A Compensation Model Developed to Liberalize Spectrum in the 4G Era

Yuntsai Chou

Department of Information Management

Yuan Ze University

ITS 2014 Biennial Dec 2, 2014

Research question• Limited competition in mobile

communications (3~4 operators in the mature market)

• Is it a policy problem?

• Competition (anti-trust) law is ex-post • Ex-ante behavioral regulation is largely

discouraged due to potential cumbersome regulation

Research assumption

• Spectrum allocation assigns the usage rights to operators and therefore influences the market values of spectrum they possess.

• Since 4G, multiband uses and spectrum heterogeneity are typical

• Spectrum allocation as policy tool to create a level playing field and to encourage contestable competition

Taiwan’s Telecommunication Market

Source: NCC website

Year. Month 4G 3G 2G WBA PHS

2014.10 2,000 24,672 2,625 99 n/a

2013.12 n/a 24,772 4,205 122 n/a

The numbers of mobile subscription in Taiwan, unit: thousand

Taiwan’s Telecommunication Market

Source: NCC website

Year.month

CHT TMT FET VIBO APT WBA operators in total

2014.10 10,421 7,106 6,998 1,500 1,874 99

2013.12 10,269 7,012 6,864 1,670 2,860 122

The numbers of mobile subscription in Taiwan, unit: thousand

Spectrum licensing in Taiwan

2G Licenses3G Licenses

Digital low-power wireless Licenses WBA Licenses

2G licenses granted tender period tperiod

PHS licenses expire

- Auction-5 licenses for all area-800 、 2100MHz- restricted technology- service neutrality

3G licenses expire

-Beauty contest-900 、 1800MHz-restricted technology- restricted service

-Beauty contest-

，

1900 Mhz- PHS system--

1997 1999 2002 2008 2012 2014 2016 20182017

2G tender period expire

Restricted technologyRestricted service

- Auction-2.5~2.69GHz- technology neutrality- Service neutrality

2013

4G licenses auction

- Auction- 700 、 900 、 1800MHz- technology neutrality- Service neutrality- Secondary trading

Taiwan’s mobile licensing

License 2G 3G WBA 4G

Band 900/1800 MHz

2100/2300 MHz

2500~2690 MHz 700/ 900/ 1800 MHz

Year licensed

1997 2002 2007 2013

Allocation method

Beauty contest

Auction Auction

Auction

License fee 2 % of operating revenues

Bidding price

percentages of operating revenues

Bidding price

Usage flexibility

Not permitted

Service neutrality

Technology & service neutrality

Technology & service neutrality

Secondary trading

No No No Yes

Conjoint analysis• It estimates the relative value individuals

place on attributes of a choice;

• It converts qualitative information into quantitative form

Conjoint analysis

• Conducting a survey of pairwise comparison among stimuli;

• calculating the utility scores and ranking of each stimulti by regression results.

• respondents: five Wimax operators, two 3G only operators and three 2G/3G operators, a total of eight operators in market.

• Execution: May 2013

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spectrum policy attributes• 1. tender period: – a. no tender granted after license expiration; – b. tender period granted;

• 2. spectrum usage right: – a. technological neutrality; – b.technological and service neutrality;– c.technological and service neutrality &

secondary trading; • .

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spectrum policy attributes• 3. special treatment for designated entities: – a. refarming allowed for incumbents; – b. certain slots reserved for incumbents (new

entrant clause); – c. spectrum caps.

• 4. recall: – a. voluntary recall with compensation; – b.no recall enforced; – c. recall enforced when failing to meet the

efficiency criteria.

Pairwise SurveyWhich of following policy stimuli do you prefer?

No granted tender period,Technology and service neutrality plus secondary trading,Incumbents’ refarming, andVoluntary recall including compensation

Granted tender period,Technology neutrality, Certain slots reserved for entrants, andNo recall enforced

Mostly inclined to the left stimulus

inclined to the left

stimulus

indifferent

Which of following policy stimuli do you prefer?

granted tender period,Technology and service neutrality plus secondary trading,Incumbents’ refarming, andNo recall enforced

No granted tender period,Technology neutrality,Certain slots reserved for entrants, andVoluntary recall including compensation

Which of following policy stimuli do you prefer?

