LICENSE AUCTIONS WHEN WINNING BIDS ARE FINANCED THROUGH DEBT<sup>*</sup>

Haan, Marco; Toolsema-Veldman, Linda

doi:10.1111/j.1467-6451.2011.00454.x

Cited by 10 publications

(3 citation statements)

References 31 publications

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“…But Cave and Valetti (2000) have shown that the spectrum auction through ascending auction need not necessarily be bad as the license fee is only a sunk cost. Haan and Toolsema (2003) show that consumers' price may be lower under spectrum auction than under beauty contests. On the other hand, Burguet (2005) shows how the beauty contest method is a better approach to spectrum distribution than the auction of licensing.…”

Section: Literature Reviewmentioning

confidence: 95%

Spectrum Auction and Investment in Telecom Industry: A Suggested Policy

Datta¹

2012

Vikalpa: The Journal for Decision Makers

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Recently, Indian telecommunication industry has passed through an auction process of 3G spectrum, which has enabled the government to collect hefty license fees. The successful bidders are expected to borrow this bid amount from the commercial banks and repay from the revenue to be generated from the new services. This paper looks at this issue theoretically. The telecommunication firms operate on the basis of acquisition of airwave space, which is licensed by the government. The usual policy practice is to distribute the available spectrum by an ascending auction. As per the economic theory, auction has two merits. Firstly, auction ensures that spectrum goes to the most efficient firm, which is by definition the firm that makes the maximum profit among all. This firm by virtue of their maximum profit bids the highest amount in the auction and gets the spectrum. Secondly, spectrum auction ensures revenue maximization of the government. This result of efficiency optimization however holds under the assumption of perfect information and no uncertainty. Uncertainty and irrationality like over-optimism can lead to problems like ‘winners‘ curse' or ‘broke winners’ under auction. Still auction is market-based and less controversial than discretionary distribution. However, this paper argues that high amount of auction bid can result in several deficiencies in the telecom industry. An issue of debate is whether high auction bid will result in higher price for the services. Under the assumption of infinite time horizon, high license fee is a sunk cost and therefore does not raise price. But this paper shows that a high license fee can raise the lending bank�s interest charge for which not only price rises but the infrastructural investment in the telecom industry suffers. After the acquisition of spectrum through auction the industry needs infrastructural investments to roll out the quality services. Inadequate investment in infrastructural activities like procurement of quality equipments, erection of tower, etc., may result in lower quantum of services with degraded qualities. This is in fact a reality in India where not only rural telecom infrastructure is vastly inadequate, the urban telecom infrastructure is also under severe stress. In this paper, using the tool of game theory we show how capacity and quantity choice game of firms ends up in high auction bid and sub-optimal investment on infrastructure. Then how can the social planners simultaneously achieve the twin objective of growth and revenue maximization? The paper shows that these objectives are realized if a part of the license fee is spent for the subsidization of infrastructural investment in the telecom industry.

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Section: Literature Reviewmentioning

confidence: 95%

Spectrum Auction and Investment in Telecom Industry: A Suggested Policy

Datta¹

2012

Vikalpa: The Journal for Decision Makers

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“…Janssen and Karamychev (2009) show that less riskaverse bidders are more likely to win auctions and to price their products higher post-auction. Haan and Toolsema (2011) show that where bidders finance their bids through the debt market, debt levels may affect post-auction pricing. Studying 47 countries, Kuroda and del Pilar Baquero Forero (2017) find that penetration rates are lower in countries that conduct auctions.…”

Section: Spectrum License Feesmentioning

confidence: 99%

Taxing telecommunications in developing countries

Matheson

Petit

2020

Int Tax Public Finance

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Developing countries apply numerous sector-specific taxes to telecommunications. This paper explores whether there is an economic rationale for sector-specific taxes on telecommunications and, if so, what form they should take to balance the competing goals of promoting connectivity and mobilizing revenues. A survey of the literature finds that limited competition likely creates rents that could efficiently be taxed. We look at how sector-specific taxes could best be levied in addition to standard income and value-added taxes, based on capturing rents and minimizing distortions. Taxes that target possible economic rents or profits are preferable, but their administrative challenges may necessitate reliance on service excises at the cost of higher consumer prices and lower connectivity. Taxes on capital inputs and consumer access, which distort production and restrict network access, should be avoided, as should tax incentives, which are generally not needed to attract foreign capital.

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“…According to Janssen and Karamychev (2009), telecommunication companies that are not overly risky as auction bidders tend to win the auction and price their products higher afterward. According to Haan and Toolsema (2011), the level of debt influences post-auction consumer prices for the bidder who wins the auction with debt financing. Kuroda and Forero (2017) discovered a lower penetration rate in auction countries after studying 47 countries.…”

Section: Introductionmentioning

confidence: 99%

Sunk Cost Analysis of Frequency Spectrum Auction Prices in Indonesia Using Data Envelopment Analysis

Rahayu

2022

JEECAR

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The purpose of this study is to investigate the sunk cost argument on the auction price of the frequency spectrum by measuring the efficiency of the frequency license fee paid by the auction winner. The efficiency method employs a nonparametric approach, namely Data Envelopment Analysis (DEA) with the Linear Programming method, with the hypothesis model tested using Path Analysis. The dataset under consideration was Indonesia's Big Three Service Providers (2015-2020). The results show that the spectrum auction price is efficient in its impact on service prices, revenues, and income taxes. The spectrum auction price has no effect, lending credence to the argument that the spectrum auction price is considered a sunk cost in the telecommunications industry. The research reason is that the higher the auction price, combined with the lower cost of service due to high competition, the harder it is for small businesses to win the auction. The winning bidder will remain under the control of the prominent organizers, so the government issues a merger policy for small businesses to compete in spectrum auction bids.

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LICENSE AUCTIONS WHEN WINNING BIDS ARE FINANCED THROUGH DEBT^*

Cited by 10 publications

References 31 publications

Spectrum Auction and Investment in Telecom Industry: A Suggested Policy

Spectrum Auction and Investment in Telecom Industry: A Suggested Policy

Taxing telecommunications in developing countries

Sunk Cost Analysis of Frequency Spectrum Auction Prices in Indonesia Using Data Envelopment Analysis

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LICENSE AUCTIONS WHEN WINNING BIDS ARE FINANCED THROUGH DEBT*

Cited by 10 publications

References 31 publications

Spectrum Auction and Investment in Telecom Industry: A Suggested Policy

Spectrum Auction and Investment in Telecom Industry: A Suggested Policy

Taxing telecommunications in developing countries

Sunk Cost Analysis of Frequency Spectrum Auction Prices in Indonesia Using Data Envelopment Analysis

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Product

Resources

About

LICENSE AUCTIONS WHEN WINNING BIDS ARE FINANCED THROUGH DEBT^*