Economic Considerations of Mobile Telecom Markets

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Part of my self-directed efforts to get ready for ComCult this fall includes trying to increase my foundational knowledge of telecoms policy. One thing that’s become apparent is although I still consume a lot of information through various feeds (and share some of the telecom relevant stuff on one of my Twitter accounts), it’s been a while since I’ve done a lot of dense, academic reading. As such — and along with my other commitments — it’s taken longer than I expected to get through The Economics of Mobile Telecommunications by Harald Gruber.

One of the things I enjoyed was gaining some sense of the development of mobile telecommunication networks from a policy viewpoint. As my undergrad focused on political science, Gruber’s economic handling of the material also added to some of my struggles. I only took a couple macro economics courses at post-secondary and a political science stats class. When discussing strengths and weaknesses of policy choices by various states, I could follow along fairly well. When he started getting into formulas in the chapters on ‘Determinants of diffusion of services’ and ‘Market conduct and pricing issues’, not quite so smoothly.

As Head of ICT and Economy Division, Projects Directorate, European Investment Bank, Gruber is naturally focused on various EU states with the US market often used for a counter point. This was helpful for placing my policy understanding in a global context, as Canada shares a Receiving Party Pays (RPP) regulatory framework with the US but most (all?) of the European examples used a Calling Party Pays (CPP) system. If only I had finished the chapter discussing the reasons the European vs North American mobile markets evolved differently (legacy of local fixed-line telephony), I would have been well placed to respond to a question/complaint on the issue a few weeks by a British expat on my hockey team. While Canada is used in a few tables, I’ll need to pick up at least a few books looking specifically at our national mobile development.

The chapter on radio spectrum management — the reason I first picked up the book — was actually quite interesting in looking at how various national 3G license auctions were structured. Of course, Gruber was looking from an economist’s viewpoint and so his research had a different lens then I’m hoping to take in my studies. Is maximizing license fees truly the best way to ensure the most efficient use of spectrum with the greatest benefit to all citizens, businesses and society? If you reserve spectrum for small market players or new entrants, does that improve competition or inefficiently keep spectrum away from larger incumbents that may be able to roll out network upgrades faster using of existing facilities? What is the right mixture of incentives and punitive measures to discourage market leaders from rent-maximizing policies that slow overall development of new technologies and diffusion of benefits to all?

There was little mention of conditions set on firms to build out network capacity or risk penalties. Sweden, where 3G licenses were issued under an administrative regime instead of an auction, was one such example where fines or the possibility of revoking of licenses was a potential consequence of slow utilization. Although, as Gruber notes, “As the licencing concerned a new technology with much of the basic equipment still under development at time of licensing, such a threat was not credible.” What are the implications of such conditions for the upcoming Canadian 700MHz auction?

If the rules are put in place that treat the spectrum as 4G-specific but use the 3G++/4G-lite standard telcos are currently rolling out, does that make them ineffective at speeding up the deployment of more advanced networks? If rules provide conditions for LTE-Advanced or WiMAX2, does Industry Canada risk a similar problem to Sweden’s regulator where most licensees were unable to meet network deployment deadlines?

Still, I’m starting to feel a little more comfortable with some of the operational considerations of spectrum auctions and will be looking to review Industry Canada’s consultation documents on the 700MHz band and, more broadly, spectrum auction frameworks, armed with a little more knowledge.

I’ll also finish Gruber’s last chapter on ‘Evolution of market structures’ before moving onto Strategies and Policies in Digital Convergence.