Telecom auctions have failed India(bloombergquint.com)
bloombergquint.com
Telecom auctions have failed India
https://www.bloombergquint.com/global-economics/economics-nobel-prize-celebrates-auctions-that-failed-india
21 comments
Your claims are unfounded though. The example given in the article, India, is an anomaly. Most countries are very happy with auctions and the results, both financially and coverage-wise. If they weren’t happy, why would they all keep running them? There are dozens of spectrum auctions planned over the next few years around the world, because every country realizes it’s the best way to raise money, the fairest way to distribute spectrum (ie they won’t get sued), and the best for consumers.
Now, is every country perfectly set up for a successful auction? No - but in those cases you’ll see special rules meant to promote competition in the market. New entrants may receive discounts, or certain blocks of bands may be set aside for new entrants only. Big companies may be capped in how much additional spectrum they can purchase is another common case. These auctions are almost never straight up “take what you can get”. You can imagine in the US if that was the case then AT&T and Verizon would own all of it.
My company writes the software for these spectrum auctions, and I’ve personally been a part of dozens of them.
Now, is every country perfectly set up for a successful auction? No - but in those cases you’ll see special rules meant to promote competition in the market. New entrants may receive discounts, or certain blocks of bands may be set aside for new entrants only. Big companies may be capped in how much additional spectrum they can purchase is another common case. These auctions are almost never straight up “take what you can get”. You can imagine in the US if that was the case then AT&T and Verizon would own all of it.
My company writes the software for these spectrum auctions, and I’ve personally been a part of dozens of them.
He is correct. In Germany the auctions for umts licenses costed 50 billion euros. These insanely high auctions (because every telco believed they need these frequencies and outbid everyone) has negative price impacts today, something which happened 20 years ago!
Other countries had better outcomes, but you cant foresee how such an auction will go and which impact it will have.
1. Many telecom companies in other countries that use auctions have pretty decent returns. See, e.g., ATT and VZ among others.
> other solutions exists - e.g. revenue sharing - which work very well
The terms of the revenue sharing need to be worked out somehow. That "somehow" is typically via some sort of competition for scarce resources (spectrum), e.g., an auction. Sure, the gov't could just set a price, but the inefficiency and lack of price discovery inherent to that approach is precisely the issue the auction seeks to address.
> other solutions exists - e.g. revenue sharing - which work very well
The terms of the revenue sharing need to be worked out somehow. That "somehow" is typically via some sort of competition for scarce resources (spectrum), e.g., an auction. Sure, the gov't could just set a price, but the inefficiency and lack of price discovery inherent to that approach is precisely the issue the auction seeks to address.
> Top down market design is the highest virtue of all even though hundreds of millions of very poor people might have suffered for academic theories of a few.
Can't stand this snarky, melodramatic rhetoric. I might as well talk about millions of very poor people suffering because they lack clean water and healthcare which the government could have provided with the revenue from spectrum auctions.
Can't stand this snarky, melodramatic rhetoric. I might as well talk about millions of very poor people suffering because they lack clean water and healthcare which the government could have provided with the revenue from spectrum auctions.
Cellphone service has markedly improved the lives of the very poor something most economists did not predict. In fact when India deregulated rates from some of the highest in the world (voice was around $.10 to $.20/min) most economists argued against it saying cellphones were a thing of the rich and the tax-losses to the govt from telecom revenue were not worth it. Deregulation was called a give-away to the telco companies and the rich etc. Instead, what came about was the biggest uptake in cellular and data usage and one of the cheapest rates in the world.
The poor benefit disproportionately in relative terms from access to cheap communications. Studies show cellphone and data usage to be highly correlated to improved markers in health, economic well being, education, etc. Poorly designed top-down auctions bankrupts companies and causes under-investment in infrastructure do directly cause suffering to hundreds of millions of very poor people. Maybe you find it snarky to point that out but I see it as a tragedy.
True, you can also argue that the auction revenue would have helped clean water and other developmental activities but that is an indirect effect.
The poor benefit disproportionately in relative terms from access to cheap communications. Studies show cellphone and data usage to be highly correlated to improved markers in health, economic well being, education, etc. Poorly designed top-down auctions bankrupts companies and causes under-investment in infrastructure do directly cause suffering to hundreds of millions of very poor people. Maybe you find it snarky to point that out but I see it as a tragedy.
True, you can also argue that the auction revenue would have helped clean water and other developmental activities but that is an indirect effect.
This guy gets it... as an Indian that has lived in the USA / Canada for the last ten years, the mobile phone prices from before I left india and now are day and night .... used to pay around 12 -15 dollars for 2 gigs of data ... when I was in india this February, you could get 1.5 gigs of 4g data per DAY with almost unlimited calls for like 4 dollars a month ... it’s improved the lives of the people in so many ways ... so yeah maybe the government lost out on the auctions but it’s massively benefited the general populace ... and knowing how corrupt the Indian government is , I am happy with the way things turned out ...
when it costs almost nothing (remember, majority is loan here) to them why they need to charge. They take your data (totally unregulated) which is far more worth than the data ppl use. as an ISP, new apps, almost every industry under their control they got everyone's balls
Do you have a citation for your statement that economists opposed deregulation? That doesn’t sound like the default economics position — nor does not realizing that technology can transform poverty.
