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Designing Spectrum Auction

Admin October 23, 2020

If there is no auction model which is available to allocate the spectrum in a transparent way, then the government should not hesitate to allocate spectrum as per its wisdom to maximize the social good and reduce the wastage which is happening continuously. The risk to the reputation of the government should be borne by the government for social cause. — Alok Singh

Designing something is a challenge. If the design is perfect then the other things follow smoothly. If the design itself is faulty then the whole system is bound to collapse- the only thing left to speculate is whether the collapse is going to be immediate, in short term or in long term, or whether it’s going to be spontaneous or gradual. The timing and duration of the collapse of faulty design are context-dependent. Designers are at the core of the success or failure of a project.

The design can be unique or replicable. If the design is unique then it is for the one-time use and if the design is replicable then it can be used multiple times to achieve the same purpose or it can be replicated in a different context if it serves the other purpose. For illustration:  the design of apparel can be replicated for different types of clothes and for different sizes of clothes, the design of a building can be unique or replicable, and the design of metro stations can be unique or replicable, and so on. Designers have a tough job and designing is a profession that demands too much creativity and critical thinking. The shelf life of design varies according to various factors. The shelf life of apparel design is something that an individual can analyze on their own. How over a period of time one design is accepted as a compliment or as a supplement to the older own. The design of residential buildings changed as newer and newer construction materials and other household appliances as well as the neighborhood and other factors stimulated it.

The design has to achieve a certain objective and at the same time satisfy all the constraints which are imposed to achieve the goal. The end and the means to an end are to be satisfied by the design team. For example, the design team in the case of building design has the objective to come up with a design that satisfies earthquake and fire safety goals and the customer’s expectations, and at the same time is constrained for the available area, neighborhood layout, and the budget. The design is everywhere in civilization, we see here and there- and we interact with a designer’s role. There are many disciplines of design and many awards that are designed specifically for designers. It can be building design, automobile design, engineering design, web design, software design, lighting design, information design, game design, course design, organizational design, trade design, and many more. In all the situations the design varies from place to place as the context changes from place to place. People change from place to place, the environment changes from place to place, the objectives, as well as constraints, also change from place to place. The policy design varies from country to country based on an individual country’s location, state of the economy, demographic profile, culture, history, geography, and all the other diversifying factors including time. The policy design which is optimum today was not optimum yesterday and will not be optimum tomorrow. For illustration, the demographic profile keeps changing and if it has a role in policy design then the designers need to incorporate it in the original design itself.

Spectrum is a scarce natural resource. The rainbow is an easy example to understand the spectrum of colors- sometimes it’s overlapping and sometimes it’s separating. The radio, television, and mobile phone use electromagnetic waves to facilitate communication, and other household appliances such as oven, induction, fryer, griller use microwaves for cooking.  The one category of airwaves is paid while the other category of airwaves is free. The spectrum is a combination of airwaves or a range of waves that can be used to transfer information or do work at a specific time at a specific place. 

Italian Nobel laureate Guglielmo Marconisent the first wireless telegraph message in 1902 and in the process used all the electromagnetic frequencies to complete the transmission, and till it was completed no one could operate their radio within a radius of 3500 km. The solution offered to those in the vicinity was to coordinate among themselves. It was suggested that the other users of the airwaves can coordinate among themselves to use the airwave frequency at different time slots and is called Time Division Multiple Access. It means that the coordination has to be such that the users consume the same airwaves but in different time slots. The spectrum of airwaves is continuously available and if it is not doing work at a particular instant of time then it’s sitting idle and is a wastage unless it’s reserved for defense purposes. 

But the users who were beyond the 3500 km from the transmitter could use the same airwave and are technically called Space Division Multiple Access. It means that the airwaves become weak as it moves away from the transmitter.

Later on the transmitters were restricted to use a particular pre-defined band of frequencies. This development could grant access to multiple users at the same time and at the same place to airwaves and is technically called Frequency Division Multiple Access and in this concept different frequencies are allotted to different users. The airwaves do not obey international boundaries. It’s a scarce natural resource and so an international institution was commissioned by the United Nations to standardize and coordinate among the member countries of the United Nations. The International Telecommunications Union was established in the year 1865 as International Telegraph Union and today is the agency of the United Nations which engages itself in managing radio frequencies, standardization of telecommunication services other than radio, development of sustainable and affordable access to information and communication technologies.

Spectrum has a huge impact on security as well as the economy of the nation. The economic value of the spectrum has seen a huge rise in the last two decades. The military use of the spectrum is the first priority of every nation. The judicious spectrum management is needed so that its application can be maximized. If a spectrum is not consumed at a particular instant of time then its economic value can’t be derived later. It’s an opportunity lost.

Auction is an interesting thing. It happens in the hostels of academic institutions where usually the graduating batch sells their bicycles to the upcoming batch with the flexibility that others including faculties can also participate in buying and selling. There is an incidence when two senior faculties of a reputed institute bid as high as Rs.10,000 for a bicycle which was worth Rs.500 and if purchased new from the market it would have cost Rs.2000. Someone updated the director of the institute about the behaviors of the auctioneers and the director abandoned the auction process for the bicycle. 

Auction is a complex thing. It’s a game having different formats like highest bidder wins, second highest bidder wins, open bid, closed bid, single bid, multiple bid, elimination round, simultaneous bid, sequential bid, and many more or customized by the auctioneers. It involves single, double or multiple bidders and then there is risk that the bidders collate among themselves. Multi-level auction is even more complex to model mathematically. It’s an open area of research as far as telecommunication spectrum auction is concerned.

2020 Noble prize for economics goes to economists Paul Milgrom and Robert W Wilson. Both these people have worked on Auction Theory which deeply involves economics and game theory. They were awarded the Nobel Prize for improvements and inventing new auction formats. The new formats proposed by these two economists need time to be judged. The new formats will be really a breakthrough if it addresses the complexity of the spectrum auction to the governments of the world. To date in the majority of the cases, the spectrum auction is a failure, even if it’s a success it can’t be replicated the second time.

Telecommunication is a social good and the government has to come up with a spectrum auction design such that there is scope for a new player to enter the business and every corner of the country is served with the same level of service quality. Its shouldn’t be that the telecommunication companies provide better infrastructure to urban customers at the cost of tribal area or border area or other interior area customers. The separation of telecommunication companies and the spectrum owners can be explored. The trading of spectrum can also be an additional area which is yet to be experimented. 

Nowhere in the world, the governments had a spectrum auction format that is foolproof, has succeeded on more than one occasion, and served the original purpose. The constraints like high reserve prices have also not been able to attract buyers. Diluting the high reserve price gives birth to other problems.

Spectrum is a natural resource and the government of any country is the custodian of those resources. The resource should be allocated to maximize the public good and not the government revenue or an individual company’s profit. 

If there is no auction model which is available to allocate the spectrum in a transparent way, then the government should not hesitate to allocate spectrum as per its wisdom to maximize the social good and reduce the wastage which is happening continuously. The risk to the reputation of the government should be borne by the government for social cause.

Alok Singh is fellow of Indian Institute of Management Indore and currently is  faculty of general management at NICMAR.

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