Czechs check cheques, reject £680m 4G auction As bidding topped £680m, the Czech regulator pulled the plug on the 4G auction, saying that to continue would risk pushing cripplingly high prices onto the winner's customers as well as delaying deployments - both to the detriment of the country's citizens. The Czech Republic was hoping for a fast deployment, and the regulator …
It's true - I keep trying to get my wife to agree to us moving there,but she is glad to see the back of the corruption and Soviet-era inefficiency in all areas, not just bureaucracy, and concept of "service" is unknown (she nearly had a fit when we went to a place popular with Czech walkers and canoeists, and found that the cafe was shut despite there being many willing customers, and the owner clearly in the house at the back. Apparently, he has never opened on Sundays in September ...)
However, back on topic - I haven't had time to put my dodgy translation skills to the test on the Czech newspapers yet, but it is entirely possible that "being sensible" is only a side-effect of bribery by someone. It would not be unlikely that the prices were getting too high for [favoured company], and so the bidding process is going to be withdrawn and rejigged to benefit [favoured company]. This happens a lot, but Czech journos usually get to the bottom of it -true freedom of the press does still exist there, and they take full advantage of it.
Wasn't something similar one of the principles behind the recent UK auction .... seem to remember someone from Ofcom explaining the low price (especially compare to 3G auction) was because the 4G auction was designed to encourage quick deployment and not load huge costs onto the operators.
Rubbish. The 4G auction was structured in the same way as the 3G one. It didn't raise as much money as we're in the depths of a recession (not triple-dip, in my book we haven't had enough sustained growth to ever have been considered out of it), rather than at the peak of a tech bubble and with ludicrous expectations of video calling.
The UK auction actually raised 33% less money than the Treasury had put into their books for this financial year, a whole £1.16bn short.
How can the economy be expected to function if the local authorities continue to put citizen's interests above those of corporations? Do they not understand that without the excuse of recouping the large license costs this limits ability to set exceedingly high charges?
Without the ability to price gouge then it limits the ability to pay out crazy executive bonuses and dividends. Time for the US to bring Freedom to the Czech's I think.
The limit to exceedingly high charges are the punters.
And "gouging" is a concept of the progressive toolbox completely devoid of any meaningful content.
Of course Eurocrats like the build a up a head of steam about "high prices" which need to be "regulated", and make this a question of national or even continental "SUPERIORITY!" which needs to be nurtured and channeled. After the roundtable they visit expensive restaurants then retire to their apartments that they could buy due to high taxpayer-provided salaries despite housing bubble-level pricing...
"The limit to exceedingly high charges are the punters."
That's the theory that's often repeated but it doesn't often work that way in many markets. Surely it's time to do away with that as a concept along with other doozies such as trickle down economics.
Countless examples of competition making no difference to pricing, whether a Cartel arrangement or not businesses have a habbit of reviewing competitors pricing and then adjusting their own prices so very similar. For example take a look at the UK energy industry, increasing charges across the board shareholder dividends booming but next to no actuall competition going on at least not on pricing.
"The limit to exceedingly high charges are the punters"
Not when you have monopolies or cartels it isn't, nor when there are high barriers to competitors entering a business, nor even when there are high barriers for punters to switch suppliers.
Telecoms score negatively on all 3 of those
Locally (Sweden) we had a contest to see which 3G operators would give the best service before licences were granted. I remember a great deal of whining from one operator in particular that expected to be guaranteed a slot but didn't get it.
Coverage is still not what was promised by the winners, but I don't think anybody in the business is surprised about that. International operators tend to spread their costs over different countries anyway, so that is probably not the advantage for the locals as is sometimes made out either.
Though I do think that a contest is probably a better solution than an all-in auction; in either case reality is messier than the shiny Power Point slides shown in the various workshops and conferences leading up to any decision.
Finally, for those who haven't enough to do, there's a thesis available comparing the UK auction and the Swedish contest: http://www.managementheaven.com/comparison-swedish-3g-beauty-contest-uk-3g-auction/
The license fees are sunk costs. Once the auction is over the operators work on a profit maximising pricing scheme in which sunk costs play no part - the prices will be the same if the license costs $500m or $1.
