The Digital Economy
5G spectrum awards: can you spare a billion?
Gérard Pogorel / Nov 2018
As the frequencies for 5G are currently being awarded across Europe, concerns grow that sub-optimal spectrum assignment methods, in particular the widely popular frequency auction methods, hamper the investment capability of operators and will result in delays in 5G network deployment.
Recent studies by academics, international consultants and industry bodies confirm the analytical assumptions by Pogorel & Bohlin (2018) and demonstrate that the prevalent design of spectrum auctions, its primary focus on the fees to be paid to the government coffers, as inspired by blind faith in Econ 101, not only fails to stimulate network investments, but also hinders them. The bitter truth is that spectrum auctions have not achieved what they were meant to, i.e. promote industry development, competition, and contribute to overall economic growth. The means have superseded the aims, and a “successful” frequency auction has been heralded as one achieving high fees, leaving positive social returns in the sidelines. Ironically, in a classic example of the right hand ignoring what is being done by the left hand, branches of government, or agencies in charge of licensing, while heavily taxing telecom operators for spectrum, have vocally complained on their shortcomings in investing in network deployment and population coverage.
Although most industry and government representatives recognise those facts when behind closed doors, only a few have chosen to publicly recognise these shortcomings and urge better practice, as critical budget considerations are understandably high among government priorities, especially in countries with significant public debt.
The tide in this century, however, is changing, and the long term prevails in many countries. The recognised priority is to align Spectrum assignment design for 5G with economic and social objectives. If the financial bid still is a central determinant in granting licences, the clear majority of spectrum auctions today aim always more at the digital future by including policy defined obligations of coverage and deployment schedules.
The 2018 example of 4G licences renewal in France, extended terms of payment introduced in countries like Spain, Sweden, and India, and the possible abolition of fee maximisation in the law in Colombia, are indications that something is beginning to give in spectrum awards. The European Electronic Communications Code (EECC) formalising a role for the Radio Spectrum Policy Group (RSPG) to “peer-review” spectrum assignment procedures in the EU, shows that awareness is growing and policymakers are now willing to look at new approaches to spectrum assignment, putting deployment, coverage and social policy goals front and center, but how? As our first guiding principle, let us make clear spectrum has no intrinsic value. Its value resides exclusively in the contribution its use makes possible for society and the economy. To align public objectives and industry strategies, a few options are available:
- Reinforce coverage obligations in spectrum auctions
- Negotiate spectrum licensing at no fee for accelerated coverage deals like the French 2018 “New Deal”
- Put operators are in the driver’s seat by setting up competitive licensing with bids on investment and coverage commitments.
As for the charges to be paid for the use of spectrum, a limited public resource, they can be set as a percentage of investments in deployment commitments, a percentage of expected income, or a pre-defined flat fee. More radically, the spectrum fee could be waived or limited in order to favour investments.
The value of spectrum resides in its use by the economy and society. The radio spectrum is a public resource to be managed in the public interest. Member States have had different starting points, but convergence and consistency are essential for the EU’s Digital Single Market, in terms of rules, timing, and conditions. The European Electronic Communications Code (EECC) formalises a process for voluntary peer review between Member States on spectrum assignement processes, overseen by the Radio Spectrum Policy Group (RSPG). A re-balanced spectrum awards framework provides an EU-wide reference for good practice.