Supply and Artificially High Demand in Mobile Spectrum

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BERLIN -- As the amount of data carried on mobile networks explodes -- Cisco Systems estimates the level will rise about 66 percent this year -- countries across Europe are busy selling off their broadcast spectrum to keep the digital discourse flowing.

A recent spate of auctions -- in the Netherlands in December, in Britain in February and in the Czech Republic this month -- has reinforced the perception that Europe does not have enough available frequency to satisfy the demand for talking, texting and surfing the Net on mobile phones.

The Dutch auction raised €3.8 billion, or $4.9 billion, much more than some had forecast, while the Czech auction March 11 was halted by the national regulator because of its concern that the high bids would make faster, Long Term Evolution broadband too expensive for consumers. The auction was stopped after the initial bidding climbed to more than 20 billion korunas, or $1 billion -- almost three times the amount of revenue the government had expected.

But two other influences on the bidding had nothing to do with demand for spectrum.

Regulators in each country set aside part of the spectrum they were selling for a new operator, or to favor a smaller bidder, which required big operators to compete more aggressively.

In the Netherlands, the Dutch regulator reserved a third of the prime 800-megahertz spectrum for a new entrant, which turned out to be Tele2 of Sweden. In Britain, the regulator, Ofcom, structured its sale so that 3, the smallest British operator, would receive a disproportionate share of spectrum, in effect creating a fourth, nationwide operator.

Another big influence on the overheated bidding was the structure of the auctions. In the British, Dutch and Czech auctions, as well as in previous auctions in Switzerland and Denmark, regulators used a "combinatorial clock auction," a complex bidding format devised by game theorists that generally leads to higher payouts.

Under this method, known as C.C.A., operators must submit hundreds, often thousands, of parallel bids for various combinations of the frequencies being sold. Ultimately, the price a winning operator pays is determined not by the price it offered but by the price its competitors bid for the same wavelengths.

Scott McKenzie, a director at Coleago Consulting, a firm in London that advises operators on spectrum auctions, said the use of the C.C.A. auction format and the efforts to introduce new competitors in each market were two reasons for the higher payouts.

By contrast, a 2010 auction in Germany, the biggest national telecommunications market in Europe, raised just €4.4 billion. That was because the German regulator, the Bundesnetzagentur, chose a more traditional format, the simultaneous multiround ascending auction, in which bidding proceeds in linear fashion until the highest offer wins.

Mr. McKenzie said there was probably no shortage of spectrum in Europe, despite some industry and government assertions otherwise. "I've been in this business 25 years and they've always been saying that we're going to run out of spectrum," he said. "But it has never happened."

One reason is that network equipment operators like Ericsson, Huawei and Nokia Siemens Networks continue to get more capacity out of 3G networks, or develop new ones based on LTE. Seven years ago, before the advent of modern smartphones, the International Telecommunication Union, a United Nations agency in Geneva that coordinates global radio frequencies, predicted a coming spectrum crisis.

"But if the I.T.U. forecast had held true, all mobile networks with significant mobile broadband usage would have crashed by now," said Stéphane Téral, an analyst at Infonetics Research, in California. Gains in network efficiency, and the use of private and public Wi-Fi to carry wireless data, are reasons the big crash has not materialized, Mr. Téral said.

Starting in 2017, the universe of available frequencies will expand again in Europe, when some countries begin to sell portions of their 700-megahertz spectrum to mobile operators for the first time. The frequency band is currently being used by digital terrestrial television broadcasters.

Finland is planning the Continent's first auction.

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This article originally appeared in The New York Times.


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