The only way round this is to have a beauty contest where the roll-out speed and pricing levels are part of the ranking process - which isn't exactly free-market...
Tim Worstall wouldn't be happy with this article. Mobile operators will charge high prices based on market demand, not based on what they paid for the auction. Failing to auction the licence is basically putting money in the pockets of the shareholders of the mobile operators.
You're right.
They seem to have got the economics entirely bass ackwards.
Prices are set by supply and demand, not by production costs. The operators will charge the absolute maximum they possibly can whatever price they paid for the spectrum. A high spectrum price doesn't increase prices to consumers: it just moves some of the revenues from the shareholders to the government.
And as to low prices for spectrum speeding up roll out. Think for a moment. You've got a depreciating asset (spectrum deals are time limited aren't they?) which you've just paid $1 for. Or you've got a depreciating asset that you've just paid $100 million for. So, which scenario encourages you to get cracking and start earning some money off your asset? Most of us would think the incentives to get cracking are rather higher when you're $100 million in the hole.
And finally, yes, of course governments should charge for spectrum: and as much as they can damn well get. It's a limited natural resource and as such should be taxed to the hilt. This is just straight Ricardo, we've known this since 1817.
@Tim Worstal - theory vs practice
"Prices are set by supply and demand, not by production costs". In practice, high capital requirements and limited competition / licenses mean that supply is artificially restricted, so prices are higher.
If the regulator has a mandate to improve market penetration combined with the power to prevent companies from over-chearging, it weakens their hand to themselves over-charge the companies. By preventing the companies from over-paying, the regulator is in a much stronger position to also prevent them from overcharging
Finally, the "depreciating asset" part of the argument seems to imply that companies have unlimited cash to spend on both spectrum auction AND infrastructure rollout, but in practice the more cash they spend on the auction, the less they have to spend on infrastructure. Of course they could get a loan using the license itself as collateral, but over-inflated license cost would leave the companies with very high exposure. Also, fast infrastructure rollout = more expensive, so even if it's the path that gets most revenue, it won't be th emost profitable.
So bottom line, I don't agree that the optimal price from the POV of regulator and consumer is "as much as possible". I think it's "as much as possible up to a certain threshold", with the threshold depending on a multitude of factors, which I am sure the Czech regulators will be more familiar with than you or me.
Perhaps they could use a different model of selling off the spectrum at a fixed price + monthly/yearly fee depending on usage.
Agree with Metcalf. Theory in this case has proven to make assumption that are not true, like unlimited investment and capex. It also makes no room for evolutionary changes to technology i.e. ones that operators can live without.
I think a spectrum rental model is best, where the rents and license are low to begin with and then ramp up depending on how well the operator has used the spectrum, coverage achieved, and customer satisfaction and/or numbers.
Some assurances need to be given to operators. Appropriate leverage can be applied if required by the regulator, without upfront cost loading.
The 3G auction in the UK killed R&D expenditure from the operators, and has moved most 4G+ development to mainland Europe and the US, for almost all real world testing.
Operators are also now more global so they'll spend where the returns are going to be best. Even if that means only a 100 people use the tech.
I live in the Czech Republic and my eyebrows almost raised through my skull when I read about our wonderful regulator. I had assumed there wasn't even a regulator here and it was one big cartel, because the pricing of mobile networks here is monopolistically high, and the service abysmal.
Your comment has me wondering if perhaps the mobile networks have a hand in this.
Polite applause dood - as in awesomely awesome!
The eastern side of Europe has a lot to teach the western side (provided the western side is able enough to see the beauty?)
This is very highly unlikely to play out in the UK.
The numpties that make up the system somehow think money flows from a tap somewhere (probably an affliction from years of an empire of abuse, pillage and rape?)
The only question now is: how good is a motorbike in a landmass like Europe with all the geology, geography, history, economies, borders and beauty that such a domain possesses?
BTW: people in easter side of europe please don't invest in the fridge-freezer-microwave technologies so heavily relied upon in the western side - just look at our obesities and heart issues
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