Evaluation of the opportunity cost of the spectrum: Application to the digital dividend

The transition to digital television transmission (DTT) creates an opportunity for revising the current allocation and use of the spectrum, and for enhancing its efficiency. The fairly large amount of spectrum that will be freed up in the analog TV switch-off is known as the digital dividend. Many EU countries have decided to partially allocate these frequencies, through market mechanisms, to mobile use, but a large fraction of the dividend is supposed to remain in the hands of broadcasters. An efficient management of the spectrum requires that the use of this resource should be supported through appropriate incentive policies. This paper presents a techno-analytical approach to evaluate the opportunity cost of using a spectrum portion within the digital dividends’ bandwidths, for example around 800-900 MHz, for both DVB-T and UMTS services, specifically addressing the extraordinary rise in the use of mobile broadband in the European context. The methodology is then applied to Italy to derive a baseline for administered prices reflecting the cost of spectrum use. Results obtained are then compared with existing evidences from other studies and Countries’ experiences.     

Economics at the FCC, 2016–2017: Auction Designs for Spectrum Repurposing and Universal Service Subsidies

The Federal Communications Commission is responsible for federal regulation in the telecommunications and electronic media sectors, and for management of the nation’s non-federal radio frequency spectrum. During the past year, Commission economists contributed to the agency’s ongoing efforts to use market-based mechanisms—such as auctions—to allocate spectrum and distribute universal service subsidies efficiently. This includes repurposing broadcast television spectrum for more efficient use by wireless service providers through the recently concluded Broadcast Incentive Auction and structuring auction mechanisms to promote efficient allocation of universal service subsidies for the increased build-out of mobile wireless and fixed broadband service in unserved and underserved areas.     

Spectrum auctions in India: lessons from experience

Spectrum auctions have been used with significant success in many developed countries. From a regulatory and policy perspective, spectrum auctions ensure the efficient use of spectrum by allocating it to those entities that value it most, while also generating revenues for governments. But auctions may lead to unexpected outcomes due to unanticipated problems with their design leading to unexpected bidder behavior such as collusion and over-bidding. The key challenge before regulatory agencies is to design auctions in such a way as to meet the objective of fostering competition while at the same time ensuring that bidders can effectively use the spectrum for their business. While India was one of the early adopters of spectrum auctions, its success in service provision has been low. This paper critically examines issues in auction design that contributed to this delay and reviews the key elements in the design process namely a coherent regulatory framework, choice of service areas, flexibility for service area consolidation, standards and their role, convergence, managing public service regulation and managing defaults. The paper compares the handling of these elements in auctions in the United States (US), United Kingdom (UK) and Australia with the objective of drawing lessons for Indian policy makers.     

Economics at the FCC, 2011–2012: Spectrum Incentive Auctions, Universal Service and Intercarrier Compensation Reform, and Mergers

The past year in economics at the Federal Communications Commission covered a broad range of topics in telecommunications policy. This paper highlights the economic issues that are addressed in the following key areas: spectrum management, universal service and intercarrier compensation reform, and merger review. In spectrum management, the FCC received congressional authority to implement an ??incentive auction?? to repurpose television broadcasting spectrum into flexible-use licenses that will be suitable for mobile wireless service providers. We discuss some important issues in designing the auction. We next address some aspects of the FCC??s comprehensive reforms of intercarrier compensation, which mainly involves call termination rates, and of universal service. Finally, we discuss the economic analysis of two major mergers: AT&T-T-Mobile, which the FCC staff recommended should be referred to an administrative hearing, and Level 3/Global Crossing, which was cleared with no conditions.     

Can the US transition to digital TV be fixed? Some lessons from two European Union cases

This paper compares the regulatory incentives created by government policies aimed at promoting the transition to digital TV in the US, France, and the UK. It argues that US policies have aggravated coordination problems and even created incentives for terrestrial broadcasters to retard the transition in order to receive compensations from wireless telecommunications providers for vacating frequencies before the statutory deadline. The institutional analysis framework is applied to explain the observed policy variations across countries as well as the factors retarding the transition in the American case. The conclusion suggests possible remedies to accelerate the transition to digital TV in the US based on the British experience.     

