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The design of the UK spectrum auction of 2000 should be mentioned here. As well as being pretty interesting from a game-theoretic standpoint, at $34bn raised, it was the largest auction since AD 195, at least by the reckoning of the designers:


A colleague who worked on the auction design for the ELSE Centre at UCL ran some test auctions on student subjects with the premise that buyers were bidding for the rights to operate a diamond mine, with a guaranteed (and astronomically large) return. In experiments, bidders were explicitly warned to save some of their budget over for picks and shovels so they could actually extract the diamonds, should they win.

When it came time to bid, the students did not heed this advice... and nor did the telcos.

All the auction does is create a "hidden tax" for cell phone users since all the company does is pass the costs on to the rate payers. Since cell phones and smart phones are not a luxury but are now essential, it is a regressive tax on the poor.

I wouldn't be proud of this. I would rather have seen the spectrum given to the cell phone providers the way that spectrum was originally given to radio and TV broadcasters in the US.

Correct, more or less. You're right that the public ends up paying for something they own (but this is a case where ownership means an unexploited resource which earns nobody anything). The second, controversial result was a wildly overextended telco industry that suffered in the markets from 3G license costs and consequently dragged their feet implementing 4G:


From an economics perspective, taxing the airwaves is just as efficient as a land-value tax. The market response to something being taxed is to not make as much of it. As long as the tax is set such that the land or spectrum is still worth using, it's the closest thing to a free lunch.

And it's not as if taxing the spectrum changes how much more money cell phone companies would get at different prices.

It is in the best interest of the government to make the key resource of cellular Wi-Fi as cheap as possible to encourage use just as it is with wire-line internet providers.

When Google Fiber comes to a city, the prices of competitors drop and the data speeds increase. The spectrum auction which is passed on as an invisible tax creates the opposite effect of that desire.

It is an essential resource in today's world, so this tax is not only implicit and invisible, it is also regressive, adversely affecting the poorest the most.

> And it's not as if taxing the spectrum changes how much more money cell phone companies would get at different prices.

Actually, cell phone providers could make more revenues through increased use of spectrum at lower prices. Consumer, cell phone provider both win when there is no auction and the spectrum is given out as it originally was in the US with radio and TV spectrum.

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