Pity telecom industry analysts who must work out what the novel 'hybrid' auctioning system of third generation (3G) mobile licences means for an already rapidly changing industry. For the rest of us, the decision should ensure it stays competitive, innovative and most importantly cheap. At last it looks like a return to rational economics in the SAR. Auctioning rather than granting four 3G licences by 'beauty parade' is in line with best practice policy elsewhere in the world. It represents a flexible market-based solution that should ensure network operators make a fair but competitive return and the public purse is justly compensated. The SAR is unlikely to see the kind of windfall return that the British and German governments made. Firstly, caution rather than boundless optimism now typifies investors' view of likely future profits from so-called M-commerce. More importantly, the decision to make Hong Kong's networks 'open access' radically changes the industry's economics. That is fine. Sensible policy should not be dictated by narrow aims of simply filling treasury coffers. Forcing the four licence winners to open their networks will allow so-called 'virtual operators' to run perhaps as yet imagined Internet-based applications. Nobody is sure what will work and what won't now as many players as possible will be involved in that competitive process. For the privilege, they will pay the 3G networks an 'inter-connect fee'. This means the mobile business will essentially be divided in two and licence winners can expect 'utility' returns from selling mobile bandwidth. In the industry parlance the 3G networks will not own the customer. As such the losers will be the big three existing operators which could have expected to get licences for free under a 'beauty parade'. Now a foreign company could bid and provide bulk airtime to multiple virtual operators. Making the system work depends on transparency. Allowing licence applicants to pay by either up-front, deferred or royalty-based payments makes an objective assessment of bids difficult. From a policy formation perspective the 3G episode has shown official incompetence. The Office of the Telecommunications Authority initially decided that auctions were a bad thing before properly assessing the facts. Going forward, an important precedent has been set. It will be hard for the Government to argue against auctioning future digital television licences or unneeded second generation mobile spectrum as it is retired.