Hiccups in US spectrum auctions

While an increasing number of countries have embraced auctions to assign radio frequency, many other countries have decided to retain selection by the administration. Of the many factors that might have influenced those countries that have rejected auctions, one of the most visible in Europe has been frequent media reports of the problems experienced with auctions in the US between 1995 and 1997. In my experience, these reports have been accepted at face value by many European industry commentators and policy officials. It seems clear that the repeated reporting of these problems has influenced the evolution of spectrum management policy in Europe. This paper tries to set the record straight by providing an analysis of the problems that were reported in Europe regarding US spectrum auctions, specifically the declarations of bankruptcy by several winning bidders and overbidding by participants, the enormous revenue shortfall on the WCS block auction, and reports of collusion among bidders.     

EC competition law and the convergence of the telecommunications and broadcasting sectors

This article surveys how convergence is dealt with in the main areas of EC competition law. First, under Article 90 EC Treaty, the Commission has not yet reached a solution to the problems of TOs holding exclusive rights over cable TV networks or providing broadcasting services over their telecommunications networks. Secondly, while the Commission has largely upheld certain policy lines in individual decisions, it has reached markedly different outcomes in the broadcasting and telecommunications sectors. The Commission has not been able successfully to integrate non-economic factors in its competition law analysis. Third, State aid problems are likely to arise in relation with production subsidies and compulsory broadcasting fees. In the end, competition law must still evolve to deal with convergence, but in doing so it is likely to pre-empt regulatory options.     

Korean telecom policy in global competition: implications for developing countries

United States efforts to open the Korean telecommunications market have been incessant and tenacious, to the extent that Korea is the only country to be twice designated by the US as a priority foreign country (PFC). Through major restructuring driven by the Korean government, the telecommunications infrastructure of Korea has been strengthened and expanded, and in the process has posed a threat to the US telecommunications industry. Thus, since the late 1980s, the Korean telecommunications industry has been monitored and threatened with trade sanctions by the United States Trade Representative, and all internal restructuring has been closely related to bilateral negotiations with the US, and multilateral negotiations in the Uruguay Round. Based on interviews with key Korean telecommunications personnel and analyses of public documents, this research examines the Korean telecommunications market, telecommunications policies relative to the US and WTO, and the recent economic crisis that has affected the stability of the industry. The paper also offers five major recommendations to government and industry policymakers, including a more active and positive stance toward liberalisation, the relinquishing by bureaucrats of their monopolistic power over policymaking, the securing of an open and transparent policymaking process, and, in relations with the US, and the mobilisation of regional and multilateral organisations to ensure fair competition in telecommunications.     

The Market Structure of Broadband Telecommunications

The recent growth of the Internet is creating markets for broadband telecommunications networks. In the past, virtually all such 'infrastructure' networks have been subject to government regulation. Two reasons advanced for this market intervention are (i) such networks constitute a natural monopoly, and (ii) to achieve 'universal service', in which all citizens have access to services. In this paper, we develop a model and estimate it using engineering data which tests if these two hypotheses are likely to obtain for broadband networks. We find that oligopolistic competition is likely to emerge for demand levels approaching that of today's cable television.     

Leveraging the EU regulatory framework to improve a layered policy model for US telecommunications markets

What is the best way to overhaul the current telecommunications legislative framework in the United States? This is an ongoing debate among telecom policy analysts and many others affected by the legacy of regulatory compromises that govern US telecommunications (and related information and media) industry sectors. This paper compares a Layered Model for US telecommunications policy with the regulatory framework adopted by the European Union. Both approaches focus on service characteristics rather than underlying technological traits.¹ It becomes clear that the Layered Model could be adopted to move away from sector-specific regulation, and could successfully use conventional market analysis criteria.     

Telecommunication in the US: From Regulation to Competition (Almost)

Alfred E. Kahn was an observer and practitioner of telecommunications regulation as technology changed the industry from a natural monopoly to a platform-based oligopoly among telephone, cable, satellite, and wireless carriers. Regulation and legislation were slow to recognize these changes, and large welfare losses occurred, some of which could have been avoided if regulators, legislators and economists had followed Fred’s economic advice: Prices must be informed by costs; the relevant costs are actual incremental costs; costs and prices are an outcome of a Schumpeterian competitive process, not the starting point; excluding firms from markets is fundamentally anticompetitive; a reliance on imperfect markets subject to antitrust law is preferable to necessarily imperfect regulation; and a regulatory transition to deregulation entails propensities to micromanage the process to generate preferred outcomes, visible competitors, and expedient price reductions.     

