Saturday, September 7, 2013

Regulators Favoring New Entrants in Spectrum Auctions

European Community Competition Commissioner Joaquin Almunia said while monopolies and duopolies of European mobile telecoms companies were unacceptable, he had no objection in principle to a mobile market with three or four players.

The biggest long term issue is whether “three” or “four” providers is the market-dictated outcome. For the moment, regulators and some policy advocates in most countries seem to favor “four” is the preferable number of contestants to sustain competition.

Beyond that, auctions for new Long Term Evolution fourth generation networks will, in principle, create the foundation for possible new competitors to enter the mobile markets as well.

That preference for adding some new competitors can be seen in numerous instances.

The New Zealand auction of Long Term Evolution spectrum will include provisions intended to encourage entry of new contestants into the market. Perhaps the single biggest difference is that new spectrum winners who are not already providing mobile service in New Zealand will have five years to build networks covering at least 50 percent of the population, while any spectrum winners already in the New Zealand mobile market  will have to build networks reaching at least 75 percent of their current rural 2G and 3G base station sites within five years.

The New Zealand auction is scheduled to begin in October 2013. For sale are nine 700MHz licenses (2x5MHz).

Bidders will be limited to three licenses each, unless there is excess spectrum left unsold after the first round of bidding.

In Austria, national regulator Telekom-Control-Commission (TKK) will reserve two blocks of spectrum in the 800MHz band for a new entrant. TKK also has put together a “newcomer package” allowing that 800MHz spectrum to be combined with 2.6GHz frequencies, with the ability to enable national roaming.

That auction, originally scheduled to be held in September 2013, has been postponed due to merger activities under review affecting three of Austria’s four mobile service providers.

H3G wants to buy Orange and A1 is buying the YESSS! mobile network. TKK reckons that it does not make sense to hold an auction now, before the outcome of those mergers is finalized.

TKK want to avoid awarding frequencies to what are now distinct service providers, only to find those assets combined in the near future.

TKK wants to ensure sustainable competition by allocating frequencies to competing providers. In fact, it is TKK policy that a minimum of four national mobile providers are required to maintain competition in the Austrian mobile market.

In the U.S. market, there is debate about rules for upcoming spectrum auctions in the former analog TV bands, where some advocated bidding rules that give clear preference to Sprint and T-Mobile US, for example, whether that actually leads to better outcomes for consumers or not.

The larger point is that regulators seem to be acting rationally, in terms of their obligations to protect the public by preventing a monopoly or duopoly market from developing.

On the other hand, the long term implications are that few if any markets will be able to sustain more than three or four national providers, and some would argue the stable market structure is just three providers.

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