Efficient framework for the scarce resource spectrum - rtr.at · Efficient framework for the scarce resource spectrum ... There is no first-best auction format for all needs

07.10.2010 Seite 1

Efficient framework for the scarce resource spectrum

Stefan FelderEconomic Department

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Markettrends

Market-basedFramework

AssignmentProcedure

Trading andRefarming

DigitalDividend

Market trend: Voice shifts from fixed to mobile

Number of fixed and mobile minutes in Austria

The share of voice calls that originate on a fixed network has fallen from 60% to 20% since 2002. At the same time the number of mobile minutes has grown by 170%.

11.569 11.571 11.176 10.756 9.881 8.545 7.608 6.760

7.902 8.688 8.99011.938 13.728 17.776 19.596 21.113

0

5.000

10.000

15.000

20.000

25.000

30.000

2002 2003 2004 2005 2006 2007 2008 2009

Min

utes

of

Use

Voi

ce [

in M

io.]

MoU Voice Fixed MoU Voice Mobile

Source: RTR

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Markettrends


AssignmentProcedure


DigitalDividend

Market trend: Strong growth of mobile broadband traffic

Development of mobile broadband traffic

The broadband data volume transmitted over mobile networks has grown by an average growth rate of approximately 100% per year since 2006. The volume per user has increased by 900%.

0

1.000

2.000

3.000

4.000

5.000

6.000

2. Q2006

3. Q2006

4. Q2006

1. Q2007

2. Q2007

3. Q2007

4. Q2007

1. Q2008

2. Q2008

3. Q2008

4. Q2008

1. Q2009

2. Q2009

3. Q2009

4. Q2009

1. Q2010

Dat

a v

olu

me

[Ter

a B

yte

]

Source: RTR

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Markettrends


AssignmentProcedure


DigitalDividend

Spectrum is a scarce resourceSpectrum

Source: European Commission, Jan 2009

� Increasing demand for mobile voice and mobile data

�Utilization of spectrum increases�But: also trade-off between denser

network (higher network costs) and additional spectrum (higher licence costs)

Trends

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Markettrends


AssignmentProcedure


DigitalDividend

Market-based framework for spectrum management

Market-based toolsProcess

Spectrum Management

Optimal allocation of spectrum to services is a prerequisite for an efficient use of the scarceresource. A more market-based approach helps to increase the efficiency of spectrum use.

1

Clearance,Refarming,Reallocation

3

Frequency Allocation

2Frequency Assignment

� Service and technology neutrality

� Block edge masks

� General authorization

� Software defined radio

� Refarming

� Spectrum Pricing

� Auctions

� Spectrum trading

� Transparency of use

� No barriers for innovation

� Avoid harmful interference

� Lower entry barriers

� Flexible use of spectrum

� Incentive to use spectrum efficiently

� Opportunity cost of spectrum use

� Select efficient operators

� Foster economic efficiency

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Markettrends


AssignmentProcedure


DigitalDividend

Assignment is critical for ensuring efficient use

DecisionsObjectives

Assignment of exclusive usage rights

� Definition of frequency packages (lots, regions)

� Technology and services

� License duration and expiry

� Build out and coverage obligations

� Technical license conditions

� Spectrum caps

� Restriction on cross ownerships

� Access obligations (e.g. national roaming)

� Infrastructure sharing

� Selection mechanism

� Competition in downstream markets

� Efficient use of scarce resource

� Infrastructure investment

� Choice of efficient technology

� Avoid hoarding and warehousing

� Other policy goals

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Markettrends


AssignmentProcedure


DigitalDividend

Selection mechanism: trend towards auctions

AdvantagesDevelopment

Auctions as a mean of assigning spectrum rights

� Good selection procedure

�Assign frequencies to the operators that value it at most

�Normally the most efficient operators

� Produces market prices

� Foster efficient use

�Signal scarcity

� Legally secure

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Markettrends


AssignmentProcedure


DigitalDividend

Good auction design is important

Auction formats and parametersDesign criteria

Auction design

� Sealed Bid Auction

� Simultaneous Multiple Round Auction (SRMA)

� SRMA with Augmented Switching

� Combinatorial Multiple Round Auctions

� Clock Auction

� Combinatorial Clock Auction (CCA)

� Pricing rules

� Level of transparency

There is no first-best auction format for all needs. The optimal design depends on the objectives and circumstances.

