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07.10.2010 Seite 1
Efficient framework for the scarce resource spectrum
Stefan FelderEconomic Department
07.10.2010 Seite 2
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
07.10.2010 Seite 3
Markettrends
Market-basedFramework
AssignmentProcedure
Trading andRefarming
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
07.10.2010 Seite 4
Markettrends
Market-basedFramework
AssignmentProcedure
Trading andRefarming
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
07.10.2010 Seite 5
Markettrends
Market-basedFramework
AssignmentProcedure
Trading andRefarming
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
07.10.2010 Seite 6
Markettrends
Market-basedFramework
AssignmentProcedure
Trading andRefarming
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
07.10.2010 Seite 7
Markettrends
Market-basedFramework
AssignmentProcedure
Trading andRefarming
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
07.10.2010 Seite 8
Markettrends
Market-basedFramework
AssignmentProcedure
Trading andRefarming
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
07.10.2010 Seite 9
Markettrends
Market-basedFramework
AssignmentProcedure
Trading andRefarming
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
07.10.2010 Seite 10
Markettrends
Market-basedFramework
AssignmentProcedure
Trading andRefarming
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
07.10.2010 Seite 11
Markettrends
Market-basedFramework
AssignmentProcedure
Trading andRefarming
DigitalDividend
Example: Recently finished 2,6 GHz Auction
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?
07.10.2010 Seite 12
Markettrends
Market-basedFramework
AssignmentProcedure
Trading andRefarming
DigitalDividend
Example: Recently finished 2,6 GHz Auction
RTRs Auction Software allows …
… bidders to bid over the Internet … … using a WEB Interface
07.10.2010 Seite 13
Markettrends
Market-basedFramework
AssignmentProcedure
Trading andRefarming
DigitalDividend
Example: Recently finished 2,6 GHz Auction
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
07.10.2010 Seite 14
Markettrends
Market-basedFramework
AssignmentProcedure
Trading andRefarming
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
07.10.2010 Seite 15
Markettrends
Market-basedFramework
AssignmentProcedure
Trading andRefarming
DigitalDividend
Examples for spectrum trading in Austria
A couple of frequency trading cases happened since it was allowed in 2003
07.10.2010 Seite 16
Markettrends
Market-basedFramework
AssignmentProcedure
Trading andRefarming
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
07.10.2010 Seite 17
Markettrends
Market-basedFramework
AssignmentProcedure
Trading andRefarming
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
07.10.2010 Seite 18
Markettrends
Market-basedFramework
AssignmentProcedure
Trading andRefarming
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
07.10.2010 Seite 19
Markettrends
Market-basedFramework
AssignmentProcedure
Trading andRefarming
DigitalDividend
OutlookSpectrum related tasks
� Refarming of GSM bands
� Auctioning the digital dividend
� Expiry of GSM licenses
� Transposition of new framework
07.10.2010 Seite 20
Markettrends
Market-basedFramework
AssignmentProcedure
Trading andRefarming
DigitalDividend
Contact information
Stefan FelderEconomic Department+43 1 58058 [email protected]
www.rtr.at/frequencies
RTR-GmbHMariahilferstrasse 77-791060 WienAustria