La Industria Móvil Celular en Latinoamérica y las Diferencias en Términos de la Reforma a las Reglas acerca del Uso del Espectro en los Diferentes Países Roberto E. Muñoz CIDE, Junio 2005

Spectrum Allocation Policies Spectrum allocation policies in Latin America are diverse. It is convenient to study a specific case: the market for mobile phone services. The average amount of spectrum allocated to this service in Latin America is 102 MHz, well below the average in the EURO zone (for example) which is 256 MHz.

Potential Explanations: Technological: No. The same equipment used in Europe can be used in Latin America to provide mobile services. Market Based: May be. In Latin America the demand for mobile services does not justify a higher allocation. Regulatory: May be. the regulatory authorities in the region have not assigned spectrum in the amounts the market demands, because of a failure in the regulation.

Why not the Market Based Hypothesis Figure I: Spectrum vs. GDP Per Capita ,00010,00015,00020,00025,00030,00035,00040,00045,00050,000 GDP Per Capita (US$) MHz New Zealand Czech Republic Sweden Singapore Hong Kong NorwayCanada France Germany Denmark U.K. U.S Hungary Latin American Countries Source: Hazlett (2004)

More Evidence We built a new database adding all the Latin American countries (excluding the Caribbean), to the ones in Hazlett (2004). We run a simple regression of the quantity of spectrum assigned to mobile telephony with several independent variables (pop, gdppc, density, notCPP, liberal, latdummy and auction). The Latin American dummy had a negative and significant coefficient in the regression. The most consistent interpretation with these results is that there have been failures in the regulation leading to an inefficient allocation of the resource.

How can we Pareto improve over the current situation? Improvements subject to current regulatory constraints: Ex. Hazlett and Muñoz (2004). Reforms to the regulatory framework. –Flexible Licenses –Property Rights

1. Subject to Regulatory Constraints Hazlett and Muñoz (2004) have shown that the highest impact on welfare is obtained when the regulator puts more spectrum in the mobile phone market and generates more competitive final markets. Second order impacts from the allocation mechanism (ex. A well designed auction).

Basic Information

Simulation results: Mobile Market in Latin America

2. Reforming the Regulatory Framework It is license flexibility valuable? Which are the relevant scenarios? Where is Latin America in relation to these scenarios? These questions go beyond the mobile phone market.

TOY MODELS AS BENCHMARKS Assumptions: Two firms: super index 1,2 Two products: sub index 1,2 Firm 1 solves: The problem for firm 2

Model 1: Spectrum assigned to a Service.

Model 2: Spectrum assigned to a firm (use is free).

Model 3: Spectrum assigned by the Market.

License Flexibility in Latin America

Conclusions In Latin America the Spectrum allocated to mobile phone services is inefficiently low. A more efficient use of this resource can be obtained under the current dominant regulatory structure. An optimal use of the resource demands regulatory reforms, aligned to the ones implemented in Guatemala, in most of the countries in the region. These recommendations applies well beyond the mobile market.