No granted tender period,Technology and service neutrality plus secondary trading,Certain slots reserved for entrants, andrecall enforced when failing to meet the efficiency criteria

granted tender period,Technology and service neutrality,Incumbents’ refarming, andVoluntary recall including compensation

inclined to the right stimulus

Mostly inclined to the right stimulus

Mostly inclined to the left stimulus

inclined to the left

stimulus

indifferent inclined to the right stimulus

Mostly inclined to the right

stimulus

Mostly inclined to the right stimulus

inclined to the right stimulus

indifferentinclined to the left

stimulus

Mostly inclined to the left stimulus

Disspiated interests among market players

clusters coefficient Net increase in coefficient Ratio of increase

1 6.116 1.37 18.27%

2 7.483 1.03 12.10%

3 8.514 5.48 39.17%

4 13.996 1.33 8.70%

5 15.329 3.04 16.53%

6 18.365 4.05 18.07%

7 22.416 2.47 9.94%

Attribute preferences by operators

All WBA operators 3G only operators 2G/3G operators

importance

rank importance

rank importance rank importance rank

Tender period 14.60 4 17.92 3 47.39 1 9.47 4

SURs 33.40 1 42.36 1 15.83 3 24.36 2

Designated entity clause

32.33 2 16.23 4 24.81 2 46.34 1

recall 19.65 3 23.47 2 11.95 4 19.81 3

R-Squared 0.93920 0.98622 0.94286 0.96605

conjoint analysis resultsattributes levels Average utility value

WBA operators 3G only operators

2G/3G operators

Tender period

a.1 No tender period granted -8.896 94.793 4.252

a.2 Tender period granted 8.896 -94.793 -4.252

SURs b.1 Technology neutrality -69.886 37.995 48.497

b.2 Technology and service neutrality -29.671 -25.352 -32.466

b.3 secondary trading in addition to technical and service neutrality

99.557 -12.643 -16.030

Designated entity rules

c.1 refarming for incumbents 9.541 32.344 98.923

c.2 licenses reserved for entrants -19.603 -52.962 -12.479

c.3 Spectrum caps 10.062 20.619 -86.444

d. recall d.1 voluntary recall with compensation -38.486 -0.331 4.939

d.2 No recall enforced 22.842 -0.291 -42.108

d.3 Recall enforced when underperformance

15.644 0.622 37.168

conjoint analysis results

• 1. The WBA operators have highest positive score on SURs, meaning they prefer secondary trading the most.

• 2. the 3G only operators prefer no tender period granted.

• 3. The 2G/3G incumbents are the mostly supportive of incumbent refarming.

• 4. the 2G/3G incumbents demonstrate the same direction in terms of policy preferences with the 3G only operators but with a different degree of intensity.

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spectrum policy preferences

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Tender period granted when licenses are expired

Tender period

No tender period granted

Secondary trading permitted, in addition to technological and service neutrality

SURs Only technological neutrality

Spectrum caps placedDesignated

entityRefarming allowed for incumbents

No recall enforced recallRecall enforced when failing to meet the efficiency criteria

WBA (Wimax) operators 2G、 3G operators

ClusterWBA

operators3G only

operators2G/3G

operators

Utility score -53.5967 165.75405 188.83961

Rank 40th 1st 1st

Policy attribute

Tender period

No tender period granted

SURs*** Technological neutrality

Entity rules Refarming for incumbents

RecallRecall enforced when underperformance

harmonized spectrum policy

Policy outcomes derived

• 1. The 3G only operators have highest stakes against tender period granted.

• 2. Although the WBAs operators prefer secondary trading, the others show negative interests in it.

• 3. The 2G/3G incumbents have highest stakes on the refarming.

• 4. As for recall, the enforced recall when failing to meet the efficiency criteria is the likely policy outcome.

ClusterWBA

operators3G only

operators2G/3G operators

Utility score 115.8457 115.1158 124.3126

Rank 8th 7th 5th

Policy attribute

Tender period

No tender period granted

SURsTechnological & service neutral plus secondary trading

Entity rules refarming for incumbents

recallRecall enforced when underperformance

differentiated spectrum policy regime

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regulatory differences of managing spectrum

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既有業者執照優先權的保留Providing differentiated incentives for different players

Long-term effectiveness of spectrum management and market competition Long-term effectiveness of spectrum management and market competition

Limited profitabilityLimited profitability Limited bandwidth for service coverage

Limited bandwidth for service coverage

- Low incentive to switch to higher efficient uses- subscribers’ migration costs

- Low incentive to switch to higher efficient uses- subscribers’ migration costs

- Refarming allowed- Refarming allowed- secondary trading allowed

- secondary trading allowed

WBA operators

Recall enforced when underperformance

Recall enforced when underperformance

3G only operators 2G/3G operators

problem

policy adjustment

goal