JAKE'S VIEW
Jake's View
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Re-auctioning radio spectrum is the perfect route to take

Putting the mobile spectrum up for auction when the licence term ends forces operators to price it at its full value to them, is an excellent source of fiscal revenue and does not lead to consumers being passed costs that they would not otherwise have to pay

PUBLISHED : Saturday, 27 May, 2017, 9:59pm
UPDATED : Sunday, 28 May, 2017, 2:37am

[HKT group managing director Alex] Arena also slammed the government’s policy of re-auctioning spectrum when the licence term ends, pointing out that it causes business uncertainty for operators and could potentially cause disruptions in service, leading consumers to suffer.

Business, May 25

 

Let’s start from one cardinal principle here and if you don’t think it valid then you can skip the rest of this column as there is plenty to your purpose elsewhere in this newspaper today.

The radio spectrum above our heads is as much a public asset as is the land that government sells at auction and short-changing the public purse by letting private entities have it at concessionary prices amounts to fiscal negligence.

Mr Arena does not see it that way, of course, which I always find ironic. He led the charge in reforming a colonial monopoly into the competitive telecommunications industry we have today but now his is the loudest voice for applying the brakes. Let us consider some of his worries.

The most notable one is that auctioning the spectrum to mobile phone operators results in very high prices that the operators must pass on to their customers. This is a disservice to consumers and inhibits the growth of the economy.

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To this objection I pose one question. If HKT thought that the market would accept a 20 per cent increase in usage charges would it forebear from raising its tariffs by that much on the grounds that this would be a disservice to consumers and inhibit the growth of the economy?

I very much doubt it.

Depend on it that the network operators will always charge what the market will bear and are keenly aware of what this is likely to be at any given time. To let them have use of the spectrum at a concessionary rate is therefore only to give them a windfall profit at the public purse’s expense.

Auction of the spectrum is the perfect route to go. It forces the operators to price the spectrum at its full value to them, it is an excellent source of fiscal revenue and it does not, I shall repeat this, lead to consumers being passed costs that they would not otherwise have to pay.

Neither does it inhibit the growth of the economy. Just look round you once on the MTR at what your fellow passengers are doing on their smartphones and then tell me that Candy Crush is an essential economic activity.

But Mr Arena makes the argument particularly of re-auctioning the spectrum, putting it up for full auction again when a licence expires.

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I can understand the objection. Imagine that the facilities in which you invested for your network suddenly become valueless because someone bid higher than you did for a slice of the spectrum you previously used. Wouldn’t this be a waste? Should we not give existing holders some degree of preference?

Once again I say no. In the first place the existing operator already has an edge in the installed network facilities for which it does not have to pay again. A new licensee would have to invest anew.

But I also have some faith in the people at the Telecommunications Authority. I think they are fully aware of this difficulty in re-auctioning, know the market well and have some scope for influencing the outcome. There is also to be a fee element in the final licence price.

If it does come to be a problem, however, so then so be it. There still is no better system than auction for establishing what the real value of the spectrum is to its users. Doing it by auction only once at first usage of the spectrum is not enough, particularly with continued change in mobile phone technology and usage.

Licences in such a business cannot be made permanent, if they can in any business. They must have a term and the risk of non-renewal is one that the licensee must simply accept. I don’t think it a big problem.