3-G wireless auctions as an economic barrier to entry: the western european experience

Existing wireless telephony and messaging applications have the potential of being enhanced by broadband applications supported through “third generation” wireless services. Across the globe, governments have been allocating electro-magnetic spectrum for these 3-G services through an auction process. The rationale being that the entity that pays the most for a resource will create the greatest value from it. The use of auctions has removed the concept of public ownership of the electro-magnetic spectrum and radically redefined performance for this local communications technology. Issues of universal service, equality, and general definitions of performance and service characteristics are no longer directly addressed, but rather, service and performance are driven by marketplace competition. This paper theorizes that national and transnational wireless carriers acted to create barriers to new competition through the 3-G auctions by implementing a “win at any cost” strategy then retarding the roll-out of services and subsequently negotiating down the costs of the auction. In testing this perspective, the allocation and implementation of 3-G services in Western Europe are used as a case study. Analyses of the auction prices for 3-G licenses are compared to the intrinsic value of these licenses based upon a discounted cash flow model. These analyses demonstrate that prices paid for spectrum were uneconomic decisions. That is, economically speaking, these carriers overpaid for the spectrum. Further the actions by these carriers subsequent to the auction are analyzed to show that by retarding the introduction of 3-G services they continue to maximize revenues from existing wireless systems while they attempt to renegotiate auction terms and seek other types of regulatory relief.