Radio spectrum & public policy
Emperor Ofcom’s New Clothes
How the market approach to radio spectrum failed the country's mobile infrastructure and how to turn it around
A personal perspective
Why We Wrote This Book
Over twenty years ago Ofcom adopted the market mechanism tools in the prevailing belief that "markets" allocate scarce resources more efficiently than policy led approaches. The expectation at the time was, that by introducing "price signals", a market in spectrum would emerge. This would lead to spectrum being sold by those making less profitable from its use to others having a more profitable use. This would deliver optimal use of the spectrum.
Managing mobile spectrum then became almost a separate sealed world from the economics and engineering of mobile network modernisations. However it turned out to be very financially extractive. The official position has always been this high price of acquiring and holding spectrum was being more than offset by the more economically efficient use of the spectrum.
The aim of the book was to break through the wall separating the two worlds to see what the "market approach" actual cost-benefit was.
What we discovered:
(1) For spectrum auctions, far from there being any spectrum efficiency benefits, the evidence showed the reverse to be the case. The highest bidder for spectrum in four out of five UK spectrum auctions did not finish up delivering the best mobile national infrastructure or even its most profitable. Every spectrum auction had also introduced at least one perverse outcome. Finally auctions did a worse job that the earlier “beauty contest” release approach in attracting new entrant infrastructure investors into the UK market.
(2) The claims that spectrum pricing was ensuring optimal use of the spectrum were even more egregious. The entire market approach rested upon a liquid market in spectrum emerging. It never did. So Ofcom created a fantasy spectrum market to set the level of annual license fees (spectrum pricing) that would incentivise trading spectrum…in this fantasy market. This was the reason for our somewhat aggressive title for the book.
The book moves on to what should replace the failed "market approach" to spectrum. It proposes an "infrastructure quality driven" revolution as the only way spectrum policy can contribute to significantly improving the economic value mobile spectrum deliver to the country.