Auctions 'could jeopardize fixed wireless sector' - Government Activity

CommunicationsWeek International, June 19, 2000 by Peggy Salz-Trautman

Europe's emerging broadband fixed wireless network operators are rallying user and operator groups in opposition to national spectrum auctions.

Members of the Broadband Wireless Association say national spectrum auctions like the one held in the United Kingdom for third generation mobile licenses, could, if adopted for fixed wireless systems still to be licensed, kill their businesses right at the outset.

The London-based BWA wants, like the UMTS Forum in the mobile sector, to get contiguous spectrum allocations, so that pan-European operators do not face interoperability issues when they start services.

But the priority is to form a lobby union in their industry that can put the brakes on unfettered spectrum bid contests.

"Broadband wireless is an embryonic industry and we could kill it if we think of it as being like UMTS," said Stephen Lowe, executive chairman of the BWA and product development director of Eurobell Ltd., of Grawley, England. "We need a hybrid of the two [auction approach and beauty contest] to be effective and fair in the allocation of spectrum--otherwise we run the risk that [most] licenses will end up in the hands of incumbents and companies who can pay the highest price."

Some analysts agree that there is a real danger that auctions could stunt the growth of the broadband wireless industry altogether.

And they are particularly concerned that finance ministries of some countries currently planning beauty contests will urge a change of mind and opt for auctions instead.

Lars Godell, a telecoms analyst at Forrester Research Inc., in Amsterdam, said Europe should have learned a lesson from the United States, where spectrum auctions for LMDS were counterproductive.

"What we had in the end was a surprise to us all," said Godell. "The company that got the most spectrum had to delay rollout and went bankrupt...which also put the industry considerably behind. This causes me to worry about whether the auction process is the best approach to take when dealing with emerging technologies. It can really hurt an industry in its infancy."

'Indirect tax'

To rally against what it calls an "indirect tax on the industry" the Telecommunications Managers Association (TMA), of Leatherhead, England, and the Telecommunications Users Association (TUA), of London, have joined the BWA to call for a new approach to spectrum allocation that would provide a fair price for the spectrum on offer, while at the same time guaranteeing a high standard of service to the end-user and an open market to new entrants.

Indeed, the heated debate over the downside of the auction approach has also attracted the attention of the European Parliament, which last week approved a report that has "strong doubts about auctioning"--particularly since the process conflicts outright with Article 11 of the European Licensing Directive. The directive stipulates that fees raised should only cover the costs of administering the licenses and not be used to fill the tills of European governments.

"Our decision means that the Commission is now forced by the [European] Parliament to take a more active stance on this question," said Wim van Velzen, MEP and rapporteur for e-commerce.

Van Velzen has asked the Commission to "take a look at the overall economic effects of auctioning" and examine whether the approach chosen by the United Kingdom may be considered an infringement of licensing regulations.

The process proposed by the BWA and its new allies would permit governments to set minimum prices and invite sealed bids above this price, but give precedence to those applicants who can "demonstrate that their entry into the market will enhance the development of competition."

This way, supporters of this approach argue, the industry avoids the risk of spiraling bids, shortens the open-ended process of a beauty contest, and keeps its rollout promises to the end user.

Governments are blinded by the amount of money changing hands and are putting the customer last, said David Harrington, TMA executive director. "There are socio-economic repercussions that will be felt across Europe if this [position] catches on," Harrington said.

Moreover, the idea of auctions conflicts with the ideal of universal Internet access, which the European Commission is pushing as part of its eEurope 2000 plan.

Contrary to the view that high fees encourage quick deployment, BWA's Lowe argues that the auction process excludes new entrants from the marketplace and leaves the fledgling broadband wireless market mostly in the hands of those companies that have already invested huge sums in the rollout of digital subscriber line and cable--technologies that compete head on with broadband wireless.

"They have little incentive to roll out [broadband wireless] services and more to simply sit on the licenses," said Lowe.

Because the auction process emphasizes price over service guarantees, some industry groups are concerned that the U.K. precedent could also widen the digital divide between countries in Europe.