Auction


LIRNEasia’s Senior Research Fellow Payal Malik has fired a major volley in India’s spectrum debate aimed at former Minister Kapil Sibal. There is interesting discussion on her Facebook page. A competitive spectrum auction process facilitates the assigning of licences to the most efficient producers, aiding efficient aggregation of spectrum, and ensures efficient allocation of spectrum into services consumers value the most, thereby expanding the supply and reducing the prices of the wireless services most valued by consumers. Simply put, if tariffs didn’t go up in 2010 after the 3G auctions and in 2014 after the 2G auctions (which raised $14.5 billion and $10 billion, respectively) despite India having the cheapest data packages in any of the emerging economies, they should not go up now.
One of the most interesting things that happened within government in Sri Lanka with regard to electricity policy was that they started asking a different question. Instead of asking only the question”how much does the proposed electricity generating option cost” they started asking the question “what are the costs to the economy of load shedding.” The end result of this shift in thinking is that Sri Lanka in the only South Asian country (other than Bhutan and possibly the Maldives) that can assure its citizens and industries more or less 24/7 power. Power in Sri Lanka is a lot more expensive than in the region, but our companies and people do not have to invest in generators, inverters and various other back up mechanisms. It seems that the government of Pakistan should also start asking a different question with regard to 3G and 4G frequencies: “what are the costs to Pakistan of not having wireless data networks,” not “what is the one-time revenue boost the government will get from an auction.
Adrenaline didn’t flow in Bangladesh 3G auction today. It could be anything but auction when four bidders show up for four licenses. Bangladesh government has priced US$20 million per Megahertz for 40 MHz of spectrum in 2100 MHz band. It is in addition to 10 MHz spectrum being assigned to state-owned Teletalk. Theoretically, Grameenphone (Telenor), Banglalink (Vimpelcom), Robi (Axiata) and Airtel (Bharti Airtel) could have had at least 10 MHz each.
Fiji follows Papua New Guinea in assigning 4G frequencies. It appears the auction is going well. Notices posted by the Department of Communications yesterday showed that of the three telecommunications providers, only Vodafone filled their 30 MHz quota and had left the ongoing 4G spectrum auction leaving TFL and Digicel to bid for the remaining frequencies. Each company had a quota of 30 MHz. In total, there were 20 lots of spectrum to bid for with bids ranging from $131,500 to $504,700 by the close of the auctions yesterday.
We’ve been writing about spectrum sharing on and off. There is mention that sharing will be encouraged in the Indian National Telecom Policy 2012. Indications were that actions to implement the policy were underway. But it has come up against the need to raise more money from auctions. I came up against this problem in Bangladesh early this year.
According a newspaper report, the design of the recent 3G auction is being investigated by the Anti Corruption Commission and the four members of the NBTC who approved the design may face suspension until the investigation is completed. Four members of the committee organising the third-generation (3G) auction last October may face an investigation after a panel found irregularities in the auction’s design. The subcommittee of the National… Full report.
It appears that India’s Department of Telecom is rethinking auctions as the mechanism for assigning spectrum: After failure of two rounds of airwave auction, the Department of Telecom (DoT) is now exploring pricing methods for fixed priced allotment of spectrum, said an internal note. An ‘expanded committee’ will ascertain ‘concept, operational parameters and conditions’ for a market-related process for giving away spectrum, said the note reviewed by ET. My first reaction was that this would be contrary to the sweeping ruling given on the 2G auction by the courts, but it appears there is wiggle room: However, in September last year, the Supreme Court had said in its opinion on queries raised by the government through a Presidential Reference that auction was not the only way to allocate natural resources like spectrum. Further, maximising of revenues were secondary to serving the public good with regard to awarding allocating natural resources. Full report.
Thomas K Thomas has been covering Indian telecom issues for a long time. His reflections on the lessons that need to be learned from Indian spectrum policy since 1994 are worth a read: Back in 1994, when telecom licences were given out for the first time, a flawed auction design allowed non-serious players to bid astronomical sums and then default on payments. In 2002, operators were given additional spectrum on subscriber-linked criteria without any upfront fee. This was the first time anywhere in the world spectrum was given based on number of subscribers. In 2008, the then telecom minister A.
The government of Myanmar has received 91 expressions of interest for telecom licenses. We were not surprised when the number hit 18, but 91? Now the question, according to Bloomberg, is how to narrow down the field in the next two stages, down to two: Rules for the second stage, where bidders eligible for the third and final stage will be determined, will be provided “in coming weeks,” according to last week’s statement. “Having prior emerging market experience should be beneficial, along with the ability to deploy capital, relationships with the equipment vendors or handset procurement,” Gupta said. “Reforms in the telephony sector are critical for overall development and progress, so they will need to be mindful of security and social issues too.
LTE (aka 4G) is manifolds faster than UMTS (aka 3G). That doesn’t mean the governments can make more money from auctioning LTE spectrum. Her Majesty’s government, which had forked £22.5 billion from UMTS auction 12 years back, knows it. Yet the British Finance Minister, George Osborne, targeted £3.
One more qualified bidder than number of slots is a prescription for a bidding frenzy. But then, something like this has been done before. In the UK they had one more slot than there were existing operators. The consequences of being the only 2G operator who failed to get a 3G license drove up the prices. That should do it in Bangladesh too, unless someone comes up with a clever solution.
If other countries have announced plans, please tell us. By region we mean South Asia, but even SE is fine. Of course, there’s the gap between cup and lip. Announcing is one thing. Actually getting the job done is another.
When the Indian 2G controversy blew up, I told several people who asked me about it was that there was no longer any point in debating auctions, but that we should put our energies into designing the kinds of auctions appropriate for the desired purpose. Most people (with the honorable exceptions of some of my friends and a recent commenter on this blog) accept that auctions are clean and that other methods are susceptible to manipulation. For good governance reasons alone I support auctions. That said, conducting an auction for valuable frequencies or for the right to operate a telecom business in conditions of restricted entry (and potential high profits and profile) is no simple matter. Auction design is an esoteric art.
Pervez Ifthikar is a passionate commentator on telecom issues in Pakistan. A knowledgeable commentator and as the founding CEO of the universal service fund (one of the best in the world in his time), one who has to be taken seriously. Irrespective of the on-going, completely unnecessary, “controversy” surrounding auction of 3G in Pakistan, allotting 3G frequencies to telecom operators is extremely urgent and essential for Pakistan. We have already been left behind by others who used to be our followers in 2G. Mobile broadband – or 3G – should have been introduced here already four years ago.
Cynics among us decry the endless seminars and workshops and conferences that seem to be unavoidable feature of business and political life. But if the Bangladesh Daily Star has reported it accurately, the recent seminar on the Bangladesh telecom sector has actually achieved significant results. One of the major problems in Bangladesh is the lack of certainty about whether or how the licenses of four leading mobiles operators, which expire in 2011, will be renewed. Economic theory and common sense say that unless an investor knows how long he has an asset, he will not invest in it. Thus, theory would predict a steep decline in investment in each of the networks as they approached 2011.
Despite the fact that not all the frequencies have been cleared, India has announced the 3G auctions will be held in April. The original date was January 2009. Perhaps the driving force was the government’s need for money, rather than the conditions being right. India’s long-delayed auction of third-generation (3G) mobile phone bandwidth will be held on April 9, the government announced Wednesday. Applications from bidders for the multi-billion-dollar auction, whose proceeds are earmarked to help plug a gaping fiscal deficit, will be accepted until March 19, a government notice said.