I’m not challenging you randomly here — usually the criticism of mainstream Western economists (especially those working with development) is that they overprescribe deregulation and underestimate the benefits of maintaining government revenue.
I’m not challenging you randomly here — usually the criticism of mainstream Western economists (especially those working with development) is that they overprescribe deregulation and underestimate the benefits of maintaining government revenue.
Economists != western economists! Western Economists did not care about the Indian telecom markets in the 90s and hardly carry any weight in Indian politics even now. India has enough economists unfortunately who can make a hash of things without help from Western economists ;)
It's appalling to hear that economists would think that improving the flow of goods and information would not benefit the economy.
But yeah, it's easy to miss. We've only had Roman roads, book printing, railroads, telephone, container shipping and the internet (to name a few) to point out this evident truth..
But yeah, it's easy to miss. We've only had Roman roads, book printing, railroads, telephone, container shipping and the internet (to name a few) to point out this evident truth..
> Cellphone service has markedly improved the lives of the very poor something most economists did not predict. In fact when India deregulated rates from some of the highest in the world (voice was around $.10 to $.20/min) most economists argued against it saying cellphones were a thing of the rich and the tax-losses to the govt from telecom revenue were not worth it. Deregulation was called a give-away to the telco companies and the rich etc. Instead, what came about was the biggest uptake in cellular and data usage and one of the cheapest rates in the world.
Hard to believe and irrelevant to this discussion.
> Poorly designed top-down auctions bankrupts companies and causes under-investment in infrastructure do directly cause suffering to hundreds of millions of very poor people.
What is a top-down auction? Are there also bottom-up auctions?
That auctions bankrupt companies - why are they are participating if they can't afford to? - and that they cause under-investment - is a spectrum that's been bought in an auction less profitable? - sounds like propaganda from corporations that want spectrums for free. It neither makes economic sense, nor am I aware of any empirical evidence for it.
Hard to believe and irrelevant to this discussion.
> Poorly designed top-down auctions bankrupts companies and causes under-investment in infrastructure do directly cause suffering to hundreds of millions of very poor people.
What is a top-down auction? Are there also bottom-up auctions?
That auctions bankrupt companies - why are they are participating if they can't afford to? - and that they cause under-investment - is a spectrum that's been bought in an auction less profitable? - sounds like propaganda from corporations that want spectrums for free. It neither makes economic sense, nor am I aware of any empirical evidence for it.
Give a man aid and he's fed for today. Give him a cellphone and he has a job.
Economists peddle wild ass guesses as science. Missing the boat on cellular is par for the course.
Economists peddle wild ass guesses as science. Missing the boat on cellular is par for the course.
> Economists peddle wild ass guesses as science. Missing the boat on cellular is par for the course.
Yeah, this is also a good example of the kind of braindead snark I was complaining about.
Yeah, this is also a good example of the kind of braindead snark I was complaining about.
Why was this downvoted? Seems like a fairly well-written argument - would love to hear counter-arguments instead of blanket downvoting.
I'll give it a go. It's a nice argument, but it's needlessly negative, almost for show.
Consider the claim that's it's a loss if the company shows poor returns. If it had good returns, the anti-auction folks would claim some small group is getting rich off what used to be a public good. Poor returns for the company means that the auction is limiting the plunder and that sounds like a win to me.
And why is this a loss for the government treasury? If the returns are poor, there wasn't much more juice to squeeze from the orange, right? So it sounds like the government (and often the taxpayers, sort of) are getting as much as they can for very little work.
I'm much more sympathetic to the deeper arguments about structure of auctions and how they might be improved. Why not auction the spectrum off for a shorter time? Maybe use smaller chunks of spectrum? The auctions are just a competitive algorithm and they can become more accurate with finer resolution.
Consider the claim that's it's a loss if the company shows poor returns. If it had good returns, the anti-auction folks would claim some small group is getting rich off what used to be a public good. Poor returns for the company means that the auction is limiting the plunder and that sounds like a win to me.
And why is this a loss for the government treasury? If the returns are poor, there wasn't much more juice to squeeze from the orange, right? So it sounds like the government (and often the taxpayers, sort of) are getting as much as they can for very little work.
I'm much more sympathetic to the deeper arguments about structure of auctions and how they might be improved. Why not auction the spectrum off for a shorter time? Maybe use smaller chunks of spectrum? The auctions are just a competitive algorithm and they can become more accurate with finer resolution.
Governments gets 2x revenue from revenue sharing than from auctions so govts do lose. Your argument uses self-justification but there is a counter factual for which empirical data exists.
Companies also lose as they have fixed liabilities on their balance sheet. If companies are hamstrung by debt then they do not have resources to invest in their network, subscribers suffer.
Who exactly wins for this grand experiment in top-down auction design?
Companies also lose as they have fixed liabilities on their balance sheet. If companies are hamstrung by debt then they do not have resources to invest in their network, subscribers suffer.
Who exactly wins for this grand experiment in top-down auction design?
>Governments gets 2x revenue from revenue sharing than from auctions so govts do lose.
Citation needed.
>there is a counter factual for which empirical data exists
And yet you provide none.
Citation needed.
>there is a counter factual for which empirical data exists
And yet you provide none.
Meta-ironic because it is in the article :)
But it’s not. There is a claim that this is true for India but N=1 is not very generalizable. It’s also not clear why we should believe that a rev-share model both brings in more gov revenue but also somehow prevents the TelCos from being overburdened. The source it linked to is paywalled.