Digital divide or digital opportunity in the Mississippi Delta region of the US

This study analyzes the interdependence of telecommunications manufacturing, services, and user industries in the Mississippi Delta region of the US to understand the social and economic prospects of poorer rural areas of the US as advanced technologies rapidly proliferate. An underlying assumption is that telecommunications industries should not be viewed only by the employment they directly support; they should also be analyzed in terms of their linkages to other industries and how those linkages influence the competitiveness and growth prospects of businesses and public institutions in the region by building a capable community of technology users. The absence of leading telecom manufacturing and service firms in rural Delta counties together with low levels of connectivity suggest that digital divide problems are very real for the region. The central economic development challenge should be to ensure that rural businesses, government, health care, education, and non-profit institutions gain access to an advanced telecommunications infrastructure and that they develop the capacity to leverage this access to enhance their performance and expand their reach.     

Direct broadcasting by satellite in the USA: Interim regulations and implications

Technological advances in satellite communications and changes in regulatory philosophy in the USA came together at the end of the 1970s to foster a new medium — direct broadcasting by satellite (DBS). DBS, similar to other new television distribution systems, holds the promise not only of serving the people who cannot be reached by conventional television systems, but also of offering diverse programming to existing television audiences. However, the potential problems raised by the FCC's interim DBS regulations might jeopardize the economic viability and the development of future DBS systems in the USA, and might affect the interests of DBS audiences.     

Spectrum auction design: Simple auctions for complex sales

Following the successful PCS Auction conducted by the US Federal Communications Commission in 1994, auctions have replaced traditional ways of allocating valuable radio spectrum. Spectrum auctions have raised hundreds of billion dollars worldwide and have become a role model for market-based approaches in the public and private sectors. The PCS spectrum was sold via a simultaneous multi-round auction, which forces bidders to compete for licenses individually even though they typically value certain combinations. This exposes bidders to risk when they bid aggressively for a desired combination but end up winning an inferior subset. Foreseeing this possibility, bidders may act cautiously with adverse effects for revenue and efficiency. Combinatorial auctions allow for bids on combinations of licenses and thus hold the promise of improved performance. Recently, a number of countries worldwide have switched to the combinatorial clock auction to sell spectrum. This two-stage auction uses a core-selecting payment rule. The number of possible packages a bidder can submit grows exponentially with the number of licenses, which adds complexity to the auction. For larger auctions with dozens of licenses bidders cannot be expected to reveal all their valuations during such an auction. We analyze the impact of two main design choices on efficiency and revenue: simple “compact” bid languages versus complex “fully expressive” bid languages and simple “pay-as-bid” payment rules versus complex “core-selecting” payment rules. We consider these design choices both for ascending and sealed-bid formats. We find that simplicity of the bid language has a substantial positive impact on the auction?s efficiency and simplicity of the payment rule has as a substantial positive impact on the auction?s revenue. The currently popular combinatorial clock auction, which uses a complex bid language and payment rule, achieves the lowest efficiency and revenue among all treatment combinations.     

Cable TV in Austria. Between telecommunications and broadcasting

In this paper the development of the Austrian cable television (CATV) sector is discussed, focusing on its delicate interconnections with telecommunications and broadcasting, the blurring borderlines and resulting regulatory problems. The policy network is identified and recent changes in the CATV policy and strategy are highlighted, In particular, developments towards a stronger convergence within the electronic communications sector. The case study illustrates peculiarities and shortcomings of Austrian media and communications policies on the way toward a future-oriented information infrastructure.     

