Mechanisms to incentivise shared-use of spectrum

A key concern with the Licensed-shared access (LSA) approach currently being developed by European regulators is that leaving incumbents and secondary users to agree to bilateral arrangements may be insufficient to incentivise an optimal level of sharing.We propose an efficient auction mechanism to incentivise incumbent users to offer shared access to the spectrum they use. The mechanism consists of two stages. In the first stage, LSA licences are auctioned. In the second stage, the incumbent is provided with a choice of either granting access under an LSA agreement to the winner of the auction or not. If the incumbent accepts, its existing licence fee is reduced, whereas, if it rejects, its existing licence fee is increased. The change in the licence fee is such that a rational incumbent always opts to share when it is efficient to do so, i.e. when the cost of sharing is below the value to the secondary user.We also explore how this simple mechanism can be extended to situations in which there is more than one incumbent in a band. Our proposed approach involves package (combinatorial) bidding and linear reference prices.     

Alternative radio licensing arrangements: A case study of the multipoint distribution service

Currently, the FCC assigns radio licences after making a determination of the public interest. Conflicting licence applications are resolved through comparative hearings. This mechanism is cumbersome and unreliable. This article analyses three alternatives: Increasing the available spectrum; an auction; or, lottery of radio licences. The analysis deals specifically with the Multipoint Distribution Service (MDS). The analysis suggests that increasing the spectrum allocation will create more assignments than will be demanded by MDS. Rough calculations suggest that auctions offer a more efficient selection mechanism. Lotteries with resale of the license are better than hearings, but not as good as auctions.     

Spectrum limits and competition in mobile markets: the role of licence fees

The paper discusses the impact of scarcity of frequency spectrum on the performance of the mobile telecommunications industry. An oligopoly model with endogenous sunk costs illustrates the trade off between ex ante extraction of oligopoly rents and market entry of firms. The determination of the licence fee through an auction provides scope for setting market structure endogenously: the higher the licence fee, the lower the number of firms sustained by the market. High licence fees may be a signal for post-entry collusion. Differences across national regulatory frameworks with respect to the conditions for allocation of spectrum licenses may induce problems of fair competition in an integrated market.     

Dynamic usage of narrowband spectrum

We examine the potential for expansion of the white space spectrum sharing model in the 400 MHz band. As opposed to UHF broadcast spectrum, which contains unassigned or idle segments known as white spaces, the 400 MHz band is characterised by intensive licence usage. However, productive spectrum usage does not guarantee allocative efficiency, which would require knowledge of the highest value service for each licence. 400 MHz frequencies are not priced on opportunity cost. It is therefore difficult to ascertain the economically efficient mix of services to deploy in the 400 MHz band. Drawing parallels with the high-economic value revealed and generated through the operations of unlicensed white space devices in UHF broadcast spectrum, we identify untapped 400 MHz spectrum capacity, which we refer to as narrowband spaces. Encouraging dynamic spectrum usage of narrowband spaces could, similarly to TV white space usage help realise the efficient allocation of the 400 MHz band. However, the narrowband nature of the 400 MHz licences and high licensing turnover imply a significantly different concept of dynamic spectrum access than that considered for TV Bands. The paper discusses regulatory implications and the type of services suited to exploit narrowband spaces.     

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.     

Analysis of spectrum auctions in India—An application of the opportunity cost approach to explain large variations in spectrum prices

The remarkable growth of mobile communication has reinforced the significance of the radio spectrum for mobile network operators. The availability of spectrum varies considerably between different countries due to national regulatory decisions. The focus in this paper is on India where operators have access to a limited amount of spectrum. This paper analyses the value of spectrum by estimating the opportunity cost, which is calculated by the savings that can be achieved by acquiring appropriate amount of spectrum rather than investing in additional base stations. The applied approach combines network deployment, user demand levels, cost, and capacity issues, which are integrated in the application in the opportunity cost approach for spectrum. The opportunity cost of spectrum is compared with prices paid at spectrum auctions. The analysis includes a discussion of drivers that determine the willingness to pay for spectrum. The results show that the opportunity cost of spectrum in relation to auction prices is lower than prices operators paid for 3G spectrum in the metro circles (service areas) while the value derived from the opportunity cost is higher than auction prices in the remaining circles.     

