0 The Impact of Spectrum Management Policy on the Penetration of 3G Technology Moinul I Zaber, Marvin Sirbu {miz, Department of Engineering and Public Policy Carnegie Mellon University, Pittsburgh, PA, USA The 6 th Communications Policy Research south (CPRsouth6) December 9-10,

11 Overview Regulators take policy decisions on whether they should be  Mandating a single mobile technology  Mandating a specific band of spectrum for specific technology  Auctioning the spectrum as an award process Do these policies affect generation take up of mobile telephony? We try to answer this question in light of 3G take up across the world

22 Mandating a single technology standard Pro  Economies of scale in equipment  Avoid excess inertia while consumers wait to see which technology will dominate ( HD-DVD vs Blu-ray)  Global roaming Con  Avoid premature adoption of inferior technology  By adopting GSM, EU missed benefits of cdmaOne  Technological competition can lead to lower prices, faster innovation Fig 1. 3G per 100 pop world wide (Single standard vs Multiple standard)

33 Mandating specific spectrum band Pro  Economies of scale in equipment  Global roaming Con  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 Fig 2. Average 3G per 100 pop world wide (Bandmandate vs non bandmandate)

44 Spectrum Award Process Auction, Hearing or Re farming? Regulators favor Auction  Speed (comparative hearings or lotteries might take months or years!)  Transparency  Money for the treasury Market Players (mostly incumbents) do not like it  High spectrum cost reduces capital available for plant investment  New entrants lead to higher auction price Fig 3. Average 3G per 100 pop world wide (Auction vs non auction)

55 Methodology Logistic model of technology diffusion to ascertain the effects of spectrum management policies on 3G adoption Regression analysis on a cross-national panel dataset compiled from various data sources 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

66 Data and Variables The dataset is composed of variables from  National income and mobile industry (from ITU2010 database )  Award process ( from DotEcon2010 database )  Different technology standards and band (from CDG and GSMA websites) The dataset has information for 127 countries where wireless broadband has been rolled out [ ] Though some high-income countries started to roll out 3G from 2001, most of the countries rolled out 3G from late On average the dataset has four years of data regarding 3G user-base

77 Result of the econometric Analysis Presence of multiple standards delays countries from reaching the peak adoption rate

88 Result of the econometric Analysis Limiting 3G to a single frequency band promotes faster roll out, but in the long run can slow down the growth

99 Result of the econometric Analysis Using auctions rather than other methods to allocate spectrum helps countries to reach peak adoption rate faster Countries which conducted 3G auction were the first to reach the inflection point

10 Result of the econometric Analysis Other interesting results  High GDP per capita is associated with earlier attainment of the 50% adoption rate  Higher the number of Internet users per capita, the earlier 3G diffusion reaches the peak adoption rate, though this effect declines at higher levels of Internet penetration  The late comers are catching up !

11 Conclusion Multiple standards is associated with delayed attainment of peak adoption rate Mandating band might promote faster roll out but can slow the growth of 3G diffusion in the long run Countries using spectrum auctions reached peak adoption rate sooner

12 Questions ?

13 Thank You

14 Reference 1. Harald Gruber and Frank Verboven, "The evolution of markets under entry and standards regulation- the case of global mobile telecommunications," International journal of industrial organization, vol. 19, pp , Sangwon Lee, Sylvia Chan-Olmsted, and Heejung Kim, "The Deployment of Third-Generation Mobile Services: A Multinational Analysis of Contributing Factors," in annual meeting of the Association for Education in Journalism and Mass Communication, The Renaissance, Washington, DC Online, July ITU2010. (2010, Dec.) world.html. 4. DotEcon2010. (2010, Dec.) 5. GSMA, GSM World. (2010, Dec.) 6. CDG, CDMA development group. (2010, Dec.)

15 Overview of the technology generations 2G ( predominantly voice based, with limited data capability) has two prevalent technologies- cdmaOne and GSM 3G (with higher data capability ) also has two prevalent technologies – cdma2000 and WCDMA Figure 2. 2G and 3G technology generations cdmaOne cdma2000 GSM WCDMA TD-CDMA TD-SCDMA 2G Generation 3G Generation China only Can coexist in same channel Natural upgrade Can not coexist Needs new spectrum

16 Previous research Researchers have shown competition leads to faster 2G diffusion  Harald Gruber and Frank Verboven, [2001] 3G adoption positively associated with GDP per capita and “Multiple Standards”  Lee, S., Chan-Olmsted, S.M., Kim, H., [2009] None of these studies examine the effect of specific spectrum management on 3G adoptio n

17 Brief history of Standardization in mobile telephony  1G  No de jure technology mandate in Europe, but US mandated  Incompatibility among the technologies  No leading technology, low growth rate  2G  EU mandated GSM, US remained technology neutral  Europe mandated 900 Mhz and 1800 MHz for GSM  GSM became global leader, high growth rate  3G  ITU recommended a set of technologies  GSM operators opted for WCDMA, CDMA operators opted for CDMA 2000  Regulations in EU prohibited GSM bands to be used for 3G or any other service ( revised in 2008)

18 Spectrum Award Process How much does it cost to acquire spectrum for 3G? 59 countries conducted auctions between  Focus on Auction : 10 countries conducted auction in  Average amount paid for spectrum $164 with standard deviation of $225 (Per MHz per population in license coverage area) Hearing : 5 countries conducted hearings in  Average amount paid for spectrum ( ) $35 with standard deviation of $22 (Per MHz per population) Refarming  No new spectrum needed Does high cost of auctions hinder adoption?