The Real Cost of Spectrum Auctions

David Murphy

John Strand, CEO of Strand Consult, argues that the process by which mobile telecoms frequencies are auctioned off is bad for society

John Strand Strand Consult Back in the year 2000, many politicians saw great possibilities in auctioning off 3G licenses and a number of the world's largest mobile operators spent fortunes on licenses in the hope that this new technology would make customers ARPU explode. Experience now shows that 3G has not helped increase revenue - in fact ARPU has decreased in many countries.
During the coming years, society needs to decide how to handle the spectrum it administrates. We are talking about the renewal of 900 MHz licenses in a number of countries, we are talking about the digital dividend - that is the spectrum that lies between 790-862 MHz in Europe and between 690-806 MHz in Asia and we are talking about the spectrum around 2600 MHz that many operators will use for LTE.
There should be no doubt that spectrum is a resource that belongs to society and, in the same way as society's many other resources (oil, gas, water, gold, silver, diamonds etc) that it should contribute to society's economy. The question is simply: how can society can best utilise these resources? Will it be through selling licences, or by the licenses being used to create an infrastructure that helps society develop, or will it be by combining these two models using a stick and carrot model?

Enormous revenues
If you examine the consequences of the 3G auctions, they did give many countries enormous revenues in the short term. On the other hand, it should also be noted that, notwithstanding the recess in the mobile industry between 2000 and 2003, the high licence fees also resulted in 3G having a slower roll-out in a number of the countries that had paid most for their 3G licenses.
At Strand Consult, we believe that the actual value of selling a mobile licence in the future is minimal, compared to the value of a society having a national mobile broadband network, which will enable an increasing number of citizens to connect online, at high speeds and regardless of the customers physical location - at home or on the road, in the city or in the country.
We believe that the path forward is an open auction model, where the licenses are sold to operators under certain terms and conditions. We believe that operators should be encouraged to work together on building network infrastructure, especially in thinly populated areas, and we believe that operators who deliver better coverage than required by the licence terms should be rewarded for doing so. This can be achieved by using taxation models, or by giving a share of the auction money back to the operators, if they do things that benefit society.

Work together
When Brazil looked at auctioning off 3G spectrum, it took the decision to force operators to work together on building network infrastructure in the more remote areas, and at the same time, to give  part of the auction money back to those operators that achieved a better coverage than was required by the terms of the licence. Basically, the long-term interests for society, were considered to be more important than short-term financial interests.
In all its simplicity, the political system ought to enter into a close dialogue with operators and view the mobile industry as one that can help develop modern society. Countries that can offer their citizens and companies access to the best telecommunication infrastructure will be the ones best prepared for the future. The telecom industry is - and will continue to be - the industry that connects modern society together, and its products are the foundation which enables countries to become more efficient by using new IT systems and modern telecommunications.
In our latest report, we examine the mobile broadband market, what it looks like and how it is developing. We believe that the possibilities available with mobile broadband today - and in the future - are so immensely important to society, that a simple auction can be very bad business for modern society.