Artificially Inflating Prices in 5G Auction Threatens Quality & Affordability of Mobile Services
Fizza AtiqueLast Updated: May 10, 2019
As 5G spectrum auctions pick up pace globally, the GSMA raised concerns into some auctions' design artificially inflating prices, or inefficiently distributing already scarce spectrum resources, which risk harming consumers. Artificially Inflating Prices in 5G Auction Threatens Quality & Affordability of Mobile Services.
Brett Tarnutzer, Head of Spectrum, GSMA said:
"Auctions can and do fail when poorly designed. "We're seeing a worrying trend of badly run spectrum awards that could seriously impact the potential of 5G before we get started. It's time for policymakers to work more closely with stakeholders to enable more timely, fair and effective awards."
5G Auction Threatens Quality & Affordability of Mobile Services
To help governments and regulators guarantee affordable, high-quality mobile connectivity from spectrum awards the GSMA published an 'Auction Best Practice' paper. The paper highlights some key concerns from recent 4G and 5G spectrum awards and offers recommendations.
This includes addressing a trend towards governments making decisions that artificially inflate spectrum prices, which risk limiting subsequent network investment and thus harming consumers. These bad decisions include artificially restricting the number of spectrum operators can access, through set-asides or by poorly chosen lot sizes, or by setting high reserve prices.
The paper outlines recommendations including:
The top priority for spectrum auctions should be to support affordable, high quality mobile services – not to maximise revenues;
Auctions should not be the only award process considered, as they are not always suitable;
Assign a sufficiently large amount of spectrum and publish roadmaps to support high quality mobile services. Set-asides for vertical sectors or new entrants may threaten how much operators can access and also risk inflating spectrum prices;
The auction design should not create unnecessary risk and uncertainty for bidders; and
Poorly chosen lot sizes or inflexible packages of spectrum lots risk inefficient outcomes.
According to GSMA Intelligence, the socio-economic impact of 5G will be $2.2 trillion over the next 15 years, with key sectors such as manufacturing, utilities and professional/financial services benefiting the most from the new technology. By 2025, 5G is also forecast to account for around 30 per cent of connections in markets such as China and Europe, and around half of the total in the US.
Timely, fair and effective spectrum awards are key to delivering the full potential of 5G. Early movers include Finland, Italy, Spain, South Korea, United Arab Emirates, and the United Kingdom who became amongst the first to award 5G spectrum last year. The number of countries who have assigned vital 5G spectrum is rapidly increasing this year, with Austria, Canada, Denmark, Germany, Hong Kong, Japan, Saudi Arabia, Switzerland and the USA already completing awards. More than 10 countries have announced further plans to assign spectrum in 2019 including France, India, Mexico, Greece, and Romania.
"This is crucial time in the development of 5G," added Tarnutzer. "Spectrum is essential to fuel for mobile networks and its ineffective use will only lead to bad consequences for consumers. The most important objective of awarding frequencies should not be about making the most money, but rather about ensuring consumers benefit from the best mobile connectivity."
The report further states that auctions have become the dominant mobile spectrum assignment mechanism over the past three decades. They were designed to provide a transparent, impartial and legally robust means of assigning spectrum to those who will use it most efficiently to support competitive, high-quality mobile services. Alternative approaches like administrative awards and lotteries have generally proved less able to assign spectrum in an efficient, impartial and legally robust way.
However, the benefits of auctions can be lost when they are not properly planned. Some have failed to assign spectrum despite it being in demand, while others have been contested for artificially inflating prices, which risk harm to consumers. Some have led to claims they are biased in favor of some operators, or for not preventing strategic behavior, leading to inefficient spectrum distribution. This means effective auction design has become vital to delivering the best possible mobile services.