Impacts of the 1996 Telecommunications Act on the US model of telecommunications policy

The 1996 Telecommunications Act provides mechanisms for all parties to pursue their interests. For instance, the Act incorporates two different and complementary approaches: (a) it authorizes all operators to operate in businesses from which they were previously excluded. (b) it incorporates some legal procedures and regulatory constraints, that provide parties with tools to defend their territories, excluding other operators. A striking example is the ‘competitive checklist’ for RBOCs to enter the interLATA long distance market.The undesired result of this approach is both the creation of enormous business opportunities for lawyers and a stalemate, because all parties have been quite successful in adopting defensive strategies to block others’ initiatives. This has happened to the detriment of offensive moves that, as everyone hoped, would have increased competition in all markets and, as a consequence, the availability of innovative high quality services for the public at low prices.Analysis of the US regulatory model in the telecommunications sector, and in particular the specific studies carried out in three States, have led to a series of conclusions that can provide guidelines on the type of issues and some possible solutions with regard to telecommunications liberalization, relationships between different levels of regulation (e.g. federal/State), operator’ strategic moves in response to regulation. The analysis of the US model, even though it is very much related to country-specific conditions, allows us to isolate some issues that other countries, and among them Italy, will be likely to face in the short term.     

US telecommunications regulation: Will technology decide?

Twenty years ago, the telecommunications industry was an established regulated monopoly. But improvements in technology and reductions in costs have ripped apart the premises of natural monopoly and the economic rationale for public utility regulation. The authors review past US telecommunications policy and question the assumptions of the current search for a policy for the future. They believe that, for the industry to develop, institutions and restraints need to be removed.     

Spectrum auctions: Distortionary input tax or efficient revenue instrument?

Spectrum license auctions are widely recognized by economists as more efficient than lotteries or administrative approaches to allocate exclusive rights to spectrum. But whether spectrum auctions are the most efficient spectrum policy still generates debate, in part because the answer may vary depending on exactly what is being optimized, what else is assumed or held constant, and the policies to which one is comparing spectrum auctions. This paper examines the complex confluence of US spectrum policy and fiscal policy. It concludes that economically efficient spectrum policy requires several distinct optimizations, including devolvement of an efficient set spectrum rights and the optimal approach to raising and recycling government revenue in that devolvement process. It also requires allocation policies that take into account possible distortions of the secondary market for spectrum via the capital gains tax. The paper argues that there is no compelling theoretical case or empirical evidence that spectrum auctions are distortionary, and examines cases in which the most efficient policy is to auction spectrum and “recycle” the revenue to offset more distortionary revenue instruments. This paper also examines cases in which it is most efficient to allocate spectrum rights without raising revenue, for example when transactions costs are high or distributional concerns can prevent or delay efficiency-enhancing reforms.     

Impact of spectrum management policy on the penetration of 3G technology

Diffusion of 3G cellular technology varies widely across countries and regions. Past studies have shown that lower levels of diffusion of previous technologies and higher levels of income are significant factors in accelerating the take up of 1st and 2nd generation of mobile telephony. In addition, spectrum management policy plays a significant role in shaping 3G diffusion. Regulatory policies regarding spectrum management include mandating band and technology and decisions to hold spectrum auctions. An econometric analysis over a multi-country panel dataset shows that these spectrum management policies do have significant influence on the take-up of 3G. Findings suggest that the presence of multiple technologies for the previous generation is associated with rollout delay. The estimations indicate that countries that mandated a specific frequency band for 3G saw faster roll out, but in the long run those countries experienced a slower growth rate. Also estimations find that 3G diffusion is not significantly affected by the choice of auctions vs. alternative license award processes. Insights gained from this study of the 2G to 3G transition can provide guidance to regulators now contemplating the transition to newer generations.     

Spectrum Auction Design

Spectrum auctions are used by governments to assign and price licenses for wireless communications. The standard approach is the simultaneous ascending auction, in which many related lots are auctioned simultaneously in a sequence of rounds. I analyze the strengths and weaknesses of the approach with examples from US spectrum auctions. I then present a variation-the combinatorial clock auction-which has been adopted by the UK and many other countries, which addresses many of the problems of the simultaneous ascending auction while building on its strengths. The combinatorial clock auction is a simple dynamic auction in which bidders bid on packages of lots. Most importantly, the auction allows alternative technologies that require the spectrum to be organized in different ways to compete in a technology-neutral auction. In addition, the pricing rule and information policy are carefully tailored to mitigate gaming behavior. An activity rule based on revealed preference promotes price and assignment discovery throughout the clock stage of the auction. Truthful bidding is encouraged, which simplifies bidding and improves efficiency. Experimental tests and early auctions confirm the advantages of the approach.