The government recently concluded its spectrum auction reaping an unexpected windfall of $4.25 Billion. While some immediately trumpeted this as a triumph for the government and taxpayers, I was heartened to see a number of pundits recognized the obvious problems with the high price.
As Terence Cocoran pointed out in the National Post, that $4.25 Billion would represent a $230 tax on every cell phone user in Canada. Since new entrants will only capture a small portion of the market, the cost of that “tax” will be much higher. Let’s try and run some numbers.
Lets take a wild guess and say that the new spectrum manages to capture 15% of the market (not likely). That would be approximately 2.7 million subscribers. That works out to $1574.00 per subscriber not including the cost of the infrastructure to utilize the new bandwidth. Spread out over 5 years (not including interest) that is a $26/month premium.
With a minimum $26/month “tax”, It seem hard to believe prices will be lower.
However, there is an spectrum auction model that would result in lower prices and more competition. It’s called “Open Access Wireless” (I’ve written on this topic before). While Open Access could still be done in the traditional highest bidder model, an even better idea would be a “lowest bidder” model.
Sounds crazy? Hear me out.
If the winner was the bidder who pledged to charge the lowest wholesale price and was limited to wholesale only Open Access, the spectrum “tax” would be $0.
Furthermore, since the spectrum owner would be limited to wholesale only, they would not have an incentive to tamper with prices or services they way current incumbents do with existing “third party access” style services such as in the Bell wholesale throttling debate.
In short 100% of the value-add would benefit the users of the spectrum and they don’t have to pay back the up-front “tax”. Not only that, but since the winner does not have a huge up-front cost they can invest that money in building a better more extensive infrastructure.
Would government ever go for it? Unlikely. Even though it’s in the public interest there is no way politicians can resist rolling around in $4.25 Billion.