4 July 2024

Spectrum auctions have received a lot of criticism recently for taking money out of the industry. This week’s 3.5GHz auction in the Netherlands is a reminder that, if well designed, an auction should not artificially raise revenues but instead find the minimum amount to determine who should be assigned the spectrum.

The objective of a well-designed spectrum auction is to determine, at the lowest price possible, how the available spectrum should be divided between the interested parties. The theory is that, under such circumstances, the spectrum is assigned to the user/users that will generate the greatest economic output from the spectrum.

In recent years, spectrum auctions have been criticised for being too expensive and taking money out of an industry that is already struggling to generate a positive return on investment. However, the cause of this – at least in our opinion – is due to many auctions being poorly designed. This has been for a whole range of reasons:

• reserve prices have been set too high – often to due pressure from governments to maximise revenues.
• spectrum unnecessarily being reserved for entrants or other uses – leading to artificial scarcity for the mobile operators.
• use of inappropriate auction formats and lot packaging (how the spectrum is divided into multiple blocks).

The Dutch 3.5GHz was a welcome example of a well-designed auction. The lots were structured sensibly (three 60MHz lots plus twelve 10MHz lots), a pragmatic auction format was used (a clock auction) and reserve prices were set low. There was little to artificially inflate competition and prices. The result was that each of the three operators gained 100MHz of spectrum for a modest fee – EUR58 million each, or EUR0.03 per MHz per head of population – which is amongst the lowest prices for 3.5GHz spectrum across Europe.

That said, not everything related to the Dutch 3.5GHz auction was best practice. Due to Inmarsat’s existing use of the spectrum, the auction was delayed by several years, leading the Netherlands being amongst the last countries in Europe to award this key capacity band for 5G. Also, only 300MHz of the band was awarded, with 100MHz being kept back for private networks. This could easily have led to artificial scarcity and high prices, as was seen in the German 3.5GHz auction. However, it appears that the operators showed restraint in the auction, settling for 100MHz each.

The modest amount raised in this auction will be relief to the Dutch mobile operators – who have historically paid amongst the highest prices for spectrum across Europe. Notably, a new entrant reservation led to extremely high prices in the 4G auction in 2012.