Article re-printed with kind permission from GSM Q, June 2000 Issue 17

The debate over 3G licensing procedures - whether to choose the beauty contest or auction method - is broadly political. Reducing a country's national debt is highly tempting of course, but it could mean sacrificing choice in the market.

There are real concerns that auctions will lead to upfront costs that are too high. Given regulators' efforts over several years to carefully guide mobile services markets towards "effective" competition, why risk progress, achievements and jobs if experienced incumbents and the newest or the most vulnerable are financially penalised or crippled?

The astronomic auction prices paid in the UK means that some operators will pay more to acquire 3G spectrum usage rights than their total investment to date in building a network, developing a brand and acquiring and delivering services to millions of 2G customers. We can expect only the biggest operators to reach the final stages of future auctions. Some winners, will almost inevitably, be bought out by losers.

Another issue is the impact that high spectrum pricing could have on investment in infrastructure, innovation and building the business. The positive view, of course, is that operators will be motivated to accelerate deployment and in-service dates to earn the earliest payback to justify the investment. The need to be first to capture subscribers favours fast rollout. However, it takes time to build markets. Equipment manufacturers will need to offer complex handsets early. That is a challenge too. If that isn't enough, the market capitalisation of many telecommunications stocks has fallen by between a third and a half in recent months, potentially affecting credit ratings.

GSA acknowledges that placing a monetary value on radio spectrum is a reasonable way of ensuring that finite national resources are used efficiently. It can even lead to a quicker conclusion of the licensing process, which is a good thing and may lead to license awards three to six months earlier. However, in designing their licensing processes, governments should be alert to the danger of high spectrum costs constraining successful bidders' ability to invest in delivering the services. Looking across markets as a whole, suppliers and investors want to see a level playing field, such that investment in one market is not disadvantaged relative to investment in another. Otherwise the overall market could fragment and the true global vision for 3G/IMT-2000 would be lost.

Experience with GSM offers an example of how this global vision could work. Private sector companies have been willing to invest heavily in improving and extending telecommunications infrastructure, and have done so in almost 150 countries. Production facilities have been established around the world bringing investment, employment, innovation, scale economies and flexibility to global operations. By extending world-class communications to the mobile masses, the economic benefit of these investments has extended far beyond the taxes generated through the activities of the operators.

Getting the 3G balance right should lead to more jobs and wealth-creation opportunities. That is the real political and social opportunity.

Alan Hadden, president GSA

Further information about the GSA

Press Archive