Is allowing trading enough? Making secondary markets in spectrum work

The debate on spectrum reforms has mostly focused on the choice between a property rights and a commons regime. This article argues that moving to a property right system requires careful attention to details in order to avoid that “micro” rather than “macro” factors may prevent efficient trades from taking place. It provides a framework to conduct this assessment, identifies a number of possible concerns and puts forward some solutions.     

The technical basis for spectrum rights: Policies to enhance market efficiency

This paper describes a conceptual framework to articulate clear rights of access to radio spectrum in a way that would foster an efficient market-based allocation of the resource. In this approach, regulators partition spectrum rights across the dimensions of space, time, frequency, and direction of propagation. They devolve each partition, called a licensed electrospace region (LER), to licensees who may buy, sell, aggregate, and subdivide their LERs at will. All signals outside an LER must have a power level of less than a regulated limit with de minimis exceptions. In addition, even within an LER, transmitter power or field strength must fall below a separate regulator-set level for the band. Licensees may deploy any devices and provide any services that do not violate these rules.     

Analysing the C-Band spectrum auctions for 5G in Europe: Achieving efficiency and fair decisions in radio spectrum management

This paper offers a detailed analysis of selected regulatory parameters used as instruments to promote efficiency with fairness for all stakeholders (in the legal sense of equity) in 5G spectrum auctions. Data were collected from sixteen auctions for the C-band that took place in the Member States of the European Union (EU) and in the United Kingdom (UK) between 2017 and 2020 for the introduction of the fifth generation (5G) of mobile communication technology. The selected instruments of intervention are: spectrum packaging, spectrum caps, set-asides, geographical scope of the license, license duration, various forms of license obligations, reserve prices and auction format.Significant differences were observed in national approaches to spectrum packaging, license obligations and reserve prices for efficiency purposes. Our analysis also shows that European national regulators are paying increasing attention to concerns over fairness of decisions on spectrum, or equity, especially by creating opportunities for local private networks to access the spectrum and by imposing requirements on network operators to guarantee more uniform population coverage of newly created 5G networks.     

Assessing horizontal mergers under uncertain efficiency gains

The analysis of horizontal mergers hinges on a tradeoff between unilateral effects and efficiency gains. We examine the role of uncertainty in this tradeoff. In theory, the attitude towards uncertainty depends on the curvature of the social objective function. On the one hand, adjustment effects, both on the consumers' and firms' sides, tend to make consumers' surplus and firms' profits convex. On the other hand, pass-through effects may act in the opposite direction. We show that convexity prevails in a number of situations, including the most general linear demand model. Implications for empirical merger analysis are exposed.     

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.     

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.     

Entry mode choice in China's regional distribution markets: Institution vs. transaction costs perspectives

In this paper, we investigate the entry mode choice of a leading Taiwanese food company in setting up regional distributors in China's 312 sales districts. Our study shows that, in entry mode decisions, the institutional factors are more important than transaction cost considerations. Both formal and informal institutions are considered. Formal institutions refer to government prescribed institutions (laws and regulations), while informal institutions refer to rules prescribed by the industry and the society. Both institutions are shown to affect the entry mode choices but one important type of institution, professional norms, is conspicuously missing in China. Professional norms exert peer pressures on the practitioners in the same profession, forcing their behaviors to conform to a common pattern. In the absence of professional norms, the roles of network ties and mimetic behaviors are heightened and they become a proxy for professional norms. As a foreign enterprise operating in China's local markets, the Taiwanese food company attained legitimacy by forming alliances with local wholesalers and by following its predecessors in selecting organization forms.     

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.     

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.     

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.     

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.     

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.     

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.     

Fields of opportunity: How marketers design the transaction game with transaction field maps

While the importance of transaction institutions, or rules, has long been established in the area of marketing governance, marketers and academics alike would benefit from guidance in the strategic use of the rules of the transaction game. This is particularly important in B2B and industrial markets where innovations in the rule-making environment have a significant effect on innovation. Strategically, the organization achieves its customer objectives by creating arenas for transacting, termed transaction fields, in which social actors transact. The fundamental argument is that organizations create transaction fields to depict the benefits of transacting to customers. Accordingly, managers must focus on strategic transactions; those that fundamentally change the way that transacting takes place in the transaction field. Using a historical case of the American cotton factor, this research demonstrates how marketers overcome factors that limit transacting by mapping their actions in transaction fields using rules. This specialization may result in the emergence of marketing intermediaries and lead to competitive advantage.     