It's rev-share vs pay upfront with financing right?
A telco could never be overburdened by the rev-share in the same way as a upfront payment. If the rev share is too high so using the spectrum isn't economical, the telco could simply not build out (and probably lose their license, which is OK for them, it wasn't economical). If the prepaid price was too high, they still have to pay it from spectrum activities and other activities; but they probably can't sell the spectrum to retire the debt, because the price was too high.
A telco could never be overburdened by the rev-share in the same way as a upfront payment. If the rev share is too high so using the spectrum isn't economical, the telco could simply not build out (and probably lose their license, which is OK for them, it wasn't economical). If the prepaid price was too high, they still have to pay it from spectrum activities and other activities; but they probably can't sell the spectrum to retire the debt, because the price was too high.
Isn't that incentivizing companies without much existing market share in the area to just bid high revenue shares? At best they get some money and at worst they close up shop thus coming back close to neutral. Maybe they even get to screw a competitor for a few years as they stall build out. Of course the population gets hurt if the latter happens since they get no infrastructure.
You can adjust the auction terms to try to avoid bad outcomes. A) bid out smaller alocations to allow more networks B) require a deployment plan to bid, and progress on the plan to keep the allocation C) some equitable way to periodically rebid in absence of abandoned spectrum D) some sort of open access provisions (maybe spring this on the market after it's largely built out)
Of course, some of that requires a competetent regulator with clear authority, as well as not too much corruption and reasonably swift court systems to handle disputes. But a point in time, single payment auction works better with those things too.
Of course, some of that requires a competetent regulator with clear authority, as well as not too much corruption and reasonably swift court systems to handle disputes. But a point in time, single payment auction works better with those things too.
I can totally understand how rev-share can be better in comparison but I don’t think your argument here addresses the constraint of greater government revenue derived from the rev-share model.
I suspect that part of that may be market growth beyond expectations. If telcos were bidding about the same net present value for the one time auction and the rev-share auction, with their revenue projections and revenue came in higher, that's going to be better for the government.
It's also easier to bid higher in rev-share, because you don't need to finance that net present value; it's just going to be built into the price of service, and your competitors will likely have similar rev-shares (depending on the auction process), so it's going to be built into everyone's prices.
I think there's also some value in a stream of payments rather than a one time payment. Although you can exchange one for the other with financial tools, a government may find a stream of payments to it matches well with the stream of payments it's making.
It's also easier to bid higher in rev-share, because you don't need to finance that net present value; it's just going to be built into the price of service, and your competitors will likely have similar rev-shares (depending on the auction process), so it's going to be built into everyone's prices.
I think there's also some value in a stream of payments rather than a one time payment. Although you can exchange one for the other with financial tools, a government may find a stream of payments to it matches well with the stream of payments it's making.
If the government auctions off spectrum at a flat price then it gets certainty, which normally comes at a premium; doing revenue share the government retains more of the risk, so orthodox economics would say that it will get a better price on average.
There's also an argument that the government doesn't actually realise any advantage from selling off the risk: if the telecom companies fail, it's still the government's problem. So the government ends up paying extra for something it can't actually use.
There's also an argument that the government doesn't actually realise any advantage from selling off the risk: if the telecom companies fail, it's still the government's problem. So the government ends up paying extra for something it can't actually use.
You will find in any rev-share agreement, a requirement that the Co. actually make "best efforts" or the like towards actually generating revenue or they lose the license rights. Best efforts is not some fluffy term, but basically requires the company to move heaven and earth if necessary otherwise they are in violation of the agreement.
Revenue sharing should be implemented via auction. Otherwise how do we discover the efficient percentage to be shared? All of the problems you pointed out have little to do with auctions, which are just a way for markets to discover prices when supply is very limited, and everything to do with poorly implemented auctions.
It's a loss because a big, capitalized winner takes all auction benefits a small number of entities with big pockets. As a society in the US, for example, we're burdened with 3 giant telcos controlling the most productive public airwaves. Plenty has been written about the negative affects of these types of arrangements with respect to 19th century railroads.
Auctions happen at a point in time and leave alot of value on the table. Spectrum purchased in 1999 is worth much more today. If the government retained title to spectrum and allowed for smaller chunks, smaller players could participate and compete in the market -- look at how dial up ISPs in the 90s drove prices for internet from $40/mo in the early 90s to <$10 in 1999 or so.
The mobile market is very different -- we pay more for a commodity that gets cheaper to deliver over time; AT&T wireless margins are >50% for a commodity service as a result of the limited competition.
Auctions happen at a point in time and leave alot of value on the table. Spectrum purchased in 1999 is worth much more today. If the government retained title to spectrum and allowed for smaller chunks, smaller players could participate and compete in the market -- look at how dial up ISPs in the 90s drove prices for internet from $40/mo in the early 90s to <$10 in 1999 or so.
The mobile market is very different -- we pay more for a commodity that gets cheaper to deliver over time; AT&T wireless margins are >50% for a commodity service as a result of the limited competition.
I think you may have misread what was written when you claim
> It's a loss because a big, capitalized winner takes all auction benefits a small number of entities with big pockets.
This is the exact opposite of what the parent poster was arguing against which was the claim that the TelCos had poor returns (ie they were NOT particularly beneficial to those entities).
