EU DG Competition
Economic Advisory Group Telecommunications
Competition in Mobile Communications
and the Allocation of Scarce Resources:
The Case of UMTS
Jörn Kruse
1
Prof. Dr. Jörn Kruse, Universität der Bundeswehr Hamburg
Content
2
1
Scarce Spectrum and Licensing in Mobile Communic.
2
Scarcity, Spectrum Prices and Efficiency
3
How to Allocate Spectrum
4
License and Spectrum Allocation in GSM and UMTS
5
Competition Intensity in GSM and UMTS
Prof. Dr. Jörn Kruse, Universität der Bundeswehr Hamburg
1 Scarce Spectrum and Licensing in Mobile
Communications
License Requirements constitute Entry Barriers and (potential) Inefficiencies
Spectrum is limited overall and due to intermodal spectrum allocation
Spectrum Divisibility is limited due to Economies of Scale
Proper intramodal spectrum allocation is the economic rationale for Licensing
3
Prof. Dr. Jörn Kruse, Universität der Bundeswehr Hamburg
Significance of Spectrum Availability
TAC
AIC
BAC
TAC1
AIC1
TAC2
AIC2
TAC3
AIC3
BACA
Q1
Q2
Q3
x
BACA shows Economies of Scale ,
AICi : Av. Incremental Cost of Cell Splitting,
TACi : Average Costs
4
Prof. Dr. Jörn Kruse, Universität der Bundeswehr Hamburg
Traffic
2
Scarcity, Spectrum Prices and Efficiency
Factor Substitution (mobile comm production function)
Spectrum vs base station equipment etc. (cell splitting)
Spectrum rivalry between different Spectrum Usages (intermodal)
Services and applications (mobile comm, broadcasting, etc.),
different factor substitution in different usages
→ Efficiency requires Spectrum Prices
(prices according to degree of scarcity)
5
Prof. Dr. Jörn Kruse, Universität der Bundeswehr Hamburg
Intramodal Spectrum Prices
Price
SD
SS*
3
SD2
C
P2 A
SD1
D
P3B
0
6
Q1
Q4 Q*
QG
Prof. Dr. Jörn Kruse, Universität der Bundeswehr Hamburg
Spectrum
Intermodal Spectrum Allocation
Spectrum Price
Spectrum Price
E
T
SDA
SDH
SDB
P2
D
B
SDJ
Ps
S
C
U
J
PJ
P1
R
F
V
H
0D
7
QH Q*
QS
QJ
Prof. Dr. Jörn Kruse, Universität der Bundeswehr Hamburg
OR
3
How to allocate Spectrum
Objectives
• Efficiency of Mobile Markets
Competition Intensity vs. Scale Economies
• Transaction Costs, Non-Discrimination, Transparency
• Social Objectives
Regional Coverage, Universal Service
• Fiscal objectives (???)
Methods
• Criteria/Beauty Contest
• Auction
8
Prof. Dr. Jörn Kruse, Universität der Bundeswehr Hamburg
Allocation Methods
first come first
served
Lottery
--
+
--
-
Governments
Influence
(from their point
of view)
-
--
++
++
--
--
Auction
++
+
depends
depends
++
++
--
--
depends
++
--
depends
depends
+
Discretionary
Decisions
Beauty Contest/
Criteria Contest
9
Efficiency
of
Mobile Markets
Transaction
Cost
Time
Nondiscriminating,
Transparent
Social and fiscal
objectives
-depends
+
depends
Prof. Dr. Jörn Kruse, Universität der Bundeswehr Hamburg
Features of Spectrum Auctions
• Auctions pick the expectedly most-efficient operator,
if willingness to pay = efficiency
(no winners curse
/
no unrealistic assessments)
• No discrimination (i.e. foreign companies), transparent
• Transaction costs may be low, quick
• Spectrum Fees do not increase consumers‘ prices,
since / if
fees are fixed and sunk
Auction Spectrum Fees (if very high) may endanger firms‘ Financial Stability
(Auctions in UK and Germany for many European firms)
10
Prof. Dr. Jörn Kruse, Universität der Bundeswehr Hamburg
Auction Methods compared
Low Risk of
Collusion
Low Risk of
Entry-Block
Endogenous
Information
for the
Regulator
High Bidder
Information
and Low
RiskAversion
Suitability for
multipleobject cases
with complex
cost and/or
demand
efficiencies
2
3
4
5
6
--
--
0
+
++
++
++
-
-
--
++
++
+
-
-
-
-
++
-
--
1
English Auction
(ascending A.)
Dutch Auction
(descending A.)
First Price SB
(discriminating A.)
Second Price SB
(Vickrey A.)
