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IIM Calcutta

Strategic Management

Economics of Wireless Spectrum


February 24th, 2010

WORD COUNT: 499

Submitted By:

Group A5 – Section A

Gautam Adukia 022/46


Ajay Bansal 023/46
Alpesh Chaddha 026/46
Aman Deep 027/46
Amit Gupta 032/46
Amit Nagdewani 036/46
Amol Deherkar 040/46
Ankit Jain 048/46
Avinash Pandit 085/46
Ankit Kumar Singh 404/16
Economics of Wireless Spectrum
The wireless spectrum policies followed today are largely based on the technical assumptions which
are completely obsolete. Two alternative approaches are:
• Create perfect Property Rights in Spectrum Allocation
• Encourage Open wireless networks by removing prohibitions on wireless equipments

Author’s Stance
Perfect Property Rights in Spectrum Allocation
• Perfect Property right system using auctioning is very difficult to achieve.
• During auctioning of the spectrum the costs associated with the administration and the
associated maintenance and transaction cost will the higher.
• The one advantage of using an auctioning system is that different frequency bands can be
priced in a differential manner which will enable right pricing of in demand frequencies but
this too has its constraints as it can be done only during peak usage and it can be a short
sighted advantage not worthy of huge investments.

Open wireless system


• Open wireless networks could increase capacity at the rate of growth of computation.
• Capacity may be increased proportionately with the increase of demand.
• Internet is a very successful example of following this policy in wired networks.

Advantages of Adopting open wireless system


• Low Displacement Cost
• Low Transaction Cost
• Low Administrative Cost
• High Efficiency
• High Capacity Growth
• High Innovation
• High Security

Author is clearly in favour of Open wireless networks but instead of “Big Bang approach” that will
pre-empt future policy making, author suggests parallel following of both to preserve longer term
flexibility which will help in finding better among two. The author’s stance is the right way to go.

Is Regulation good for a strategist?


Industries under government regulation show mainly 4 characteristics.
• Stable environment: Industries under regulation works in more certain environment and
Innovation usually occur at slow pace
• High Entry Barriers: Regulations discourage new entrants and creates high entry barriers.
• Few Players: Regulated industries have fixed number of competitors which remains constant
over a long duration.
• High bargaining power for the incumbents
The stable environment with few players makes job of strategist relatively easier. Strategies designed
will have a greater chance of succeeding because there won’t be sudden changes in business
dynamics. So regulations are good for strategist.
Why does a strategist engage with regulation/lobbying?
A strategist is always better off playing at his own field where he himself defines the rule of the game.
Regulation, with substantial legal muscles, provides property rights and enables strategists to
forecast the future better to protect their interests and plan keeping a long terms perspective. As
with the case of economics of scarce resources, a good strategy for an incumbent would be a situation
where he controls the variables, environment and new entrants through regulation or other forms of
entry barriers.
Effective lobbying helps in attaining a favourable condition where the strategists stand more to
gain than they would have in a perfect competition scenario; however such situations invariably
lead to overall societal loss as compared to perfect competition.