> It's a loss because a big, capitalized winner takes all auction benefits a small number of entities with big pockets.
This is the exact opposite of what the parent poster was arguing against which was the claim that the TelCos had poor returns (ie they were NOT particularly beneficial to those entities).
Spectrum is generally sold on 15Mhz blocks. 10 for download, 5 for upload.
Its a statement, not an argument, as I read it. Theyre ignoring other confounding factors, the agency of both telecoms and policy makers, and basing the lose-lose-lose on a limited subset of auction markets. Additionally theres no other suggested mechanism besides a vague wave at “revenue sharing” where you have the same problem of determining what the appropriate rate is.
OP suggested markets work. HN folks downvoted without presenting arguments.
Without disagreeing with the lose-lose-lose premise how do you draw the blame to the auction mechanism?
The telecoms are in control of their bid values. The government policy makers are in control of minimum bids, related contingencies, and how the proceeds are spent. And yes, consumers are saddled with the confluence of the two.
With those controlling factors or problems Im not clear how a different mechanism, say fixed rates and allocations, is above the same failings?
With those controlling factors or problems Im not clear how a different mechanism, say fixed rates and allocations, is above the same failings?
[deleted]
[deleted]
ironically, an industry still using outdated modes of revenue measurement can't be said to be thinking "bigger" or better.
It has worked very badly in Germany as well. In the year 1999, the UMTS licenses were auctioned based on Milgrom and Wilsom's ideas. The government's revenue was awesome, but it came at a high price. The telcos had to take up large credits, hindering future investments in their their mobile networks. Today, Germany has one of the worst mobile networks in the western countries.
article in German: https://www.golem.de/news/mobilfunk-umts-versteigerungstakti...
article in German: https://www.golem.de/news/mobilfunk-umts-versteigerungstakti...
I mean, maybe? It is a huge stretch to tie a specific event (auction and the related debt) to the ensuing 20 years worth of telecom infrastructure investment. This implies (incorrectly) that there are no other significant reasons Germany might lag in mobile network investment.
It fits, though. It's like the opposite of subsidizing an industry: saddling it with a crippling debt instead. And yes, Germany has awful telecom infrastructure, and lags behind the likes of Spain or Czechia horribly.
All because telcos here need to recoup the initial "investment" and are not getting to the newest tech while everybody else is.
All because telcos here need to recoup the initial "investment" and are not getting to the newest tech while everybody else is.
Well said. Blame the act of crediting being used for auctions. It hurts the losers, winners, and users. Only govt (sort of) wins.
The book Discovering Prices by this year’s Nobel laureate is really fascinating. The very first chapter opens up to explain the boundless political, mathematical, and computational complexity involved with the FCC Broadcast Incentive Auction. I recommend it just for that alone.
How well do the FCC auctions actually work though? If you pop up a spectrum analyzer just about anywhere, you'll see that the spectrum is vacant and deserted except for broadcast radio and the bustling ISM (free-for-all) bands holding approximately all of the traffic. If you have a really good spectrum analyzer, you might be able to capture brief blips of cellular activity, and if you're near a radar you'll see that of course, but by and large the spectrum looks like a ghost town of empty apartments with absentee owners using them as capital assets while the plebeians cram into the designated slums. The stark contrast between the wildly over-utilized free-for-all bands and the wildly under-utilized auctioned bands really looks like a strong argument against spectrum auctions.
I'm sure you could find an economist to argue that the present state of affairs is natural, good, and maximally value producing (producing ROI for investors, that's what life's about!) but from where I'm standing the FCC auctions look like an idiotic forward propagation of last century's engineering limitations, no matter how sophisticated and lucrative the auctions themselves are.
I'm sure you could find an economist to argue that the present state of affairs is natural, good, and maximally value producing (producing ROI for investors, that's what life's about!) but from where I'm standing the FCC auctions look like an idiotic forward propagation of last century's engineering limitations, no matter how sophisticated and lucrative the auctions themselves are.
I doubt that many economists would "argue that the present state of affairs is natural, good, and maximally value producing", they'd say it was a legacy of "last century's engineering limitations" which the bureaucracy adopted, and subsequently ossified around.
I think most economists and business people would agree that real-time auctions similar to what happens with internet ads would be much better.
I think most economists and business people would agree that real-time auctions similar to what happens with internet ads would be much better.
Yes, that was somewhat unfair of me -- but only somewhat. Economists generally espouse a notion of value that is weighted by wealth (for a company, "purchasing power" might be more appropriate), and it adds a rather severe unstated bias to nearly every claim they make. By this special, biased metric of theirs I'd expect spectrum ownership to be wildly successful as it is effectively one mechanism for extracting rent that supports another mechanism for extracting rent.
Of course, that's unfair again, because rent itself is an economic concept and economics brings us the tools to identify it and, if we so choose, look to minimize, but that's not exactly a route towards getting paid to evangelize a particular opinion. Promoting new opportunities to extract rent is a route towards getting paid to evangelize an opinion, so many economists do it, and that's the source of the animosity you saw in my previous post.
Of course, that's unfair again, because rent itself is an economic concept and economics brings us the tools to identify it and, if we so choose, look to minimize, but that's not exactly a route towards getting paid to evangelize a particular opinion. Promoting new opportunities to extract rent is a route towards getting paid to evangelize an opinion, so many economists do it, and that's the source of the animosity you saw in my previous post.
