Spectrum auctions in Africa

What is the state of spectrum auctions in Africa today?

Spectrum auctions are not very common in Africa at the moment, not very many countries have done it successfully. Member states recognise that auctions are likely to create better economic and social benefits but they are both difficult and risky. One of the reasons behind this is that Africa is behind in spectrum pricing. Actors want to set a correct price and sell all of the spectrum on auction, if this does not seem likely, actors will refrain from holding an auction. This is the most complicated part of auctions. To set the reserve price and the opening bid for the auctions. If you fail with the reserve price, if it is set too high there are no bids and the auction does not take place.

All of this requires skills that are not used on a daily basis by a regulator. This is an end-to-end thing. You cannot just train one person, as it involves policies, strategies, market analysis. There are a lot of advisory services needed to the telecom industry as a whole to carry out a successful auction. All of these skills are highly paid and auctions are quite rare so it is difficult for any institution to keep such skills for that long. It is often more cost effective for the regulator to outsource and you have someone accountable for the risk of the auction.

What can be done to support regulators to adopt spectrum auctions?

Generally, regulators in Africa have not attempted auctions because of their complexity. You need to involve experts at the highest level. But to be able to do this there should be policy predictability and regulatory certainty about spectrum. So, the place to start would be spectrum policy and spectrum strategy. That is Spectrum planning, pricing and implementation. When this is in place more capacity building is needed to stifle the fear of spectrum auctions.

What is the weakness of spectrum auctions in Africa?

They are too complicated, you must set prices to the right levels and anticipate a lot of things. Too many unknowns and too many uncertainties. In many countries the regulatory policies for spectrum are not set. Policies must be set and be very clear on the weighing efficiency revenue or public good. In the region (CRASA) we are working on a Spectrum pricing framework that will encompass spectrum valuation, spectrum pricing, use appropriate strategy for future spectrum, efficiency, best value or value to citizens. This is aimed to support National Regulatory Authorities to develop Spectrum Policies and Spectrum strategies to pave the way for spectrum auctions as one of the methodologies of licensing.

To get a view from the ground SPIDER also spoke to programme alumni and programme participants who have worked on Change Initiatives related to Spectrum auctions and spectrum transfer. Titus Cheptoo, Manager at Frequency Monitoring & Inspection at CA in Kenya, participant round 2017A with the Change Initiative project: Development of A Framework for Spectrum Auctions in Kenya and Nelson Wasilwa, Acting Manager of Frequency Planning/Mobile Services at CA who has worked with the Change Initiative: Frequency Spectrum transfer guidelines, a continuation of the framework of spectrum auctions.

What is the biggest challenge with spectrum auctions?

Titus Ceptoo: People are afraid to adopt spectrum auctions; the question is always how many operators would be attracted by an auction? There is always a fear that the biggest operator would take all and leave nothing. This was one of the main learning points from the course, that one can put in place safeguards. Here, the experience in the programme was key in hearing how a regulator, PTS, had actually done a spectrum auction. Not just theoretical discussions but from experience. “This is what we did, this worked, this was difficult” and so on.

It is a complicated process, you have to select an auctioneer, and pay them, choose a method of options (there are many) what spectrum can and should be auctioned, how do you handle the politics of existing and new players, how do you make it transparent? Spectrum auctions in the world usually target mobile spectrum because of the attractiveness of the revenues.

Nelson Wasilwa: The main benefits of spectrum auctions, from technological perspective and management perspective is that they help to manage spectrum in a more efficient way. When we do a spectrum auction, the chances that the better candidate gets the spectrum and uses it most efficiently are higher. The price will be almost right.

CA has not done spectrum auctions. The challenge is balancing different interests, whether spectrum should sell for the highest value or that it should be assigned for the highest benefit of people of Kenya. Traditionally the interest of the people of Kenya has been more important.

As a part of the spectrum management process, you look at different ways of assigning spectrum, there are various ways. What has worked best so far is administrative ways and spectrum auctions have not been seen as the best way to assign spectrum. But Spectrum auctions is not a standalone approach, they work together with spectrum trading which is something that we are working on in the Change Initiative project right now.

When it comes to spectrum trading it is much more than spectrum management because it involves other entities like the Competition Authority of Kenya. For example, if one operator wanted to merge with another operator but this has competition implications this cannot be dealt with by the regulator.

What would be your advice for someone embarking on a similar project

Titus Cheptoo: Go with an open mind, expect anything. It’s a new area, African countries do not have much experience in spectrum auctions. There are many ways of achieving an objective and hopefully we will use spectrum auctions one day.