The UK Mobile Phone Spectrum Auction

Well, the auction is over. It has raised a lot more than was expected and the chattering has started. I have heard three things about the sale with which I take exception.

First, the auction amounts to a tax. Yes? I always thought that a tax was a levy on some transaction in which I have no choice. The mobile auction is a free sale in a market overt to bidders who are entitled to bid or walk away as they see fit.

Second, the high prices will drive up costs of third generation services. Well, lets just suppose for a monent that the bidders (sophisticated operators with far more experience than any of the analysts) actually know what they are doing. Surely, high prices for the licences, which are the ultimate and purest of fixed costs, will mean that it is imperative that the operators will strive to maximise network use. Thus the prices for service will be set to be the level that will just achieve bandwidth saturation. If anyone seriously thinks that prices would be lower than that under any other licence scheme then they are, I am afraid, at least one digit short of a dialing code.

Finally, I hear that the bidders have all overpaid drastically. Oh really please. See my comments above about the relative knowledge of sophisticated operaters and stripey shirted analysts. But consider this also, the existing operators have paid perhaps 20-30% more for their bandwith than the one bid from a new operator. Also, the new entrant companies competing for the other franchises all dropped out before the existing operators. An operator who is already in the market must have a cost advantage over a new entrant. They have access to a customer base, they have all of the marketing, billing and service infrastructure in place. If anyone thinks that these are cheap, they should go and ask the big consultantcies for a quote for a UK specific infrastructure. Surely this is exactly what you would expect to see if the bidders were all behaving rationally?

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