. Regulator Ofcom has just announced draft rules for an auction of 4G spectrum scheduled for the first half of 2012. Its document offers safeguards to ensure all four of the country’s mobile operators (O2, Vodafone, Orange/T-Mobile and 3) receive sufficient spectrum to stay in business after the auction is completed. The aim in particular is to ensure the preservation of 3, the smallest operator, as a competitive entity. Ofcom sees a bigger picture than the size of financial returns from the auction. It wants to ensure a competitive landscape post-auction.

Few people these days would argue the benefits of high auction returns should outweigh other considerations. Maybe the finance ministers of cash-strapped Eurozone governments might have a try. But wish as they might, outsized returns are unlikely from forthcoming 4G auctions in these countries.

The managed approach in the UK makes sense given the amount that will likely be raised from the auction. Benchmarking the UK against Germany’s mobile spectrum auction last year, investment bank Barclays Capital has estimated a return from the UK auction of £2.2 billion, according to the Financial Times. Another bank put the figure around £2 billion. Either way, it’s roughly one tenth of the £22.5 billion famously raised by the UK government from its 3G auction in 2000. This sounds about right from the bankers, or even a little too hopeful, given Germany’s 3G auction in 2000 pulled in EUR50 billion, and its auction last year managed just EUR4.4 billion. No Eurozone country will clear their debts with those kind of returns. 

Actually, there is a more interesting contrast between now and 2000 within Ofcom’s proposed new rules. The regulator is proposing “spectrum floors” which should ensure each operator in the UK would end up with a decent amount of sub-1GHz spectrum. Ofcom’s consultation document even lays out what it considers is the optimum spread of spectrum ownership to ensure competition. Managing the auction in this way should help 3, the weakest competitor. Contrast with the year 2000: there was no proposal from the regulator on ideal outcomes back then. It was an open field for bidders. One consequence was the extraordinary sums paid. The 3G licence which is now held by 3 cost £4.4 billion in 2000, a fee that has been a weight around its neck ever since. There is no danger of any operator in Europe’s forthcoming round of 4G auctions loading up with a similar level of debt this time. And no regulator that will encourage them to do so either.

 Richard Handford

The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members

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