The risk of avoiding competition in 5G allocation

Although the Court for the Defense of Free Competition (TDLC) requires the Undersecretariat of Telecommunications to compete for the frequency bands between 3.4 and 3.6 GHz, to develop 5G mobile telephony services, recently the authority asked it to clarify that it can authorize the current concessionaires of these bands – today destined to fixed wireless telephony – to incorporate new features or attributes, allowing them to direct that spectrum to 5G mobile telephony under certain requirements. With this, it could accelerate the allocation of frequency spectrum and provide a fourth competitor with spectrum in 5G, without the need for an open tender.
Beyond the discussion on the resource used by the regulator to modify a resolution of the TDLC, it is interesting to analyze the possible risks to competition caused by the change of mechanism proposed by Subtel to assign the radio spectrum, going from public tenders to a discretionary administrative assignment.
First, it eliminates the participation of all potential stakeholders in this band, generating a barrier to entry for new competitors and, as a consequence, restricts competition in this market. This risk is critical, because without spectrum a company cannot be competitive in this industry.
Second, there can be no assurance that the best price for society is being achieved by delivering the spectrum and it is also not clear that spectrum is being delivered to the most efficient competitor. Recall that the State received a total of about US$453 million for the 5G spectrum tenders, of which US$347 million correspond to the 3.5 Ghz band.
In addition, the direct allocation of this spectrum, without an associated consideration, would provide a competitive advantage to the company that is awarded it over the current concessionaires of the 3.5 GHz band, having lower costs than its competitors to deploy 5G services, which will not be passed on to consumers. The compensation required by Subtel, as a mitigation measure in the administrative allocation, does not solve this problem because the administrative allocation does not ensure that there will be greater competitive intensity in the market.
The tender is a mechanism that the TDLC and the National Economic Prosecutor’s Office (FNE) have promoted in this industry to generate competition “for the field” and, in this way, get more efficient companies, which dynamize competition, delivering better services at lower prices. This is the desired result when competitive mechanisms are used for the allocation of scarce resources that are indispensable to provide the service.
Finally, the change of use of spectrum to concessions that required it for other uses and its subsequent allocation for more profitable commercial uses – as in this case – generates incentives for spectrum hoarding. The administrative assignment and change of use of the radio spectrum as a regular practice by Subtel generates significant risks for competition, because it could stimulate companies to request this scarce resource strategically or speculatively, with a low allocation cost and for the sole expectation that they can provide more profitable services in the future.

In short, the administrative authorization can be very attractive for Subtel because it shortens the delivery times of the spectrum and thus accelerates the possible 5G deployment, but the proposed allocation mechanism generates risks for competition that do not seem advisable to assume. In recent decades, the agencies in charge of free competition have worked for public policies that promote greater competitiveness in the market and have sometimes been forced to change the path selected by the sectoral regulator. It is expected that the pro-market policies that have proven to bring great benefits to both consumers and companies that demand telecommunications services in our country will be maintained.

Follow us on

The content expressed in this opinion column is the sole responsibility of its author, and does not necessarily reflect the editorial line or position of El Mostrador.

Original source in Spanish