The 5G spectrum auction in Chile

In 2021, the Chilean government implemented a first-price package auction to allocate electromagnetic spectrum for 5G mobile services. The auction was run sequentially for different spectrum bands, allowing firms to exploit band complementarities. It was a combinatorial auction, so firms could bid for any combination of blocks within a band. It contemplated spectrum caps – upper limits on the spectrum for each firm – to ensure competitiveness. The beauty contests used in previous processes became obsolete, as there was a need to promote competitiveness and transparency in the telecommunication sector. Four incumbents and one potential entrant participated in the auction. The auction raised more than USD $450 million, which was six times more than the sum of the revenues of all previous contests in the country. We discuss this experience and show how different aspects of the context justified our design choices.     

Polish experience from first-ever spectrum auction

The Polish 4G spectrum auction was a watershed event for the Polish telecommunications market. For the first time in history, the Office of Electronic Communications decided to award spectrum by using an auction process. Polish regulators implemented a simultaneous multiple-round ascending-bid auction, which was widely used worldwide for selling spectrum. The process leading to the auction and the auction itself was lengthy and eventful. Due to the wrong auction design, the auction dragged on indefinitely, causing a delay in spectrum distribution. The auction ended only as a result of the government's intervention, after 8 months (513 rounds) of bidding that raised revenue of over PLN 9 billion (over EUR 2 billion). This paper describes in detail the rules of the Polish 4G auction, analyses bidding behaviour and auction dynamics of the crucial phases of auctions, and presents the final outcomes. It also draws lessons that could help policy makers in Poland and other countries in auction design.     

An optimal way to licence the radio spectrum

Radio spectrum licences are generally specified in terms of the power a holder is allowed to transmit. However, if licences become flexible, allowing change of use and technology, then this licensing approach could result in significant interference between users. A new approach is proposed termed “spectrum usage rights” (SURs) which restricts the interference a licence holder is allowed to cause rather than the power they are allowed to transmit. This approach is shown to protect users against interference while providing the maximum flexibility possible and its implementation is discussed.     

On-line spectrum auctions in TV white spaces for supporting mobile services—A practical manual

This paper considers an approach for dynamic short-term spectrum leasing in TV white spaces (TVWS) using an on-line auction. The secondary spectrum market discussed here is organized by a central entity called the spectrum broker. The auctioned spectrum appears in blocks of available DVB-T channels with some transmit power constraints set-up to protect the primary users (DVB-T receivers). The bidders are institutional spectrum operators (telecommunication companies or service providers), operating in a given area. These players are characterized by heterogeneous demands concerning the spectrum bandwidth, the operation period with temporarily-exclusive rights for using the spectrum and the transmit power needed for successful transmission. Thus, the auctioned objects are non-identical and present different value for different players. Two auction models are proposed. The first one is the simultaneous auction in time domain and combinatorial in frequency and power dimension. The second proposed auction is fully combinatorial. Simulations results are also provided showing effectiveness of the analyzed auctions (high spectrum utilization ratio) and relation between the players’ satisfaction, their spectrum valuation and varying competition. Finally the guidelines concerning the spectrum auctions in TVWS for the policy makers are proposed.     

The value of 1800 MHz and 2100 MHz spectrums in India and implications for auction design

The sequence of events leading up to the upcoming auction of 1800 MHz spectrum in India has led to the auctions acquiring an extraordinary significance for the future of the Indian mobile industry. A key feature of the auction design proposed by the regulator TRAI is the benchmarking of the reserve price of 1800 MHz to the price of 2100 – 3G spectrum revealed in the 2010 auction. In the context of the low number of LTE devices available and the fragmentation in the 1800 MHz band, this paper proposes reducing the duration of spectrum holding to ten years (from the current level of twenty years), and calibrating the reserve price of 1800 MHz with its value with GSM deployment. An economic model is used to compute the value of startup and incremental 1800 MHz spectrum. The estimated values are shown to differ from the value of 2100 MHz spectrum at a pan-India level and also in their distribution across circles. A new set of reserve prices are computed based on the estimation. The estimated values are also shown to be close to the AGR-adjusted price revealed in the 2001 auction. A reserve price based on the 2001 auction is also provided. Concomitant features of the auction are suggested to give coherence to the auction design.     