Cellular economies of scale and why disparities in spectrum holdings are detrimental

Now that traffic volumes are increasing rapidly, the cost of expanding capacity has become a large portion of expenditures for Mobile Network Operators (MNOs). This paper uses an engineering-economic model to show that there are strong economies of scale when expanding capacity, because an MNO with more spectrum benefits more from every new cell tower, and an MNO with more towers benefits more from every new MHz of spectrum. While it is technically possible to expand capacity by increasing either towers or spectrum holdings, we find that the cost-effective approach is to increase both types of assets at a similar rate. In the absence of countervailing policies, the big MNOs are well positioned to get bigger, in terms of spectrum holdings, towers, and ultimately market share. For policymakers, this economy of scale creates a trade-off between two important objectives: reducing the cost of cellular capacity, and increasing competition. This paper derives the Pareto optimal division of spectrum with respect to these two competing objectives, and shows that any Pareto optimal assignment will split the spectrum fairly evenly among competing MNOs. This is not simply a method of ensuring that there are many competitors; spectrum should be divided fairly evenly regardless of whether the number of competitors is large or small. A large disparity in spectrum holdings may yield poor results with respect to both objectives, i.e. the lower cost-effectiveness of a larger number of MNOs, and the lower competitive pressure of a smaller number of MNOs. One effective way to achieve a division of spectrum that is close to Pareto optimal is a spectrum cap, provided that this cap is set at a level consistent with other policies and policy objectives, including antitrust policy.     

Electronic transportation marketplaces: a transaction cost perspective

Electronic transportation marketplaces (ETMs) are Internet-based mechanisms that match buyers and sellers of transportation services. With claims of reducing the administrative costs of transportation procurement to virtually nothing, the allure of ETMs is considerable. Shippers (transportation buyers) must therefore determine whether to pursue the new-founded opportunity and buy transportation services through an Internet-based intermediary or to buy services in a traditional manner. To date, there has been little structured thought on the topic to guide managers. Transaction cost economics (TCE) provides a robust framework toward this end. The TCE framework is adapted to present the procurement decision as one of “make” versus “buy.” The analysis is designed to help firms navigate their own determination to use an ETM and, when considered, the most appropriate form of ETM. The merits and caveats of ETM adoption are presented in the article.     

Setting licence fees for renewing telecommunication spectrum based on an auction

This paper presents a methodology for setting fees for the renewal or extension of spectrum licences, by using the outcome of an auction for comparable licences but with a different licence period. The methodology is a combination of market and cash flow valuation and consists of two main steps. First, prices for spectrum corresponding to that of the licences to be extended are derived from the auction outcome. Second, the relative value addition of the extension period for the new licensee, compared to the value of the licences auctioned, is derived by using a model for the development of EBITDA for an operator over time. A combination of these two is used to calculate fees that match the opportunity costs of extension. Thus, optimum alignment is achieved with the policy objective of using licence fees only to promote efficient use of spectrum, while avoiding state aid at the same time.     

The unfinished history of usage rights for spectrum

The key task in the next stage of spectrum management is to adapt regulation to the prospect of widespread sharing, on a much more sophisticated basis than sharing is used today. There is a role for the regulator to take steps to expand the area of choice within which public and private sector users can operate. This is best done in general by enhancing the flexibility of usage rights, which itself is best achieved by enhancing the freedom to trade them in the dimensions of time, space, level of interference and priority of access, by subdividing, re-aggregating, etc. However, there are considerable transactions cost impediments to trading where unlicensed users are involved. This creates a role for the regulator pro-actively to investigate different allocations, to make provisions for the most promising to occur and to incorporate both in refarming exercises and in primary assignments based on auctions configurations of usage rights, which might favour promising avenues of shared spectrum use.