'Spectrum is a scarce public resource that should be utilised in the most efficient manner. It should be left for the market to decide who will be assigned the spectrum, and assignment by auction is generally considered to be the most appropriate means as it provides a fair, transparent, objective and economically efficient means to determine who should be assigned spectrum.' Consultation paper, Telecommunications Authority I COULDN'T AGREE more, particularly as one of the few successes I can boast for this column is helping convince our government five years ago that it should not give 3G mobile-phone licences away for free when auctions in Britain indicated they could be worth up to HK$40 billion in Hong Kong. We never got that much, of course. The Telecommunications Authority (TA) is not a complete believer in auctions, whatever it may say, and it managed in the end to undermine a straight auction by adopting a more complicated process that effectively short-changed the public purse. I think it is doing so again. What it wants is a CDMA2000 network in Hong Kong to cater to visitors from the mainland. Contrary to its professed belief in market decision, it has not left this choice to the market and the auction of this licence is virtually certain to bring in much less money than we could get. First, a little background. All four 3G licences in Hong Kong use a European standard called WCDMA (also called UMTS). CDMA2000 is an American 3G standard compatible with the earlier generation mobile phones at present used in the mainland. Beijing's plans call for this to be supplanted eventually by a home-grown 3G standard called TD-SCDMA but these plans are increasingly in doubt. Visitors from China with CDMA handsets can enjoy automatic roaming services in Hong Kong but the IS-95 CDMA standard through which they do so here is to be discontinued in November 2008. That standard was a market flop. Thus the TA now wants to give the visitors a direct CDMA2000 standard. If you find all this confusing, it is. But now, to the point about the market. I would have thought the obvious thing would be to tell the industry that there is a new 3G licence to be issued and let the industry decide what standard it finds most appropriate to Hong Kong's needs. The spectrum, let me make the point for the TA again, is a valuable public resource, as valuable to us as the public land we sell at auction, as valuable as mining rights are to countries like Australia and Canada. Open the market for a 3G licence as wide as you can and not only does the public purse stand to get the best possible price for the slice of the spectrum on offer but the decision on how best to use it will be left to industry practitioners, the real experts in the field. What is likely to happen in this case, however, is that there will be only one real bidder, China Unicom. It has the connections to the mainland CDMA users and it can make its money by charging them steep roaming fees at home, which Hong Kong-based networks are in no position to do. Thus it will probably walk away with the licence at the reserve price that the TA posts and that reserve price is likely to be low, given the TA's position that 'adjustments are to be made to take into account the change in the market and the perceived change in 3G spectrum after the burst of the IT bubble in 2001'. But why cater to mainland visitors this way? They mostly use only the earlier 2G standard anyway as the mainland is late in introducing 3G. Their obvious option is get a dual or tri-band phone, just as you do if you want to use your 2G mobile abroad. Let us assume, however, that it would be difficult for them and that they constitute a big market in Hong Kong. In that case, the network operators would long ago have spotted the opportunity and be willing to bid a higher price for a CDMA2000 network here than they would for a network on any other standard. But they are not willing. They do not see it as a big opportunity. They would rather go with their existing WCDMA standard. So what we have here once again is a government agency proposing to short-change the public purse at the behest of a big but narrowly based tourism lobby that wants to boost its earnings at our expense and has hoodwinked our government into going along. The hidden costs we pay for boosting tourism are enormous. I shall say it again. I don't think the TA really believes that the market should decide. But if it wishes to protest that it truly does believe this, then it has an obvious choice to make. Rather than specifying CDMA2000, it should ask industry practitioners through a completely open auction what standard they want for this new 3G licence. The answer won't be CDMA2000.