The European Mobile 3G UMTS Process : Lessons from the Spectrum Auctions and Beauty Contests

The European Union is perhaps the most advanced area in terms of mobile telecommunications penetration. It is within this context that third generation (3G) spectrum licenses for mobile phones have become such an important issue in European regulation, finance, and politics. This article addresses two issues that have been missing from legal academic literature. First, it analyzes auction theory and its applications to telecommunications. Second, it investigates the important 3G spectrum license process in Europe and breaks down its implications on EU law and policy in the telecom sector. This analysis is crucial given that the unresolved issues that have arisen in the 3G process, if not solved, will have a deleterious effect on future spectrum allocation processes in Europe. Therefore, this article argues that a single simultaneous ascending auction and a pan-European telecom regulatory authority should be created to allow for better spectrum allocation results. Proper regulation serves to correct market inefficiencies. One of the goals of regulating the mobile market is to encourage competition, which prevents monopolization, lowers barriers to entry, and reduces costs to consumers. In order to allow for greater competition in the mobile market, Member States of the EU and other European countries have chosen between auctions and beauty contests to allocate licenses. Auctions raise substantial amounts of money for the government. Auctions give the government good information about the value of different uses of spectrum, may help to better allocate spectrum allotment in the future, tend to be quick, and are cost effective. Auctions encourage the efficient use of frequency by assigning the spectrum to the eligible party that values it most. They also keep the number of applicants down, which thereby reduces administrative costs. However, auctions may disadvantage consumers if governments fail to devise effective auctions. In contrast, a beauty contest, or comparative hearing, has government regulators selecting a winner based on its own determination of the potential pros and cons of the candidates. Section II of this paper provides an overview of EU law on mobile telecommunications. Section III explores auction theory and its applications for the licensing of spectrum. Section IV examines how auctions and beauty contests for 3G licenses have faired in Europe. Section V offers an analysis of the impact of the licensing process on European telecom operators and consumers while Section VI concludes that a single simultaneous ascending auction for all of the licenses throughout Europe will provide for greater efficiency, and advocates for the creation of a pan-European telecommunications regulatory authority so that future processes of licensing spectrum in Europe prove to be more successful than the 3G process