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Controversial Radio Spectrum Auction?

Recently the Korea Communications Commission (KCC) conducted a radio spectrum auction that provides several frequency bands to Korean telecommunications companies. The regulator auctioned three blocks of radio bands: 800 megahertz (MHz), 1.8 gigahertz (GHz) and 2.1 GHz. The companies were eager to win the right to use the frequency as it allows the companies to install advanced mobile network services known as Long Term Evolution (LTE). The initial price for the 800 MHz band was KRW 261 billion, while 1.8 GHz and 2.1 GHz were priced at KRW 445.5 billion each. SK Telecom, the largest South Korean telecommunications company and KT, the second biggest mobile operator, both bid for the 1.8 GHz spectrum. However, SK Telecom’s bidding price was more than double the initial auction price. The high bid has kept KT from bidding higher. As a result, SK Telecom won 1.8 GHz licenses for KRW 995 billion ($920 million). KT instead has secured the remaining 800 MHz bands for KRW 261 billion.

The Korea Communication Commission (KCC) originally allocated spectrum licenses on the basis of hearings. However, there was no end to the controversy over the regulator’s favoring certain businesses in assigning spectrum licenses. Thus, the KCC was persuaded that auctioning licenses would allocate them more efficiently. In designing the auction, KCC had many choices. For instance, the bidding could be open or sealed, with the price equal to either the highest or the second highest bid; and the licenses could be sold simultaneously or sequentially, in which the buyer could submit bids for individual licenses or for combination of licenses. In the end, the commission chose to use open ascending auction, a generalization of the English auction, for which bids were accepted simultaneously for all licenses and the bidding continue until no bidder is willing to raise the bid on any of the licenses. Therefore, the highest bidder wins the license.

But this method of auctioning has received many criticisms from the public. The main reason for this auction was to allocate the spectrum rather than to raise revenue. Moreover, there have been concerns over the possibility of the winner’s curse, in which the bidder fails to bid his best estimate of the value of the object and overbids instead. As a result, the consumers may have to burden the money the company has spent in the future. The key perspective that people should pay attention to is how KT Corp. will invest its money, which could have potentially been used to purchase the right to use 1.8 GHz spectrum, to compete with SK Telecom.


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