The Impact of Spectrum Management Policy on the Penetration of 3G Technology

The Impact of Spectrum Management Policy on the Penetration of 3G Technology Moinul I Zaber, Marvin Sirbu {miz, sirbu}@cmu.edu Department of Engineering and Public Policy Carnegie Mellon University, Pittsburgh, PA, USA The 6th Communications Policy Research south (CPRsouth6) December 9-10, 2011

Overview • Regulators take policy decisions on whether they should be • Mandating a single mobile technology • Mandating a specific band of spectrum for specific technology • Auctioning the spectrum as an award process • Do these policies affect generation take up of mobile telephony? • We try to answer this question in light of 3G take up across the world

Mandating a single technology standard • Pro • Economies of scale in equipment • Avoid excess inertia while consumers wait to see which technology will dominate ( HD-DVD vs Blu-ray) • Global roaming • Con • Avoid premature adoption of inferior technology • By adopting GSM, EU missed benefits of cdmaOne • Technological competition can lead to lower prices, faster innovation Fig 1. 3G per 100 pop world wide (Single standard vs Multiple standard)

Mandating specific spectrum band • Pro • Economies of scale in equipment • Global roaming • Con • Forces the operators to go through the spectrum award process to introduce new technology even though they might be capable of reusing their existing spectrum Fig 2. Average 3G per 100 pop world wide (Bandmandatevs non bandmandate)

Spectrum Award Process • Auction, Hearing or Re farming? • Regulators favor Auction • Speed (comparative hearings or lotteries might take months or years!) • Transparency • Money for the treasury • Market Players (mostly incumbents) do not like it • High spectrum cost reduces capital available for plant investment • New entrants lead to higher auction price Fig 3. Average 3G per 100 pop world wide (Auction vs non auction)

Methodology • Logistic model of technology diffusion to ascertain the effects of spectrum management policies on 3G adoption • Regression analysis on a cross-national panel dataset compiled from various data sources • The dependent variable for the regression model was the logarithm of the ratio of 3G adopters and the potential adopters • To ascertain the effect of the policy variables country income and mobile industry variables such as 2G penetration, Internet adoption, and various other variables were controlled • The model estimates 71% of the variation on 3G penetration

Data and Variables • The dataset is composed of variables from • National income and mobile industry (from ITU2010 database ) • Award process ( from DotEcon2010 database ) • Different technology standards and band (from CDG and GSMA websites) • The dataset has information for 127 countries where wireless broadband has been rolled out [2001-2009] • Though some high-income countries started to roll out 3G from 2001, most of the countries rolled out 3G from late 2004. On average the dataset has four years of data regarding 3G user-base

Result of the econometric Analysis • Presence of multiple standards delays countries from reaching thepeak adoption rate

Result of the econometric Analysis • Limiting 3G to a single frequency band promotes faster roll out, but in the long run can slow down the growth

Result of the econometric Analysis • Using auctions rather than other methods to allocate spectrum helps countries to reach peak adoption rate faster • Countries which conducted 3G auction were the first to reach the inflection point

Result of the econometric Analysis • Other interesting results • High GDP per capita is associated with earlier attainment of the 50% adoption rate • Higher the number of Internet users per capita, the earlier 3G diffusion reaches the peak adoption rate, though this effect declines at higher levels of Internet penetration • The late comers are catching up !

Conclusion • Multiple standards is associated with delayed attainment of peak adoption rate • Mandating band might promote faster roll out but can slow the growth of 3G diffusion in the long run • Countries using spectrum auctions reached peak adoptionratesooner

Questions ?

Thank You

Reference • Harald Gruber and Frank Verboven, "The evolution of markets under entry and standards regulation- the case of global mobile telecommunications," International journal of industrial organization, vol. 19, pp. 1189-1212, 2001. • Sangwon Lee, Sylvia Chan-Olmsted, and Heejung Kim, "The Deployment of Third-Generation Mobile Services: A Multinational Analysis of Contributing Factors," in annual meeting of the Association for Education in Journalism and Mass Communication, The Renaissance, Washington, DC Online, July 2009. • ITU2010. (2010, Dec.) http://www.itu.int/ITU-D/ict/publications/world/ world.html. • DotEcon2010. (2010, Dec.) http://www.dotecon.com/. • GSMA, GSM World. (2010, Dec.) http://www.mobileworldlive.com/maps/ • CDG, CDMA development group. (2010, Dec.) http://www.cdg.org/worldwide/index.asp

The Impact of Spectrum Management Policy on the Penetration of 3G Technology