And now let us praise Gordon Brown

Not something you\’d expect to see here I know. But along with his decision not to join the euro he did make one other good decision. The 3G auction for spectrum….so good in fact that India is following in his footsteps.

And the cost of its India expedition is set to increase still further as the price of rights to third generation (3G) mobile spectrum spirals. The current price for country-wide 3G spectrum stands at $3.6bn on the auction\’s 33rd day, compared to analysts\’ predictions of $2.5bn. However, there are hopes that the price may not rise much higher as the daily increase in bids has slowed from $140m a day to about $80m.

Vodaphone is of course whining:

\”Spectrum should not be seen as something that governments must use to squeeze money out of operators,\” he said. \”Spectrum is the fuel to power future economic development. We need a different mindset – instead of seeing spectrum as an opportunity to squeeze it is an opportunity to invest.

\”Every time you take money out of investment [by discouraging companies from bidding from investing in the country] you are taking money out of future economic growth.\”

That is what is known as talking your own book….or alternatively, as \”bollocks\”. Spectrum is a limited natural resource, as much as land or oil or coal is. there are therefore Ricardian rents available to those who own them. And the correct response to the allocation of such rents is to tax them away: people make a profit by using the scarce resource, certainly, but not from ownership of them.

It\’s not going to make any difference to hte price that companies charge anyway: they\’ll still charge the maximum the market will bear. The auction of the spectrum creates tax revenues and thus other tax rates can be lower for whatever level of services is provided.

Brown was right to do it in the UK and the Indians are right to do it now….perhaps the first adoption of a UK lefty economic policy that has actually benefitted that poor benighted country. Their earlier adoption of the wilder shores of Fabianism and the dotty theories of the Webbs has certainly done them no favours.

5 thoughts on “And now let us praise Gordon Brown”

  1. I would not call that even “Lefty”.

    Lefties would want monopolies, State ownership of the companies, discounts to their constituencies to allow more vote buying and probably more.

  2. It wasn’t just the decision to auction the spectrum that was a success, it was the handling of the auction itself (although I think this was probably more luck than judgement). I think The Undercover Economist went into detail about how similar auctions in other parts of the world had been biffed up royally.

  3. “It’s not going to make any difference to hte price that companies charge anyway: they’ll still charge the maximum the market will bear. The auction of the spectrum creates tax revenues and thus other tax rates can be lower for whatever level of services is provided.”

    That is correct…but it will still retard investment – why else is 3G take-up so low still in the UK after all these years…The auction basically taxed the operators to the point of collapse…the strange thing is why did those companies do it?

  4. The rules for Oftel (now Ofcom) were changed after the auction to stop them making revenue the sole aim of licensing spectrum. Maybe India should consider why.

    Furthermore, there may have been an argument for technology specific licenses for 2G, and in the early days of 3G, to drive economies of scale. But now that 4G technologies are available and soft radio technology means that mobiles can be easily configured for different technologies, India (and Ofcom with the 3G extension spectrum) should be encouraging innovation by selling technology neutral licenses.

    @Gareth, what caused the problem was the cost meant that the mobile operators came under pressure to go with an immature technology. Hutchison Whampoa put so much pressure on 3 that they had at least three launches and the technology became a bit of a joke. It did increase the workforce as 3 sucked a huge amount of radio engineers and roll out specialists.

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