July 14, 2017 / 11:43 AM / 4 months ago

Britain’s 5G auction puts customers before coffers

LONDON (Reuters Breakingviews) - Britain’s 5G auction is wisely putting customers before the country’s coffers. Regulators on Tuesday capped incumbent BT’s participation in upcoming mobile-spectrum sales, potentially hitting the Treasury’s income from the sales. It’s a reasonable trade-off in order to ensure a competitive four-player telecoms market.

The company logo for BT is seen on the BT Tower in London, Britain, January 24, 2017. REUTERS/Toby Melville

It makes sense for governments that are selling assets to try and maximise their revenue. In this case, that would mean letting telecoms slug it out and handing frequencies to the highest bidders. In the case of mobile-internet spectrum, however, there’s a snag. BT is the largest holder of spectrum and, were it to increase its share substantially, might be able to squeeze small rivals and leave them unable to offer services on competitive terms. That could lead to higher prices and reduce smaller firms’ willingness to invest.

For those reasons regulator Ofcom stopped BT from participating in an auction due later this year for spectrum in the 2.3 GHz band – the kind that’s already usable today. It also capped operators at 37 percent of total mobile spectrum expected to be usable in 2020. That constrains BT for an auction also due this year of the 3.4 GHz band, which is expected to be used for superfast 5G mobile internet.

For Britain’s coffers, that probably means lower takings. The National Audit Office says proceeds from the 2.4 billion pound 4G auction in 2013 were about 7 percent lower than they could have been, as a result of Ofcom reserving spectrum for a new entrant. It’s possible the lost income would be proportionately higher this time, as biggest player BT is the most constrained. On the other hand, it’s possible that BT and mobile operator Vodafone would bid less aggressively for immediately usable spectrum since they already have plenty.

Either way, the consumer benefit from having a competitive four-player market is likely to be high. Kepler analysts reckon average revenue per user in neighbouring France fell by 30 percent after Iliad joined the market as a fourth player. A 2009 paper in the RAND Journal of Economics, meanwhile, estimated that the value to U.S consumers of a competitive market has proved many times higher than the amount the government has earned in wireless licence sales. The hit to Treasury coffers is a sacrifice worth making.

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