Well the concept of economic rents was created by economists to describe reality, but I think most economists view the majority of rents as being 'bad'. I also think you are overestimating how 'free-market oriented' and self-interested most economists are, and would recommend that you look at a "Survey of Americans and Economists on the Economy".
The current system is really optimized to maximally benefit the FCC; it gives them huge revenues without much cost to administer. Existing mobile carriers are also probably beneficiaries of the current system, but it's hard to blame them for that, as they've structured themselves to conform with the government's system.
The current system is really optimized to maximally benefit the FCC; it gives them huge revenues without much cost to administer. Existing mobile carriers are also probably beneficiaries of the current system, but it's hard to blame them for that, as they've structured themselves to conform with the government's system.
Paid (or unpaid!) apologists are much more visible and attention-drawing than their more in-touch peers, so I probably overestimate their prevalence in the overall population of economists, but by the very same yardstick they have an outsized effect on economic discussions. They earn every bit of the ire I throw in their direction, but I could probably do a better job of specifically targeting it.
> Existing mobile carriers are also probably beneficiaries of the current system, but it's hard to blame them for that
Only to the extent that they played no part in making or encouraging the system that we agree is bad.
> Existing mobile carriers are also probably beneficiaries of the current system, but it's hard to blame them for that
Only to the extent that they played no part in making or encouraging the system that we agree is bad.
I am not really sure which apologists you have developed an ire for; I've only ever heard economists say that the auction system is better than the previous, arbitrary licensing system. Do you have any specific examples of these groups of apologists?
I don't especially like rent-seeking, but in this case, it's more like begging than anything else; the government is the one responsible for this mess.
I don't especially like rent-seeking, but in this case, it's more like begging than anything else; the government is the one responsible for this mess.
I generally agree, but there is of course a third category of frequency band besides FFA and auctioned, which is various "legacy interests", military and others pretending they need each about a gigahertz worth of prime bandwidth fully alone or the sky will fall.
Here’s another book of his on the topic - Putting Auction Theory to Work
http://www.econ.ucla.edu/riley/271/Milgrom-Putting%20Auction...
http://www.econ.ucla.edu/riley/271/Milgrom-Putting%20Auction...
The article seems to think that if the proceeds of an auction are misused, that means the auction is bad.
Then it goes on to nitpick: auctions that maximise revenue discourage investment, auctions that don't maximise revenue waste money. So all spectrum allocation is damned?
I'd be happy enough to agree that auction design is hard (and I think really interesting) and that combining it with politics is also difficult. The issue here (which the author never states but I think would not be disagreeable to them) is that you have to be careful what you wish for: maximising revenue then misusing revenue won't help. But that's not the aauxtion/economists fault any more than you're mechanic is responsible for you intentionally crashing.
Then it goes on to nitpick: auctions that maximise revenue discourage investment, auctions that don't maximise revenue waste money. So all spectrum allocation is damned?
I'd be happy enough to agree that auction design is hard (and I think really interesting) and that combining it with politics is also difficult. The issue here (which the author never states but I think would not be disagreeable to them) is that you have to be careful what you wish for: maximising revenue then misusing revenue won't help. But that's not the aauxtion/economists fault any more than you're mechanic is responsible for you intentionally crashing.
Monopoly rights to spectrum should have ended once cellular modulation schemes went digital.
The modulation techniques used in 3G/4G/5G systems are already agile enough that they really wouldn't have a problem with all the carriers sharing all the spectrum all the time. Carriers and other license-holders would have to do a token amount of coordination among themselves, probably similar to the settlement-free peering arrangements that the tier 1 Internet networks use.
In return, we would all get more efficient real-time spectrum allocation, and carriers could instead spend their billions differentiating themselves with infrastructure and capacity improvements rather than locking out anyone who didn't spend billions on spectrum 10-20 years ago.
The modulation techniques used in 3G/4G/5G systems are already agile enough that they really wouldn't have a problem with all the carriers sharing all the spectrum all the time. Carriers and other license-holders would have to do a token amount of coordination among themselves, probably similar to the settlement-free peering arrangements that the tier 1 Internet networks use.
In return, we would all get more efficient real-time spectrum allocation, and carriers could instead spend their billions differentiating themselves with infrastructure and capacity improvements rather than locking out anyone who didn't spend billions on spectrum 10-20 years ago.
They haven't worked super well anywhere, have they? The effect where the auction sucks all the money out of the industry occurs everywhere, it is just that in some places there are entrenched monopolies with lots of money willing to pay the kickback for exclusivity.
Its what the USA uses, and I guess it works fairly well here. I guess India followed the law of how to run these auctions, but did not follow it in spirit, messing things up(I'm guessing politicians fiddled with it) and led to the bad outcome.
We've only got 3.5 networks to choose from, competition on price is mediocre. It's more competitive than residential networks in most of the country, but that's not saying much.
They work extremely well in almost every country in the world. The situation described in the article in India was an unusual circumstance, and obviously the bidders overpaid for the spectrum given that the ultimate customers have very limited financial means. It’s possible this may repeat itself in other similar countries with high population and low income levels.
