The impact of Spectrum Management Policy on the Penetration of 3G Technology
POLICY BRIEF
Government regulators grant licenses to cellular operators to use spectrum. Regulatory authorities aim to encourage
economic development through telecommunication and secondarily to earn revenue from spectrum licensing. How licenses
are awarded and conditions placed on the licensee, in addition to country specific demographic factors, influence the short
term and long term adoption of cellular technology. Looking across 127 countries, we have examined how spectrum policy
decisions have influenced the adoption of 3G cellular technology.
KEY FINDINGS
1. Mandating
single
technology
Standard
Countries reach 50% penetration (peak
adoption rate ) more quickly when they
mandate a 3G single technology.
2. Band neutrality
3. Auctions
Limiting 3G to a single frequency band
promotes faster roll out, but in the long
run can slow down the growth.
Using auctions rather than other
methods to allocate spectrum helps
countries to reach 50% penetration
earlier.
JUSTIFICATION
important than reaching high penetration in countries
without
an
indigenous
cellular
infrastructuremanufacturing sector.
Number of countries
Technology Standardization
Regulators can either mandate a technology for a specific
generation of cellular service or let the operators decide.
Compatibility resulting from a single standard can lead to
economies of scale for operators and equipment vendors.
Early diffusion is therefore slower in countries with
multiple standards.
40
30
20
10
0
Multiple
standards
Single
Standard
Fig 2: Comparison of choice of standards options by
country-income level (source: ITU 2010, DotECON)
Fig 1. 3G per 100 pop world wide (Single standard vs
Multiple standards) (source: ITU 2010, DotECON)
We find that countries with multiple standards for a
telecom generation were about 9 months later to reach
the 50% penetration rate than the counties with single
standards although the growth rate in multiple standards
country is higher than the single standard counterparts. It
can be argued that single standard can hinder
development of alternative technologies. However,
stimulating new technology development may be less
Band Neutrality
Regulators can either mandate a specific band for a
specific technology or let the operators upgrade or refarm
their already acquired bands. It is commonly argued that a
band mandate enhances global roaming and ensures
economies of scale. However, it 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. We find that mandating the band
helps the countries to reach the peak adoption rate
earlier. This is because the operators can use the new
band for the new technology while serving the existing
customers with older spectrum.
40
30
20
10
0
Band Mandate
No band
mandate
Fig 5. 3G per 100 pop world wide (Auction vs non auction)
(source: ITU 2010, DotECON)
Number of
countries
Number of
countries
Fig 3. 3G per 100 pop world wide (Bandmandate vs non
bandmandate) (source: ITU 2010, DotECON)
50
40
30
20
10
0
Auction
Beauty Contest
Re-farm
Fig 4: Comparison of choice of spectrum band options by
country-income level (source: ITU 2010, DotECON)
Fig 6: Comparison of choice of spectrum award processes
by country-income level (source: ITU 2010, DotECON)
However as the adoption reaches the peak rate in order to
keep a faster growth rate the operators should be able to
reuse their existing spectrum as newer technology takes
over the older one. This is why our research shows that
mandating band slows down the growth reaffirming the
need for spectrum re-farming.
Estimation Procedure
A regression analysis was conducted on a logistic model of
technology diffusion to ascertain the effects of the policy
variables. 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. The estimation finds
that the regulatory policies regarding spectrum
management are positively associated with high
penetration rate of mobile technology. Insights gained
from this study of 2G to 3G transition can provide
guidance to regulators contemplating the transition to the
newer generations.
Auctions
Regulators in general prefer auctions to any other
spectrum award methods. Auctions are faster in
comparison with hearings, which might take months or
years. They largely ensure transparency and ensure that
the party that values the spectrum most gets the
spectrum. This has a significant effect on ensuring high
adoption rate. The capital debt caused by auctions might
act as an incentive for fast roll-out to earn revenue to
cover the debt. Our finding suggests that auctions as the
award process do help the countries to reach peak
adoption rate faster affirming the hypothesis. The
countries that conducted auctions were at least 7 months
earlier than their counter parts to reach 50% penetration
rate. However, the estimation does not find the effect
of award process significant on growth parameter. The
finding indirectly supports the hypotheses that auction
bid prices are “sunk-cost” and have little effect on the
ultimate rollout of the technology.
AUTHORS
Moinul Zaber
PhD Student, Engineering and Public Policy,
Marvin Sirbu
Professor of Engineering and Public Policy, Industrial
Administration and Electrical and Computer Engineering
Carnegie Mellon University, 5000 Forbes Avenue
Pittsburgh, Pennsylvania 15213-3890
miz@cmu.edu sirbu@cmu.edu