Bids for the UMTS system: An empirical evaluation of the Italian case

The aim of this paper is to analyze the licensing of the telecommunication spectrum as a public good and the search for equilibrium prices through bilateral bargaining and multilateral bidding. It develops a general model of price setting under dynamic uncertainty and applies it to the Italian auction for Universal Mobile Telecommunications System (UMTS). The empirical application shows that the model can be used both to determine the base price as well as other desirable characteristics to organize an auction and to better understand, after the auction is closed, what really happened in terms of the critical factors involved. After recalling some basic concepts on spectrum rights and reviewing the general experience with UMTS auctions in Europe, the formal model and its application are presented. The results confirm certain views on the Italian auction, which are widely shared but were never tested before, namely that: (i) given the initial price, the number of licenses offered for the bidding should have been fewer, or alternatively, (ii) given the number of licenses, the base price should have been higher and (iii) the main bidder underpaid for the license. The model also allows us to quantify the bidders’ reservation price and the State and the bidders’ implicit bargaining powers.     

Low price equilibrium in multi-unit auctions: the GSM spectrum auction in Germany

The second–generation (GSM) spectrum auction in Germany is probably the most clear cut example of a low price outcome in a simultaneous ascending-bid multi-unit auction. The present paper gives an account of the events, describes the auction rules and market conditions, and provides a game theoretic explanation of low price equilibrium in simultaneous, ascending-bid multi-unit auctions. In particular, it is shown that in the unique equilibrium that survives iterated elimination of dominated strategies, the efficient allocation is reached at minimum bids.     

Effective competition and ineffective mobile industry regulation in South Africa

The most striking feature of South Africa’s mobile market is the skewed allocation of spectrum and a seemingly endless sequence of failed attempts to hold an auction for it. A shortage of spectrum (or the inefficient assignment of it) is blamed, among other things, for South Africa’s relatively slow LTE 4G speeds. Through historical accident, the country has two mobile data networks in addition to the four licensed mobile operators. The response of operators has been to innovate using roaming and network sharing agreements; as we explore in this paper, these have become the de facto spectrum allocation process.This paper looks at how the de facto industry structure has been moulded by spectrum holdings and sharing arrangements and asks how spectrum management could be improved. We observe that, although the number of mobile operators has effectively been reduced to 3 (a number which would raise concern in some circles), there exist a variety of arrangements between those three and other spectrum and network operators. The smallest of the current three mobile operators is still not able to offer a nationwide mobile service without a roaming agreement but, at the same time, the two larger operators depend critically on spectrum and roaming agreements themselves, mainly with the two physical data network operators that function as wholesale providers.The Independent Communications Authority of South Africa (ICASA) was established as a consequence of a new constitution that was adopted in 1996 and it helped to create new institutional arrangements for the burgeoning mobile industry. The authority has nevertheless continued to be hampered, as we shall demonstrate, by political imperatives. This has been pointed out by other authors over the past twenty years and we add to this body of evidence by considering the spectrum auction planned (again) for 2021.The “2021” auction is in fact an iteration of the auction originally announced in May 2010 and then abandoned (Song, 2011). The same thing happened again in 2016 (Paelo & Robb, 2020). Late in 2020, the regulator again announced an auction, due to take place during 2021 but by the second quarter of the year, two of the four national operators had already obtained a court injunction to stop it. The process is intertwined with a political imperative to establish a public wireless open-access network, which we discuss in detail.We describe how the industry has navigated around policy and regulatory dysfunction and how competitive interaction among the South African operators has managed to prevail. Following Hausman & Taylor’s (2013) lead in their work on the United States, in this paper we provide a commentary on apparently perverse outcomes from significant regulatory, judicial and legislative actions (or, perhaps more accurately, inactions) governing the South African mobile telecommunications industry from the commencement of the current constitutional arrangements in 1996 to the present.     

Opportunity cost of spectrum for mobile communications: Evaluation of spectrum prices in Bangladesh

The purpose of this study is to focus attention on the choice of the reserve price made by the telecom regulator to explain the under-performance of spectrum auctions in Bangladesh. The overestimation of the reserve prices for several auctions in Bangladesh including the auction of the 3G – 2100 MHz band in 2013, the 2G - 1800 MHz band in 2015, and the 4G – 1800 and 2100 MHz bands in 2018 is established by comparing the reserve prices to the economic value of spectrum, determined by using the engineering valuation and production function approaches. Possible reasons for the inflation of the reserve price are discussed.     

