Abandoning spectrum auctions

It feels a bit like moving into the dark ages.

Coase 1959 started explaining the merits of allocating radio spectrum by auction.

And then...

New Zealand’s 1984 elections put the Labour Party in control of Parliament after it had been out of power for a decade. At the time, New Zealand’s economy was suffering, and Labour chose to use privatization and deregulation as tools to improve economic performance. An early step in this process was to separate the post office into three entities—a state-owned telephone company, a state-owned postal company, and a spectrum regulator. Before that, the post office, a major spectrum user, had also been the spectrum regulator.

The government did not stop with this separation of functions. In 1987, the government stated that it intended to end the telephone monopoly, and in 1988, it commissioned a study by John Fountain, an economist at the University of Canterbury, to review the literature on the economics of spectrum management (Fountain 1988). The first two articles addressed in Fountain’s review were Coase’s (1959, 1962) articles. The report was not directly an analytic or advocacy piece; nevertheless, it did clearly communicate the view that economic mechanisms for spectrum management were feasible and promised significant benefits.

New Zealand pioneered it! There were some early issues, and they learned a fair bit about spectrum auctions along the way. And others followed.

But now the government's abandoned them for winner-picking giveaways.

The Government has abandoned plans to auction radio spectrum.

Instead, it will directly allocate the 5G-friendly to telcos for a 20-year term - on the proviso that they make commitments to better address mobile calling and broadband gaps in rural and small-town NZ.

The move means Communications Minister David Clark has gone for public good over a windfall for Crown coffers that could have run to hundreds of millions, based on previous spectrum auctions.

Clark says the arrangement means more people will get better mobile coverage more quickly, and in more places.

The better approach would have been to auction off the spectrum, then set an RFP for services that the government considers to be valuable but that are not commercially viable. 

Do it that way and the least-cost provider of the RFP services winds up being the one to do that stuff, and the highest-value users of spectrum are the ones to buy it. Bundling them together will only find the right mix by accident. 

The giveaway to incumbents could be worth hundreds of millions.