UK Spectrum Policy Forum – Mark Falcon, Three - Cluster 3

UK Spectrum Policy Forum: Cluster 3.

Mark Falcon, Three

17 September 2014

Sweden

Ireland

UK

Denmark

Austria

Italy

About Three.

HutchisonWhampoa

Ltd

• Evaluate social v economic value of spectrum

• Apply to spectrum change-of-use decisions.

Source: HM Government.

Terms of reference:

A problem with good pedigree…

Source: Ronald Coase, The Problem of Social Cost, Journal of Law & Economics, 1960.

“This analysis is concerned with those actions of firms which have harmful effects on others. It originated in the problem of

allocating radio and television frequencies. It focuses on divergence between the private

and social benefits. In conclusion, maximisation of social benefits is

independent of initial resource allocation, provided absence of transaction costs.”

(Coase, 1960)

…If need to regulate, try to emulate the market.

Source: Ronald Coase, The Federal Communications Commission, Journal of Law & Economics, 1959.

“When the transfer of rights has to come about as the result of market transactions between large numbers of organizations acting jointly, the process of negotiation may be so difficult and time-consuming as to make it a practical

impossibility. In these circumstances it may be preferable to impose regulations. In principle, the solution should be that if private property rights and pricing were working well.” (Coase,

1959)

• Economic value*

- firms’ profits

- consumer/ citizen surplus, net of price

• Social value

- sum of economic value

* “Economic value” and “private value” normally mean the same thing.

To apply, need (1) well understood terms...

…(2) focus on source of transaction costs.Spectrum-need

examplesEconomic/ social

value Transaction cost

problem

1. Harmonise International use (e.g. almost all applications)

Minimise interferenceMaximise economies

Maximise user-benefits

International co-ordination needed

2. Support public services (e.g. broadcast, emergency, health)

Public goodsEconomic value not

reflected in price paid

3. Facilitate fragmented spectrum users (e.g. PMSE, IoT)

Value of underlying services

Many user co-ordination needed

4. Limit sector concentration of spectrum (e.g. mobile)

Limit monopoly/ oligopoly power

Future innovation and investment benefits

not captured

Mobile: duty already to maximise social value...

Source: Assessment of future mobile competition and award of 800MHz and 2.6GHz statement, Ofcom, 2012.

“Our principal duties: to further the interests of citizens and consumers, where appropriate by promoting competition, and

to secure the optimal use of spectrum, especially availability and use of high

speed mobile data services, in the interests of consumer choice, price, quality of services and value for money.” (Ofcom,

2012)

…Protecting competition critical...

Source: Peter Cramton, Evan Kwerel, Gregory Rosston, and Andrzej Skrzypacz, 2011.

“The primary goal of spectrum policy should be to put the spectrum to its best use. An auction that awards the spectrum to the bidders with

the highest values may not achieve this, because the bidders’ private values may differ

from social values, as a result of market structure issues. Effective spectrum auction

design recognizes the importance of competition, not only in the auction, but in the

relevant downstream market.”

...And not necessarily lowers economic value.

Source: Ofcom.

2x15MHz reserved

None reserved

None reserved

2x10MHz reserved

•Build on established approaches

•Focus where high transactions costs preventing efficient market outcomes.

Summary.

Thank you.