Jock's Place - Yes, but it's our "thin air" - Comments

3G auctions

Mark Wadsworth — Sat, 26 Jan 2008 21:15:44 +0000

The 3G auctions were pure genius, about the only thing that the Goblin King didn't totally screw up.

To those who say "But the airwaves don't belong to the government", the answer is,

1. it's not the airwaves per se for which they are paying, the mobile companies are paying a slice of expected future profits. They only expect to make profits because there are sixty million customers living on a smallish island. It's the people that create the potential value. If you auctioned off the 3G licence for the whole of Antarctica, you'd be lucky to get a handful of buttons for it.

2. However much or little they pay for the licences, the prices that they can and will charge are the same.

3. So as long as the money raised is spent sensibly, by repaying a bit of National Debt and so on, then all we are doing is shifting money from the mobile companies and their shareholders and dishing out to all and sundry via tax cuts, repaying debt etc

Of course, where the analogy breaks down is that Nulabour just pissed that money straight up the wall, but hey ...

Is it fair?

Jock — Fri, 25 Jan 2008 17:00:59 +0000

So are you saying it's a bit of a dodgy way of doing it? Or quite a commonplace way and they should have known better how to play?

I seem to recall at the time that the £3bn estimate was before the Italian auction ended up making a huge premium on its expectations and scared the participants in the British one into bidding higher.

Auctions

Edis — Fri, 25 Jan 2008 16:39:12 +0000

The UK spectrum auction was a 'Prisoners Dilemma' multi-round auction for five spectrum slots simultaneously. Bidders had to 'buy in' to the process by putting in a non-returnable deposit. In a round each participant puts in bids. If there are more bidders than there are available slots, the auction goes into a further round where the minimum bid levels for each item are the top bids from the previous round. Participants have to decide whether at least to match that bid, increase it, switch to a different item, or drop out. They have to bid for something in each round or drop out. If more remain at the end of that round than there are items in the auction, yet another round is opened with the same rules. The process goes on until bidders drop out leaving (in this case) five bidders remaining, each taking the item where they have the highest bid in that round on record.

The government specified this bid method which brings Games Theory and therefore second guesses of second guesses into play. It could be argued that this forces bidders to put up more money that they really think the items are worth.

The UK auction attracted 12 bidders and went through 90-plus rounds without anyone dropping out. It tooka few weeks more for the last 'extra' bidder to withdraw.

It was expected to bring in 3 thousand million pounds. It actually realised 29 thousand million pounds.

Not an exact science...

Jock — Fri, 25 Jan 2008 12:06:58 +0000

Sure, it's not an exact science - the EMF does not respect administrative boundaries! But say we wanted to license one WiMax provider in Oxford and a different one in Abingdon, could you not still license those two separately and they would have the right to "jam" signals from beyond the range of their license?

What happens at the moment with FM radio frequencies - those are reused in different areas aren't they?

I just dislike the idea of one nationwide auction determining who hasrights to provide particular services to people everywhere where it requires them to put in local infrastructure. They could effectively buy up the spectrum and then only bother supplying lucrative areas couldn't they?

There are problems with

Tristan Mills — Fri, 25 Jan 2008 11:46:04 +0000

There are problems with making parts of the spectrum local...

High microwave frequencies are very local, but also only line of sight.

The current UK record for 10GHz is 1400km on 2 Watts though (good quality audio to Sweden was achieved) and though that was probably freak conditions we don't really know how often it occurs (the probability of a radio amateurs being in the right place at the right time is low)

It is conceivable that some spectrum could be set aside with power restrictions for local use and administration though.

If I wasn't clear...

Jock — Fri, 25 Jan 2008 11:30:25 +0000

It's not really "thin air" is it. It's electormagnetic spectrum. Each frequency is a finite piece of "real property" which, if encroached upon by others (trespassed in the terrestrial sense), interferes with the legitemate occupier's ability to use their property and so nees prottecting in some way. At the present time the body most likely to be able to provide such protection is the state, represented by government, so yes, they should, on behalf of all of us, collect the value put upon protected sections of the spectrum by licensed users.

But is "thin air" actually

Anonymous — Fri, 25 Jan 2008 08:45:12 +0000

But is "thin air" actually government's to sell, and why?

Exactly

OneHourAhead — Fri, 25 Jan 2008 08:29:18 +0000

John Redwood used this is as an argument in the ECPG review last year. I blogged about it here. It seems the Tories want a beauty contest which is neither competitive nor efficient rather than an auction which is both. A good example of the difference between real classic economic liberalism that we should be espousing and the pseudo-capitalism that we have now that everyone rails against.

Yes, but it's our "thin air"

Jock — Thu, 24 Jan 2008 19:42:57 +0000

I recently discovered a Conservative version of the Lib Dem Blogs aggregator and so my eyes have been opened to a whole new genre of political blogging! Today I spotted a chap called Mike Rouse writing about "spectrum auctions" as it was called:

I am hoping, nay praying, that Gordon Brown is out of office when the analogue TV signal is switched off. You see, that old airspace is very valuable to mobile phone operators and the likes of Google. They would be able to use it to send fast data to mobile devices and other cool things like that. The last time this government oversaw the sale of airspace to mobile networks it managed to amass itself millions of pounds, in fact it actually got too much money for it, leaving the people that bought the space with not much money to do anything else with it. Going by the track record of this government in screwing things up I wouldn’t put it past them to screw up this potentially lucrative deal when it comes around. We have to be careful to balance the government’s desire to fill its coffers and the need for a competitive marketplace that will benefit the economy in the long run. [From Not Bad for Essentially Privatising Thin Air | Mike Rouse]

Er, no Mike, the sale of 3G spectrum was an auction. That means the bidders decide how much they feel it's worth to them. Yes, they may well have made catastrophic miscalculations, but, as they say, you live and learn. These "locations" on the electromagnetic spectrum - so called "Electromagnetic Frequencies" or EMF - are, in economic terms, "land" - finite bits of nature that everyone wanting to operate in a particular technology has to share. So they should be auctioned, or leased, for whatever the market can bear and the proceeds used for public revenue (which was £22 billion in the UK). It is a form of Land Value Tax. It encourages ingenuity in ensuring the optimal use of a precious and finite natural resource (though I accept the point, that the operators chose to pay so much they could no longer raise the money to exploit it properly - but that wasn't the government's fault).

One thing I wish the government, or Ofcom, would do, is to make local bandwidth genuinely local, however. The current wireless spectrum for example is only useful over distances of a few hundred meters at most with present technology. It should be a source of revenue for local authorities rather than central government.