Beware of merging, telcos. CHEAPER SPECTRUM follows

Evil capitalist bastards!

We start with the idea that the firms are capitalist bastards. Whatever their cost base, they're going to charge us consumers the maximum they can get away with. So increasing the spectrum price doesn't change what we pay.

And of course it would be possible for the government to just allocate that nice, valuable, spectrum to a few chums. Certain places have certainly done that. But why should a group of private shareholders make money out of the mere existence of something valuable? Why should BP make a profit out of there having been dead organisms which died under what is now the North Sea?

The value of oil itself, not of the costs of extraction, should be very heavily taxed.

It's fine that BP should make a profit on the capital it uses to drill for, and pump up, the subsequent hydrocarbons; fine that it makes a return on the investment in how to do so (so-called Schumpterian profit or rent). But why should BP get handed the windfall by fact of the simple existence of that oil and gas?

So, oil, the value of oil itself, not of the costs of extraction etc., should be very heavily taxed. This also means that people digging up metal ores should be coughing to the Treasury the value of the ore, as ore.

And yes, this tie-in with Ricardian Rent ideas means that those who use spectrum should be paying the value of that spectrum to government. How we ascertain that value is that we find out what someone's willing to pay for it by having an auction.

As I say, this shouldn't affect the price of the end service one iota. All it does is change the allocation of that revenue stream. Less of the profit to be made out of the spectrum's mere existence goes to the shareholders and more of it goes to reduce other taxes on those same consumers. It's a great idea.

Even better, it gets allocated to those willing to pay the higher price - meaning, we assume, those who have the best ideas about how to exploit that existence. And that's the other price that we want to be careful of.

Brown's auction, and those that have followed on, are usually very careful in trying to make sure that there's fewer spectrum packages on offer than there are people who would like to be in the market. And it's that, of course, that consolidation would hurt.

It's not so much that we're worried about how much consumers would get ripped off if there were only three or four players in the market. We're actually more worried about how the taxpayers won't be able to rip off the shareholders if there's only three or four players in the market. ®