5 ms·

The Tragedy here is that spectrum auctions have been lose-lose-lose. 1. Telecom companies and their shareholders are burdened by debt and either go bankrupt or

The Tragedy here is that spectrum auctions have been lose-lose-lose. 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.

blueblisters 6y ago
Why was this downvoted? Seems like a fairly well-written argument - would love to hear counter-arguments instead of blanket downvoting.
- xhkkffbf 6y ago
  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.
  - haltingproblem 6y ago
    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?
    - hcknwscommenter 6y ago
      >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.
      - haltingproblem 6y ago
        Meta-ironic because it is in the article :)
        creddit 6y ago
        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.
        toast0 6y ago
        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.
- KorematsuFred 6y ago
  OP suggested markets work. HN folks downvoted without presenting arguments.
- donavanm 6y ago
  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.
amadeuspagel 6y ago
> 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.
- haltingproblem 6y ago
  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.
  - LaundroMat 6y ago
    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..
  - ajaynaat31 6y ago
    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 ...
hcknwscommenter 6y ago
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.
deleted 6y ago
[deleted]
bluedevil2k 6y ago
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.
- tpetry 6y ago
  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.
deleted 6y ago
[deleted]
surajs 6y ago
ironically, an industry still using outdated modes of revenue measurement can't be said to be thinking "bigger" or better.
donavanm 6y ago
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?

blueblisters 6y ago

Why was this downvoted? Seems like a fairly well-written argument - would love to hear counter-arguments instead of blanket downvoting.

xhkkffbf 6y ago
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.
- haltingproblem 6y ago
  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?
  - hcknwscommenter 6y ago
    >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.
    - haltingproblem 6y ago
      Meta-ironic because it is in the article :)
      - creddit 6y ago
        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.
        toast0 6y ago
        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.
KorematsuFred 6y ago
OP suggested markets work. HN folks downvoted without presenting arguments.
donavanm 6y ago
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.

amadeuspagel 6y ago

> 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.

haltingproblem 6y ago
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.
- LaundroMat 6y ago
  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..
- ajaynaat31 6y ago
  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 ...

hcknwscommenter 6y ago

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.

deleted 6y ago

[deleted]

bluedevil2k 6y ago

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.

tpetry 6y ago
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.

deleted 6y ago

[deleted]

surajs 6y ago

ironically, an industry still using outdated modes of revenue measurement can't be said to be thinking "bigger" or better.

donavanm 6y ago

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?