Find out more about our work on leading economic and policy issues.

Irish spectrum auction design

Key considerations for the potential award of radio spectrum in multiple bands

The effective management of radio spectrum by telecoms regulators involves careful consideration of when, and how, spectrum is made available to operators. The Irish telecommunications regulator, ComReg, asked DotEcon to set out the key factors affecting the potential award of spectrum in the 2.6 GHz band, with the possible inclusion of the 700 MHz, 1.4 GHz, 2.3 GHz and 3.6 GHz bands.

Our report considers the suitability of awarding the bands simultaneously, alternative options for the award and the design of an auction process, competition safeguards, licence conditions, and methodologies for structuring licence fees.

ComReg subsequently awarded the 3.6 GHz band in a separate process, with the 700 MHz, 2.3 GHz and 2.6 GHz included (alongside new 2.1 GHz licences) in a later multi-band award (the ‘MBSA2‘). We supported ComReg in both awards with design and implementation services.

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How to avoid coverage obligations

An innovative approach to including coverage obligation in the auction design for the award of 800 MHz spectrum in Denmark

The award of 800 MHz (digital dividend) spectrum in Denmark included onerous coverage obligations, designed to improve availability of 10Mbps services in areas where coverage was poor.

The national coverage target was split into three regional obligations that were by default attached to the lots on offer. However, the auction included the novel approach of allowing bidders to bid for exemptions from the coverage obligation in some or all regions, with the restriction that the supply of exemptions for each region could be at most one less than the number of winning bidders. This maximised the chances of assigning every coverage obligation, whilst giving some flexibility for bidders to share the burden between them.

This approach to including coverage obligations in auction design was presented by DotEcon at the 2014 Latin America Spectrum Management Conference in Rio de Janeiro. The presentation is available here.

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International benchmarking of spectrum value

Benchmarking of 800MHz, 900 MHz, 1800 MHz and 2.6GHz spectrum value to support Ofcom's review of annual licence fees and setting reserve prices

Following completion of the UK 4G spectrum award, Ofcom sought to revise the annual licence fees (ALFs) for licences in the 900 MHz and 1800 MHz bands to better reflect the value of the spectrum. To support Ofcom with determining the appropriate level at which to set the ALFs, DotEcon prepared a report examining evidence on the value of the relevant bands in other jurisdictions.

In particular, DotEcon used comparable spectrum prices reached in auctions across other countries, renewals fees for licences and spectrum values realised in secondary trading to estimate value ranges.

We used a similar methodology to advise Ofcom in the design and implementation of a methodology to calculate band-specific proxy prices for the 800MHz and 2.6GHz bands from the package prices of the 4G auction. Our implementation report comparing the linear reference price methodology (LRPM) and the addition spectrum methodology (ASM), and providing the price estimates resulting from their applications can be downloaded here.

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Collecting revenue from spectrum

This report weighs up revenue raising objectives against the efficient allocation of licences in spectrum auctions

The potential for raising revenue through spectrum auctions was highlighted by the Indian government setting revenue-raising as an explicit objective for the award of 3G and BWA spectrum by auction. These auctions took place in 2010 and together raised US$22.7 billion.

While the revenue-raising objective would appear to be in contrast to the efficient allocation of licences, both objectives are equivalent provided that downstream competition is safeguarded. Our report explains how winners of the auction would be encouraged to innovate to fund the price of the licence and ensure profitability, bringing long-term benefits for users. Sufficient revenue generation should come as a by-product of the efficient allocation of licences in a spectrum auction, whilst large deviations from standard auction methodologies in order to raise additional revenues could have unintended consequences that may in fact reduce auction revenues. The slides presenting a summary of the report can be downloaded here.

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Fixed Mobile Substitution

Reports for BT analysing the substitutability between fixed and mobile phones in the UK

In the early days of mobile phones, its interaction with fixed phones was uncertain. The introduction of mobile saw an increase in the use of fixed phones, with mobile users facing higher fixed phone bills compared with non mobile users. This trend was taken by some analysts and OFTEL as evidence that there were complementarities between fixed and mobile phones, and thus that mobile did not compete with fixed telephony.

We analysed consumers views and attitudes towards fixed and mobile phone use, using large-scale market surveys. Our analysis took into account the general increase of phone usage across different consumer segments, identifying that user access to a mobile phone was associated with lower expected fixed phone bills, due to some use being shifted to mobile.

Over time we prepared a short series of three reports, which were submitted to OFTEL’s Price Control Reviews. Our second and third reports are available for download.

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