� Number of lots and regions

� Economic relationship between lots

� Uncertainty and winner’s curse risk

� Risk of collusion

� Entry assistance and weak bidders

� Revenue

� Transaction cost

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Markettrends


AssignmentProcedure


DigitalDividend

Austria has a long experience with frequency auctions

Frequency Auctions in Austria

� 16 Frequency auctions since 1996

� In total 1,8 Billion Euro have been raised

� Various auction formats have been used

� Recent shift from SMRA to combinatorial auctions

Type of Auctions:CCA: Combinatorial Clock AuctionSMRA: Simultaneous Multiple Round AuctionSB: Sealed Bid Auction (First-Price)MRA: Multiple Round AuctionCSB: Combinatorial Sealed Bid Auction

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Markettrends


AssignmentProcedure


DigitalDividend

Example: Recently finished 2,6 GHz Auction

DecisionsObjectives

Assignment of 2,6 GHz frequencies

� Award 14 paired and 10 unpaired blocks

� Service and technology neutral usage rights

� Block edge masks to deal with interference

� Moderate rollout obligations (25% pop-coverage)

� Spectrum caps

� Use a Combinatorial Clock Auction

� Efficient assignment

� Flexible choice of the amount of spectrum

� Flexible technology choice

� Compatibility with 4G technologies

� Assign adjacent blocks to winners

� Avoid hoarding

� Hinder collusion

� Non-goals: Revenue and entry assistance

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Markettrends


AssignmentProcedure


DigitalDividend


Good Trade-off between requirementsTwo Stage Procedure

Combinatorial Clock Auction

� Combinatorial bids: Bidders can buy the amount of spectrum they need for their business case

� Multiple rounds: Helps bidders to discover the market price of spectrum

� Second-price rule: Bidders pay the minimum amount that is necessary in order to win

� Sealed-bid phase: Prevents collusion such as strategic demand reduction

� Assignment phase: Bidders can bid on specific physically adjacent blocks

Allocation Stage:Who gets how many blocks?

Allocation Stage:Who gets how many blocks?

Assignment Stage:Who gets whichspecific block?

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Markettrends


AssignmentProcedure


DigitalDividend


RTRs Auction Software allows …

… bidders to bid over the Internet … … using a WEB Interface

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Markettrends


AssignmentProcedure


DigitalDividend


Fact sheet

Facts Result

Revenue: 39.527.109 €

� Participants

�A1Telekom

� T-Mobile

�Orange

�Hutchison 3G

� Process

�Sum of minimum bids: 7,4 Mio. Euro

�Duration: 1 week

� 29 Bidding rounds

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Markettrends


AssignmentProcedure


DigitalDividend

Spectrum trading and refarming

Potential problemsWhy?

More flexibility through spectrum trading and refarming

� Impact on other services and users

� Impact on competition

� Spectrum hoarding and warehousing

� Change of conditions

� Windfall profits

Spectrum trading and refarming helps to correct inefficiencies. Even if assignment and usage were optimal at the time of the primary assignment, markets and technology change.

� Pace of technology change

� New business opportunities

� Shift of demand between operators

� Temporary bottlenecks

� Convergence

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AssignmentProcedure


DigitalDividend

Examples for spectrum trading in Austria

A couple of frequency trading cases happened since it was allowed in 2003

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Markettrends


AssignmentProcedure


DigitalDividend

Example: Refarming of GSM bands

ObstaclesAdvantages

Possible future use of 900 and 1800 MHz band for 3G

� Spectrum is highly fragmented due to GSM channeling

� Spectrum efficiency requires a redistribution of the spectrum

� Refarming could have a severe negative impact on competition

� Barrier to investment due to short residual term of some of the licenses

� Sensitive to litigation because of existing rights

Refarming is a very hot issue for us. Negotiations between operators failed. The matter is highly contentious and legally risky. We try to solve this problem next year.

� Mobile broadband in rural areas

� Indoor coverage of mobile broadband

� More capacity for mobile broadband

� Use for a superior technology

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Markettrends


AssignmentProcedure


DigitalDividend

Digital dividend is an example for reallocation of spectrum

Why is this spectrum so interesting?Upper digital dividend

Freed-up spectrum due to digitalization of broadcasting

Source: Forge/Blackman/Bohlin 2007, ABI study for RTRAdapted by the Author

Broad-casting

Lower digitaldividend

Upper digitaldividend

Digital dividend Spectrum for mobile services MHz

Cell radius / km

The lower the cell radiusthe more base stations

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Markettrends


AssignmentProcedure


DigitalDividend

Best use of digital dividend?

Mobile broadband leads to highest benefit Evaluated options

RTR commissioned a study

The study conducted by a consortium of Arne Börnsen, Tim Braulke, Jörn Kruse and Michael Latzer came to the conclusion that mobile broadband would lead to the highest benefit. Thereis a commitment by the Austrian government to use it for mobile broadband.

� Usage for broadcasting

� Usage for mobile broadband

� Split use between broadcasting and mobile broadband

� Postponement of the decision ("wait and see")

� Highest incremental benefit

�Nation-wide broad-band coverage

�Higher data rates

� Lower cost

�Allows for mobile/nomadic use

� Foster inter-modal competition

� Positive effect on fibre-rollout

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Markettrends


AssignmentProcedure


DigitalDividend

OutlookSpectrum related tasks

� Refarming of GSM bands

� Auctioning the digital dividend

� Expiry of GSM licenses

� Transposition of new framework

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Markettrends


AssignmentProcedure


DigitalDividend

Contact information

Stefan FelderEconomic Department+43 1 58058 [email protected]

www.rtr.at/frequencies

RTR-GmbHMariahilferstrasse 77-791060 WienAustria

Documents

Efficient framework for the scarce resource spectrum - rtr.at · Efficient framework for the scarce resource spectrum ... There is no first-best auction format for all needs