Mostly Used: English Auctions
+ Suitable, Comfortable
- Higher Risk of Collusion and Entry Blocking
0 Bidder Info (to prevent Winners Curse) may be questionable after UMTS in UK
and Germany
11
Prof. Dr. Jörn Kruse, Universität der Bundeswehr Hamburg
4
License and Spectrum Allocation in GSM and UMTS
90
91
92
93
94
95
96
97
98
99
00
01
91
92
93
94
95
96
97
98
99
00
01
Netherlands
Denmark
Germany
United Kingdom
Austria
Sweden
Italy
Hungary
Belgium
Finland
France
Greece
Poland
Portugal
Spain
Switzerland
Ireland
Czech Republic
Iceland
Luxembourg
Norway
90
1 Betreiber
2 Betreiber
3 Betreiber
4 Betreiber
GSM Licensing: Step-by-Step
5 und mehr Betreiber
12
Prof. Dr. Jörn Kruse, Universität der Bundeswehr Hamburg
UMTS Spectrum Allocation in Europe
Country
Month
Method
Number of
licences
United
Kingdom
Germany
April 2000
Auction
5
August 2000
Auction
610
36.60
Italy
October
2000
Auction
6
endogenous
5
212
10.60
Netherlands
July 2000
Auction
5
171
8.55
France
February
2001
November
2000
December
2000
March 2001
Beauty
contest
Auction
2
169
3.38
6
endogenous
3
103
6.18
51
1.51
3
44
1.32
December
2000
December
2000
March 2000
Beauty
contest
Auction
4
40
1.59
4
19
0.76
Beauty
contest
Beauty
contest
Beauty
contest
Beauty
contest
4
13
0.53
4
11
0.44
4
0.0
0.00
Austria
Poland
Belgium
Portugal
Switzerland
Spain
Norway
Sweden
Finland
13
December
2000
December
2000
March 1999
Beauty
contest
Auction
4
Spectrum Cost-Index
Fees
per
(Euro per population
population) per license
648
32.40
free
Prof. Dr. Jörn Kruse, Universität der Bundeswehr Hamburg
-
UMTS Auction Spectrum Fees
• Spectrum Fees via Auctions higher than BC (administratively set) Fees
• Auction Theory Explanations are limited.
Outcomes rather specific for indiv. Country, time etc.
Time of Auction in UK + Germany (Internet + Mobile Hype)
→ Winners Curse (esp. newcomers),
shock for the following auctions
• Number of UMTS Licenses mostly higher (+1) than number of GSM incumbents
• UK and Germany "strategic countries" for firms with "European approach“
• Germany: Entry blocking or econ. Reasons, quality / cost AC(15) < AC(10) ?
Newcomers’ winners curse, market structure (2-2-2)
14
Prof. Dr. Jörn Kruse, Universität der Bundeswehr Hamburg
5
Competition Intensity in GSM and UMTS
Structural
Feature/Factor
1
a
Number of
Operators
1995
Relevance
Assess. für high (+)
+ low (-)
competitionIntensity
b
c
small
future
Relevanz
Assess. für high (+)
+ low (-)
competitionIntensity
f
g
medium
+
Concentration
very
high
-
high
o
2
Entry Barriers
high
--
high
-
high
o
3
Fixed Costs
very
high
++
very
high
++
very
high
++
4
Sunk Costs
very
high
o
very
high
+
very
high
+
-
high
+
very
high
++
++
high
++
high
++
o
medium
-
low
+
-
medium
+
low
++
low
Elasticity of
MarketDemand,
Substitution
high
6
Homogeneity
und
Transparency
7 Switching Costs medium
5
8
9
15
2002
Relevanz
für high (+)
Assess.
+ low (-)
competitionIntensity
d
e
+
relatively
small
Technical and
Economic
Dynamics
Total
high
moderate
relatively
high
Prof. Dr. Jörn Kruse, Universität der Bundeswehr Hamburg
high
UMTS infrastructure sharing
UMTS is late, cost-intensive and success is uncertain
first years may be crucial
RAN-Sharing (esp. in first years) will reduce costs,
increases + enlarges UMTS-development (services)
RAN-Sharing is not a Problem for Competition,
even pro-competitive for services markets
16
Prof. Dr. Jörn Kruse, Universität der Bundeswehr Hamburg
Competition Policy or Regulation ?
Mobile Markets have been very successful,
*
because of low regulation (except licensing),
*
because they are competitive
Mobile Markets would be harmed by new Regulation
Cost coverage diff for indiv Tariff-elements (Ramsey)
(1) Mobile Carrier Selection
*
would be inefficient (alloc, cost)
*
would dramatically increase regulation
(origination, third-party billing)
(2) Mobile Termination
*
if there is a problem... : Competition Policy
17
Prof. Dr. Jörn Kruse, Universität der Bundeswehr Hamburg
Comments Welcome
[email protected]
18
Prof. Dr. Jörn Kruse, Universität der Bundeswehr Hamburg
Backup
Abb. AS-6-3: Herfindahl-Index für diverse Länder im Zeitablauf
Schweiz
Österreich
10000
Deutschland
Frankreich
Italien
8000
Niederlande
Spanien
Schweden
Großbritannien
6000
Finland
4000
2000
0
1.Hj.
1994
20
2.Hj.
1994
1.Hj.
1995
2.Hj.
1995
1.Hj.
1996
2.Hj.
1996
1.Hj.
1997
2.Hj.
1997
1.Hj.
1998
2.Hj.
1998
1.Hj.
1999
2.Hj.
1999
Prof. Dr. Jörn Kruse, Universität der Bundeswehr Hamburg
1.Hj.
2000
2.Hj.
2000
1.Hj.
2001
01.09.
2001
Fixed Costs and competitive Incentives
High fixed costs
Low fixed costs
FK=9000,
Fig. DG4-513: Incentives
with highVK=10/ME
and low fixed and variable costs
FK=1000, VK=90/ME
300
300
280
+16000
280
+16000
260
+14000
260
+14000
240
+12000
240
+10000
200
+8000
+4000
140
100
+2000
+1000
+/-0
-500
80
-2500
120
FK
60
20
10
20
30
40
50
+4000
140
+2000
+1000
120
100
+/-0
FK
-500
80
-5000
40
-7500
20
VK
0
VK
0
+6000
160
60
40
0
+8000
180
Price
Price
+6000
160
+10000
200
180
60
Quantity
21
+12000
220
220
70
80
90
100
0
10
20
30
40
50
60
Quantity
Prof. Dr. Jörn Kruse, Universität der Bundeswehr Hamburg
70
80
90
100
22
Prof. Dr. Jörn Kruse, Universität der Bundeswehr Hamburg
23
Prof. Dr. Jörn Kruse, Universität der Bundeswehr Hamburg