Wrong scapegoat, 3G auction architect says
Why they remain a Good Thing
Almost three years on, the carpers and cavillers are still complaining about the huge sums extracted from the telcos in the European 3G spectrum auctions. It is blamed for all manner of things, including the telecoms industry crisis, shareholder misery, wife-beating and crop failure.
At the time, some of us (OK, me) - at The Register thought the 3G spectrum auction was an impressive government funding mechanism. We (OK, me) hold this view still.
Much more eloquent is Paul Klemperer, Edgeworth Professor of Economics, Nuffield College, who advised the UK government on its 3G licence auction. This week, Klemperer conducted the defence of the effects of the 3G auctions, through the pages of the FT. The article is published in full (pdf) on his website (pdf).
Here is the potted version: First the opposition, as characterised by the prof.
The critics assume three things: that the telecoms companies paid more for the licenses than they thought the licenses were worh; that this expenditure has reduced investment in 3G; and that it destroyed market value."
Now, the defence: Of course, the licences look expensive. In retrospect many things do. But "like any other market, an auction simply matches willing buyers and willing sellers - it cannot protect them agains their own mistakes".
The 3G reduced investment argument is odd, Klemperer argues: "The auction fees are history; they have (almost) all been paid in full, cannot be recouped by cutting investment and make no difference to its profitability.
As for destruction in shareholder value in the telecoms sector, US companies have come out worse, even though no 3G auctions took place in the US. It seems a stretch to blame $700bn of shareholder misery on $100bn of shareholder fees.
Klemperer concludes: The main effect of the licence fees was simply to transfer $100bn from shareholders to certain European governments. This was both equitable, since the companies were buying a public asset that they valued this highly at the time, and efficient, since such a lump sum transfer is much more efficient than most forms of taxation. Efficient, equitable and voluntary government funding is not easy to find: perhaps we should be more enthusiastic about it.
And so say all of us(OK, me). ®