That definitely doesn’t mean it doesn’t work elsewhere. I’ve personally been involved in Singapore, Belgium, Sweden and Mexico’s spectrum auctions and the results have been very successful. As further proof, if countries felt they weren’t successful we would see the number of auctions decreasing. It’s the exact opposite, the expected number of spectrum auctions in the next 2-3 years is extremely high. It’s a quick way to make some money for governments struggling to raise money right now.
(I provide the software used in many spectrum auctions in the world)
That definitely doesn’t mean it doesn’t work elsewhere. I’ve personally been involved in Singapore, Belgium, Sweden and Mexico’s spectrum auctions and the results have been very successful. As further proof, if countries felt they weren’t successful we would see the number of auctions decreasing. It’s the exact opposite, the expected number of spectrum auctions in the next 2-3 years is extremely high. It’s a quick way to make some money for governments struggling to raise money right now.
(I provide the software used in many spectrum auctions in the world)
“The country’s telecom revolution only took off after the government moved away from auctions and started assigning spectrum to licensees in return for a share of their revenue. The new system brought in twice as much in fees as the auction bids would have.” [shortened].
It seems such a slippery slope to tax infrastructure: although I guess it has the advantage that tax avoidance is difficult!
It seems such a slippery slope to tax infrastructure: although I guess it has the advantage that tax avoidance is difficult!
The companies still found ways to avoid taxes, but I guess that is a tautology ;) Say you are selling a wide menu of choices like an enterprise offering or better a restaurant. You can offer that appetizers are free as long as each individual orders at least two drinks. Make your appetizers salty and fried and it creates a (un)virtuous cycle of ordering more drinks.
Companies tried this exact strategy in India. They made the bandwidth cheap and moved revenue to ancillary services - ringtones, song libraries, ... Telecom authority ruled that all revenue falls under revenue sharing and the supreme court finally ruled against the telcos after a long drawn out battle.
Companies tried this exact strategy in India. They made the bandwidth cheap and moved revenue to ancillary services - ringtones, song libraries, ... Telecom authority ruled that all revenue falls under revenue sharing and the supreme court finally ruled against the telcos after a long drawn out battle.
>"The new system brought in twice as much in fees as the auction bids would have.”
If the new system brought in twice as much in fees, then by definition it was more burdensome on the telcos no?
If the new system brought in twice as much in fees, then by definition it was more burdensome on the telcos no?
The article claimed that the initial debt from the auction was more burdensome because telcos rely on a critical mass of infrastructure that they weren't able to create due to debt.
If spectrum auctions are a bad way to allocate the radio spectrum, what are better ways? Wikipedia says:
>Alternatives to auctions include administrative licensing,[clarification needed] such as the comparative hearings conducted historically (sometimes referred to as "beauty contests"),[citation needed] or lotteries.
Those seem worse than auctions. They seem very prone to corruption, and everyone ends up having to spend money on lobbying, essentially turning it into an auction[1] in disguise.
[1] https://en.wikipedia.org/wiki/All-pay_auction
>Alternatives to auctions include administrative licensing,[clarification needed] such as the comparative hearings conducted historically (sometimes referred to as "beauty contests"),[citation needed] or lotteries.
Those seem worse than auctions. They seem very prone to corruption, and everyone ends up having to spend money on lobbying, essentially turning it into an auction[1] in disguise.
[1] https://en.wikipedia.org/wiki/All-pay_auction
Not lobbying, you’re thinking too Western. It’s given to family or family friends.
> Economists like to think of themselves as mathematicians — or, if feeling momentarily humbler, as physicists.
What, those proud masters of the universe, physicists, are humbler that out-of-their-mind, impractical looneys, mathematicians?
:)
What, those proud masters of the universe, physicists, are humbler that out-of-their-mind, impractical looneys, mathematicians?
:)
> But the more a company pays for spectrum, the lower its profits and the less it has left to invest in new infrastructure.
Strange argument. Does india not have banks? A bond market? If that new infrastructure is going to pay for itself, it should be possible for companies to raise money to build it. The government shouldn't have to give resources away, so that companies have more money for investments.
Strange argument. Does india not have banks? A bond market? If that new infrastructure is going to pay for itself, it should be possible for companies to raise money to build it. The government shouldn't have to give resources away, so that companies have more money for investments.
It's very hard to forecast revenues from emerging markets - bondholders likely won't be able to stomach the risk of large infrastructure investments without any idea if/when they can breakeven.
It's their job to figure out what risks to take, how much interest to charge, how to hedge.
The very next sentence after your quote is “In India, high fees have led to high levels of debt” which somewhat answers why more debt might not be the answer.
No it doesn't. So it has led to high levels debt. So what? What's the problem with debt?
First of all, debt in emerging markets is not the same as debt in the West. A company cannot endlessly take debt, even if it continues making losses, simply because in such a situation, the government often intervenes - with a heavy hand.
Look at guys on the run such as Vijay Mallya or Nirav Modi, former tycoons who ended up mired in debt, and who are currently wanted by the government. Another tycoon, Anil Ambani, is only able to stay back in India and fight out a case in court, after being bailed out by his ultra-rich brother's wealth and ties to the government.
Look at guys on the run such as Vijay Mallya or Nirav Modi, former tycoons who ended up mired in debt, and who are currently wanted by the government. Another tycoon, Anil Ambani, is only able to stay back in India and fight out a case in court, after being bailed out by his ultra-rich brother's wealth and ties to the government.
