Licensing Methods
There is less agreement on how spectrum should be apportioned between different companies. Even within the normally strict EU, national regulators are free to decide how many operators the spectrum should be split between and who those operators should be. Worldwide, four approaches have been used so far: beauty contests, lotteries, auctions, and a free-for-all.
Beauty Contest
Also known as comparative bidding, beauty contests are the traditional method of licensing. Each potential operator must submit a business plan to the government or regulator, detailing the kind of services it intends to provide. Applicants are judged on criteria such as pricing, quality, technology, and competitiveness, usually with the aim of protecting the public interest and providing the best possible service to customers.
The biggest objection to beauty contests is that the government's judgment is rarely entirely objective. There is potential for both actual and perceived corruption; even if the criteria are announced before bids are submitted, there is still room for argument. Governments tend to favor large, well-established companies, and take into account factors such as national pride in its native companies. This is particularly relevant when the state actually owns a large shareholding in the largest telecom carrier, as most still do.
Sometimes, not all licenses offered in a beauty contest are actually issued, because the government decides that no bids come up to scratch. Many originally licensed fewer television stations than would fit in the available UHF spectrum because they feared that advertising revenues would be spread too thinly to support quality programming.
Most countries still use beauty contests for television or low-bandwidth private radio, but they are becoming less popular for mobile telecom and data services. A variant on the system is for the regulators to ask various bidders to form consortia until there are enough licenses to go around. This method was used by Finland in 1999, when it initially had 15 bidders for four third-generation licenses.
Lottery
These were widely used by the FCC during the 1980s, as the costs of the beauty contest system began to escalate. Each new license was attracting so many applicants that lengthy hearings were needed to decide whose proposals best served the public interest. By 1990, applications were taking an average of three years to either accept or reject, imposing enormous expense on both the government and the applicants.
Lotteries enabled licenses to be awarded quickly and with no accusations of bias. But they soon drew criticism for other reasons—they took no account of the public interest and attracted large numbers of speculators. A cellular telephony license was a valuable commodity, which a speculator could obtain at little cost by winning the lottery, then resell to a genuine communications company. Some licenses took nearly ten years to get from the lottery winners to a company that would be able to provide a service.
Auction
With companies already selling each other licenses for millions of dollars, economists began to suggest a market mechanism for initial licensing. The theory is that if licenses are awarded to whoever is willing to pay the most, the winner will be the company who can put it to the most valuable use. Charging a high price for spectrum should also encourage it to be used more efficiently, as operators have an economic incentive to invest in better radio systems.
Spectrum auctions were pioneered by New Zealand in 1989, when it also gave spectrum licensees a type of property rights. Spectrum was not actually sold, but leased for 20 years to whoever was willing to pay the most. For those 20 years, licensees were free to use the spectrum for whatever purposes they wanted, either deploying services or selling the lease to another operator. To protect noncommercial users, not all spectrum was auctioned, and some was given away free to the indigenous Maori people.
New Zealand's auctions attracted great interest from other governments, who saw it as both a solution to licensing problems and a way to raise revenue. Australia began to auction radio frequencies in 1989; two years later, the UK did the same for TV. But the biggest user of auctions became the U.S., which in 1993 passed an act enabling the FCC to abandon lotteries and beauty contests and to auction virtually all spectrum.
Several different auction methods have been tried by the licensing authorities. Secret sealed-envelope tenders were originally popular in the UK, but have since been abandoned as they result in every bidder trying to second-guess what others will bid. The original New Zealand system used a "Vickrey" auction, which also requires secret bids but makes the winner pay only the second-highest price. This encourages companies to bid their actual estimate of the spectrum's value, but is perceived as unfair.
Most modern spectrum auctions use a system devised by Professor Ken Binmore of University lege, London. It is designed to make the process completely transparent and to maximize the revenue brought in for the government. Every license for a particular type of service is auctioned simultaneously, with an infinite number of bids; this lets every bidder see what the others are doing at each stage, and adjust their strategy accordingly. The results can be very high bids because companies that don't win want to ensure that their competitors are put at a disadvantage. Some may participate simply to drive up the price for others, inadvertently increasing revenue to governments.
This approach does have its critics. Many operators claim that high charges for spectrum extract money from the industry and put wireless local loop technology at a disadvantage compared to its competitors, such as cable or DSL. But the FCC and other regulators argue that this is exactly what it is designed to do—unlike other local loop technologies, wireless does use scarce radio spectrum and ought to pay accordingly.
There is a danger that operators will overpay for a license, particularly if engaged in a bidding war with a competitor. In 1996, NextWave successfully bid $4.8 billion for 90 digital cellular licenses. It filed for chapter 11 bankruptcy two years later, unable to pay this sum. A lengthy legal battle followed, during which the FCC fought to reclaim the spectrum and auction it again. Most regulators now try to prevent bids based on unrealistic future revenue projections by asking for all the money up front. This ensures that governments get their money, but does nothing to help customers stuck with a bankrupt operator. If the companies miscalculate, next-generation phones could be little more than expensive paperweights.
In 2000, the UK held an auction for 3G licenses that shocked the industry. The government had hoped to raise about $4 billion, but it ended up bringing in around ten times that much. The prospect of such huge revenues persuaded many other European countries to do the same. Italy and Ireland were combining auctions with beauty contests by holding their competitions in two rounds. The winners of a beauty contest went forward to bid in an auction. 3G licensing in European countries is shown in Figure 2.10.
Figure 2.10. 3G licensing in European Union
Free-For-All
The simplest method of spectrum allocation, but also the most unusual, is not to license it at all. Libertarians sometimes argue that any government control of the airwaves amounts to a restriction on free speech, and that everyone should be able to broadcast whatever they want. Not surprisingly, few governments accept this argument, but most do allow certain frequency bands to be used in this way. The U.S. is particularly generous in this respect, perhaps because of its tradition of free speech, allowing unlicensed access to frequencies in the 900 MHz range, a frequency that in other countries is generally given to GSM. It is used for everything from wireless LANs (Local Area Networks) to walkie-talkies intended as toys.
Internationally, the ITU has designated frequencies in the 2400 MHz range as the ISM (Industrial, Scientific, and Medical) band. This is used by some important private wireless systems, described in Chapter 11, "Fixed Wireless Technology," but it is not primarily intended for wireless communications. Many devices require microwaves for other purposes, usually heating, and all of these must operate in the ISM band to avoid interfering with licensed communication systems. The most common is the domestic microwave oven, which uses radiation at exactly 2450 MHz.
normal: Web Resourceshttp://www.fcc.gov/wtb/auctions/ The Federal Communications Commission has a wealth of information covering past and future spectrum auctions, as well as other regulatory matters. The site of the European Radiocommunications Office explains most of the radio spectrum usage in Europe. The European Telecommunications Standards Institute publishes consultation papers about proposed future standards, as well as details of standards in use. The International Telecommunications Union site publishes its recommendations on the use of spectrum, plus suggestions for worldwide standards. The New Zealand government's site about radio regulation, explains some of the reasons behind the first spectrum auctions. http://www.spectrumauctions.gov.uk/ The official site of the UK's spectrum auctions explains the process devised by Professor Binmore. In 2000, it sold five third-generation licenses for $35 billion. |