Royalties vs. upfront lump-sum fees in data communication environments

Mobile communications markets worldwide, today, are saturated, the number of mobile network operators (MNOs) in market is declining, mobile revenues are stagnant or falling, MNOs are becoming wireless Internet service providers, and economies of scope are strengthening. This paper challenges existing dominant views on spectrum assignment and license fee payments, estimates spectrum fees that MNOs would have paid under royalties and then compares them with upfront lump-sum fees actually paid by 3G licensees. This paper further proposes that governments need to consider assigning additional spectrum to incumbents as needs arise without using auctions and adopting royalties as a way of collecting spectrum fees should they collect them.     

Synergistic valuations and efficiency in spectrum auctions

In spectrum auctions, bidders typically have synergistic values for combinations of licenses. This has been the key argument for the use of combinatorial auctions in the recent years. Considering synergistic valuations turns the allocation problem into a computationally hard optimization problem that generally cannot be approximated to a constant factor in polynomial time. Ascending auction designs such as the Simultaneous Multiple Round Auction (SMRA) and the single-stage or two-stage Combinatorial Clock Auction (CCA) can be seen as simple heuristic algorithms to solve this problem. Such heuristics do not necessarily compute the optimal solution, even if bidders are truthful. We study the average efficiency loss that can be attributed to the simplicity of the auction algorithm with different levels of synergies. Our simulations are based on realistic instances of bidder valuations we inferred from bid data from the 2014 Canadian 700 MHz auction. The goal of the paper is not to reproduce the results of the Canadian auction but rather to perform “out-of-sample” counterfactuals comparing SMRA and CCA under different synergy conditions when bidders maximize payoff in each round. With “linear” synergies, a bidder's marginal value for a license grows linearly with the total number of licenses won, while with the “extreme national” synergies, this marginal value is independent of the number of licenses won unless the bidder wins all licenses in a national package. We find that with the extreme national synergy model, the CCA is indeed more efficient than SMRA. However, for the more realistic case of linear synergies, SMRA outperforms various versions of CCA that have been implemented in the field including the one used in the Canadian 700 MHz auction. Overall, the efficiency loss of all ascending auction algorithms is small even with high synergies, which is remarkable given the simplicity of the algorithms.     

Spectrum auctions in a thin market: The Korean case

In 2010, the Korean government adopted spectrum auctions and introduced a market mechanism into spectrum management. However, the government has often been confronted with conflicts between diverse policy goals of spectrum auctions. A thin spectrum market, where only three incumbent MNOs bid for spectrum, has led to concerns that the government may fail to maximize revenues.Based on the past experiences in Korea, this paper examines the Korean government's choice of auction rules in the face of conflicting policy goals. This paper also recommends that the government implement the following regulatory reforms and consider the auction related measures to deepen its spectrum market or increase the number of bidders: (i) relaxation of foreign ownership restrictions, (ii) introduction of regional or site-specific spectrum licenses, and (iii) modification of auction formats. Spectrum markets tend to be thin in many countries, and the Korean experience may offer implications for those countries when they implement spectrum auctions.     

Auction Platform Design and the Linkage Principle

This paper examines an auction platform in which the monopoly platform maximizes profits by adjusting participation fees and choosing an auction format. The seller has private information on the quality of the good, and each participating buyer receives a private signal about his valuation of the good. The choice of auction format determines the allocation of trading surplus between the seller and buyers. This paper shows that when the seller's type is affiliated with the buyers' signals, the platform can charge higher participation fees on both sides by choosing a first‐price or descending auction than a second‐price or ascending auction.     

Sovereignty and universal service: sacred cows in the satellite industry

Globalisation strikes at the cornerstone of telecom policy — i.e., the sovereign right of every country to license the provision and use of telecoms within its borders. Sovereignty has historically been protected by means of a licence, the fees, conditions and procedures for which vary significantly around the world. In the satellite industry, those countries with the lowest teledensities tend to have the highest licence fees. Although there is a trend towards lower licence fees for subscribers, some regulators are just shifting the burden to service providers or the satellite operators. The European Commission and the European Conference of Post and Telecom Administrations (CEPT) have taken steps towards greater harmonisation of licensing conditions, one of which is universal service obligations (USOs). More than half of all countries have USOs which originated in the days of monopoly. With growing competition globally, assumptions about USOs need to be challenged. Regulators should refocus their energies from imposing tough conditions on the satellite industry to removing regulatory roadblocks.