There's a general sense in the article and the comments here that how much a company invests depends on how much money they have. This is wrong. If there's a profitable investment to make, the company is going to make it, if they don't have the money, they're going to loan it. If there's no profitable investment to make, the company isn't going to make any investments, if they have money sitting around, they'll return it to their shareholders. Yes, there are some frictions involved here. If a company has some crazy genius idea, it might not be that simple to loan money. But for infrastructure investments, it should be.
> It’s even worse when countries try to maximize just one variable, because for bureaucrats and politicians that variable is usually government revenue.
When this happens, all other variables like environment, humanity, morality, future of mankind and the greater good goes down the drain and I am not necessarily talking about India or its telecom sector. No wonder we are making mess of our planet.
When this happens, all other variables like environment, humanity, morality, future of mankind and the greater good goes down the drain and I am not necessarily talking about India or its telecom sector. No wonder we are making mess of our planet.
Government revenue is a pretty good variable to maximize in an auction. The government can spend that money on "other variables like environment, humanity, morality, future of mankind and the greater good".
It's a problem if it destroys an industry. Or would it be better if the government spent on industry subsides so that the revenue generation action doesn't destroy it?
I don't have any good answer. Auctions work best when the market is predictable, but telecom is about the opposite of predictable. Maybe the government could detach the spectrum from the service somehow and make the spectrum revenue predictable.
I don't see any alternative to an auction that is actually better around here, and don't know of any either.
I don't have any good answer. Auctions work best when the market is predictable, but telecom is about the opposite of predictable. Maybe the government could detach the spectrum from the service somehow and make the spectrum revenue predictable.
I don't see any alternative to an auction that is actually better around here, and don't know of any either.
Not to forget the huge scam how Reliance Jio got their spectrum.
https://archive.is/Ggvmi
TLDR : that 4G spectrum auction was for Data-only. Reliance bid through a benami company, won all zones across the country, and then got the rules modified to data+voice.
https://archive.is/Ggvmi
TLDR : that 4G spectrum auction was for Data-only. Reliance bid through a benami company, won all zones across the country, and then got the rules modified to data+voice.
I'm happy Jio did it. They singlehandedly brought about the digital transformation in India. It's truly amazing.
You're happy they did a scam , and nearly bankrupted other telcos (all their NPA will come back biting us in the form of taxes for recapitalisation )
Yes I'm happy they did this. It has benefitted me and hundreds of millions of other Indians. I remember the absolute unusable state of mobile data in the country before Jio. Now I literally don't notice if my wifi goes out, because Jio's network is so good, and they made it cheap enough for everyone to be able to afford it.
When regulation gets in the way of public good, it deserves to be circumvented. More power to Jio and Mukesh Ambani.
Edit: I don't see why telcos going bankrupt implies taxpayer bailout. If that is what will happen, it will be a fault of the government, not Jio.
When regulation gets in the way of public good, it deserves to be circumvented. More power to Jio and Mukesh Ambani.
Edit: I don't see why telcos going bankrupt implies taxpayer bailout. If that is what will happen, it will be a fault of the government, not Jio.
Telcos going bankrupt --> their debts from banks go unpaid --> govt pays taxpayer money to keep the banks afloat. And this bankruptcy scenario caused due to fraud.
Anyways, you seem to have made up your mind that Jio fraud is good.
Anyways, you seem to have made up your mind that Jio fraud is good.
> govt pays taxpayer money to keep the banks afloat
This is the issue. I fail to understand how this is Jio's fault. Let the bank fail, other banks will be careful in the future.
This is the issue. I fail to understand how this is Jio's fault. Let the bank fail, other banks will be careful in the future.
so you are ok if someone does corruption to get the business? I really hope you live long enough to see the effects of monopoly.
Corruption in this case was justified. The rules surrounding the auction were unnecessarily prohibitive and expensive. Telcos were being forced to pay too much, which meant customers got a very expensive, limited service. Jio broke that system, by hook or by crook, and got us what we should have had long ago if markets were allowed to function naturally.
Edit: Before Jio, we had many providers, but all of them were bad for the user! I'd rather have a monopoly that works for the user over that.
Edit: Before Jio, we had many providers, but all of them were bad for the user! I'd rather have a monopoly that works for the user over that.
What's a "benami company"?
shadow company. Benami = nameless = anonymous.
This article doesn't really explain why these mechanisms would work in one place but not another. What assumption was violated / was different, for instance?
I wonder if it's the case that the first time you do any kind of novel distribution approach (auction, revenue share, etc.) at large scale it has a good chance of working. The second time, however, everyone has had time to learn how to game the system (including the government) no matter what the system actually is. Then you can play a game of whack a mole to patch things but you rarely come out ahead.
This Nobel-Winning Idea Has Failed India https://archive.is/C7JDc
due to Cartels aka Casteism in India https://archive.vn/VWFSC
Which Caste is looting India ? https://archive.is/5zz1b
Which Caste is looting India ? https://archive.is/5zz1b
For anyone interested in this topic (and Indian government in general) I highly recommend Dr. Arun Shourie's book "Governance and the sclerosis that has set in". It gives a detailed look at the telecom mess and the kind of mentality that causes it.
Dr. Shourie was a cabinet minister in early 2001 and was single handedly responsible for Telecom reforms that made even these auctions possible. He wrote the entire book on this experience.
