Press Release - Radiocommunications Agency : The Auction of
Radio Spectrum for the Third Generation of Mobile Telephones
19 October 2001
The £22.5 billion auction of radio spectrum for the third
generation of mobile telephones was well designed and efficient,
Sir John Bourn, head of the National Audit Office, told Parliament
today.
Key success factors were that the Radiocommunications Agency
marketed the opportunity and consulted the Industry extensively
before the auction, rehearsed it, managed the bidding process well
in the opinion of bidders and kept the costs of running the auction
low at £8.1million, under 0.1% of the proceeds.
Bidders’ determination to gain a licence in the first key
European market to allocate spectrum, further stimulated by the
Agency’s marketing, generated high demand and high proceeds.
Fortuitously, the auction also coincided with the peak of the
internet stock boom and an all-time peak in the share prices of
telecommunications companies.
The NAO report does not aim to predict the future of the
industry, but there are indications that the Agency’s auction has
not harmed the future of third generation telephony. The operators
will suffer to the extent that they have paid for spectrum, which
in previous generations of telephony the government allocated to
them at negligible cost. Their rates of return on their
investments, and the value of their businesses, will be lower than
they would otherwise have been.But though there has been a downturn
in confidence in the industry since the auction, difficulties are
not solely due to auctions and operators are still able to invest
in developing services. The high cost of the licences to operators
gives them an added incentive to roll-out services more quickly
than if the spectrum had been given away.
Sellers in a competitive market will tend to disregard past
investments when pricing goods and services. Mobile telephone
services in the United Kingdom are usually priced according to what
the market will bear, as opposed to simply passing on costs. If
operators’ business plans prove to have been over-optimistic the
main effect will be on the companies’ share prices rather than on
their investment plans or consumers.
Though the Agency raised £22.5 billion, some £380 per head of
population, from the auction they did not extract maximum proceeds.
This was because to promote increased competition between operators
and extend choice for consumers they reserved some of the spectrum,
which sold for a lower price, for a new, fifth, mobile telephone
operator. The operators face major technical and commercial
uncertainties in developing services, but the auction should
promote sustainable competition because the five licensees in this
country are relatively large and strong global companies.
Auctions are not a panacea for the sale of public assets and
departments should always consider alternatives. Departments should
recognise that auctions are a useful mechanism for allocating
resources in many situations, particularly where demand for the
resource outstrips supply and the seller has little information
about their worth. In his report Sir John draws attention to the
main lessons learned by the Agency, which may be of benefit to
other public sector bodies contemplating using an auction to sell
assets:
- Obtaining a good ratio of bidders to lots is fundamental to the
success of any auction, and proactive and expert marketing of the
opportunity is therefore vital;
- The auction design should be tailored to the economic
environment, particularly the expected number and nature of bidders
- one size does not fit all;
- Requiring substantial deposits at the outset provides
protection for the seller and acts as a deterrent against
ill-considered bidding.
Sir John Bourn said today:
"The Radiocommunications Agency successfully applied an
innovative technique to allocate radio spectrum for the next
generation of mobile phones to those operators who value it most.
In doing so it has managed to raise significant revenues and
promote competition in the industry."
Notes for Editors
The Radiocommunications Agency is an Executive Agency of the
Department of Trade and Industry and its main functions are:
- formulating policy on the planning and management of the UK
civil radio spectrum;
- co-ordinating UK views and participating in international
negotiations on the use of radio;
- authorising use of radio by licensing or exemption;
- formulating technical and operating standards for radio;
and
- enforcement of legislation on the use of radio equipment and
investigation of radio interference.
Press notices and reports are available from the date of
publication on the NAO website at http://www.nao.org.uk/ Hard copies can
be obtained from The Stationery Office on 0845 702 3474.
The Comptroller and Auditor General, Sir John Bourn, is the head
of the National Audit Office employing some 750 staff. He and the
NAO are totally independent of Government. He certifies the
accounts of all Government departments and a wide range of other
public sector bodies; and he has statutory authority to report to
Parliament on the economy, efficiency and effectiveness with which
departments and other bodies have used their resources.
Press Notice 46/01
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