Research Notes

In many countries the government auction their mobile licences – but is that good business for society? In the short term yes, but in the long term no!

Back in the year 2000, many politicians saw great possibilities in auctioning off 3G licenses and a number of the world’s largest mobile operators spent fortunes on licenses in the hope that this new technology would make customers ARPU explode. Experience now shows that 3G has not helped increase revenue – in fact ARPU has decreased in many countries.

During the coming years, society needs to decide how to handle the spectrum it administrates. We are talking about the renewal of 900 MHz licenses in a number of countries, we are talking about the digital dividend – that is the spectrum that lies between 790-862 MHz in Europe and between 690-806 MHz in Asia and we are talking about the spectrum around 2600 MHz that many operators will use for LTE.

There should be no doubt that spectrum is a resources that belongs to society and – in the same way as society’s many other resources (oil, gas, water, gold, silver, diamonds etc) that it should contribute to society’s economy. The question is simply how society can best utilise these resources? Will it be through selling licences, or by the licenses being used to create an infrastructure that helps society develop, or will it be by combining these two models using a “stick and carrot” model?

If you examine the consequences of the 3G auctions, they did give many countries enormous revenue in the short term. On the other hand it should also be noted that apart from the recess in the mobile industry (2000-2003) the high licence fees also resulted in 3G having a slower roll-out in a number of countries that had paid most for their 3G licenses.

At Strand Consult we believe that the actual value of selling a mobile licence in the future is minimal compared to the value of a society having a national mobile broadband network, which will enable an increasing number of citizens to connect online, at high speeds and regardless of the customers physical location – at home or on the road, in the city or in the country.

We believe that the path forward is an open auction model, where the licenses are sold to operators under certain terms and conditions. We believe that one should encourage operators to work together on building network infrastructure, especially in the thinly populated areas and we believe that one should reward operators that deliver a better coverage than required in the license terms. This can be achieved by using taxation models, or by giving a share of the auction money back to the operators if they do things that benefit society.

In a country such as Brazil, the state decided in connection with their 3G auctions, to force operators to work together on building network infrastructure in the more remote areas and at the same time giving part of the auction money back to those operators that achieved a better coverage than required in the license terms. Basically the long-term interests for society were more important than the short-term financial interests.

In all its simplicity, the political system ought to enter into a close dialogue with operators and view the mobile industry as an industry that can help develop modern society. Countries that can offer their citizens and companies access to the best telecommunication infrastructure, will be the countries that are best prepared for the future. The telecom industry is – and will continue to be – the industry that connects modern society together and their products are the foundation of becoming more efficient by using new IT systems and modern telecommunication.

In our new report we examine the mobile broadband market, what it looks like and how it is developing. We believe that the possibilities available with mobile broadband today – and in the future – are so immensely important to society, that auctions can very quickly develop to an extremely poor business for modern society.

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