Few points:
1. India had several telecom "circles" based on the political borders of the states and handful of players (I think 6 or so). All 6 of them had lawsuites against each other and with government so around 50+ lawsuites over petty things. Dr. Shourie worked hard to clear every single of those lawsuites without having to wait for the courts to resolve it.
2. Indian regulations requires the cell towers to not extend their range beyond the political boundary. People who wrote the rules refused to acknowledge the fact that you can't stop radio waves based on political borders.
3. You had to apply different licenses based on how you will use the spectrum. For example for voice you had to apply one license and for SMS another license, for data another license. Also, a separate license for inter-circle communication. Which means if you want to allow your Mumbai customers to be able to send SMS to Delhi customers you required a separate license for the two circles and separate license for Mumbai to Bangalore communication. Also, separate licenses for ISD, international communication.
4. Indian government also insisted that they get to control how telecom company will roll out their towers. So if you erect a tower in Mumbai you must also erect a tower in some village even if you don't have any customers there. If you fail to do so, you will be fined.
5. Indian government also wanted (and actually did) to ban services like Skype because they would enable voice over data thus making a separate voice license pointless. For many years VoIP was illegal in India.
The body responsible for these hair-brained regulations was a technical body called DoT.
Not only Dr. Shourie worked hard to resolve most of these regulations and replace them with something sensible, he insisted that if telecom companies are not interested in even bidding for some circles we should give them the spectrum for free. No telecom company was even interested in applying for spectrum in many parts of India (something unthinkable today) which were then given on first come first serve basis.
Later when telecom revolution happened and spectrum value exploded through the roof, some people wanted to investigate Shourie for corruption for giving this obviously valuable spectrum for free. Even the supreme court of India had trouble understanding why the spectrum that sells for billions today was not worth anything 20 years ago.
Having known Dr. Shourie personally, he is one of the smartest and competent individual Indian government was thankful to have working for them.
Dr. Shourie was a cabinet minister in early 2001 and was single handedly responsible for Telecom reforms that made even these auctions possible. He wrote the entire book on this experience.
Few points:
1. India had several telecom "circles" based on the political borders of the states and handful of players (I think 6 or so). All 6 of them had lawsuites against each other and with government so around 50+ lawsuites over petty things. Dr. Shourie worked hard to clear every single of those lawsuites without having to wait for the courts to resolve it.
2. Indian regulations requires the cell towers to not extend their range beyond the political boundary. People who wrote the rules refused to acknowledge the fact that you can't stop radio waves based on political borders.
3. You had to apply different licenses based on how you will use the spectrum. For example for voice you had to apply one license and for SMS another license, for data another license. Also, a separate license for inter-circle communication. Which means if you want to allow your Mumbai customers to be able to send SMS to Delhi customers you required a separate license for the two circles and separate license for Mumbai to Bangalore communication. Also, separate licenses for ISD, international communication.
4. Indian government also insisted that they get to control how telecom company will roll out their towers. So if you erect a tower in Mumbai you must also erect a tower in some village even if you don't have any customers there. If you fail to do so, you will be fined.
5. Indian government also wanted (and actually did) to ban services like Skype because they would enable voice over data thus making a separate voice license pointless. For many years VoIP was illegal in India.
The body responsible for these hair-brained regulations was a technical body called DoT.
Not only Dr. Shourie worked hard to resolve most of these regulations and replace them with something sensible, he insisted that if telecom companies are not interested in even bidding for some circles we should give them the spectrum for free. No telecom company was even interested in applying for spectrum in many parts of India (something unthinkable today) which were then given on first come first serve basis.
Later when telecom revolution happened and spectrum value exploded through the roof, some people wanted to investigate Shourie for corruption for giving this obviously valuable spectrum for free. Even the supreme court of India had trouble understanding why the spectrum that sells for billions today was not worth anything 20 years ago.
Having known Dr. Shourie personally, he is one of the smartest and competent individual Indian government was thankful to have working for them.
India is unique https://archive.vn/pOmij
It has Producers, Consumers and Leeches https://twitter.com/0x101/status/1317685559414972418
It has Producers, Consumers and Leeches https://twitter.com/0x101/status/1317685559414972418
Paywall: https://archive.fo/C7JDc
paywall123(1)
1. Telecom companies and their shareholders are burdened by debt and either go bankrupt or have horrendous returns.
2. The govt (and taxpayers) do not realize the revenue from spectrum auctions
3. Finally, the subscribers suffer under poor network infrastructure, towers and upgrades as the companies are hamstrung by spectrum debt and unable to raise cash.
The lose-lose-lose Nobel winning work does not stop the columnist Mihir Sharma, who is also an economist from playing fast-n-loose with his triumphant conclusion:
"This is a well-deserved Nobel prize not because the bridge these economists built can be erected over any kind of river, but because it got built in the first place. The true miracle was the transparent, inclusive, academically informed process that led to its design. It ensured that the specific complexities of that market at that time were clearly reflected in the eventual auction design.
Market designers can’t give up because they haven’t been able to replicate that Nobel-worthy success. They need to work harder and think bigger."
Economists can never be wrong and even when they are they should be commended for their efforts even though other solutions exists - e.g. revenue sharing - which work very well. Top down market design is the highest virtue of all even though hundreds of millions of very poor people might have suffered for academic theories of a few.