Kazakhstan 3.6 GHz Spectrum Auction
The Ministry of Digital Development, Innovations and Aerospace Industry of the Republic of Kazakhstan recently announced the results of their spectrum auction for two 100 MHz lots of 3.6 GHz spectrum. The spectrum was acquired by a consortium formed by mobile operators Kcell and Mobile Telecom Service (Tele2-Altel), both part of the Kazakhtelecom Group.
The Kazakhstan 3.6 GHz Spectrum Auction, held by the Ministry of Digital Development, Innovations, and Aerospace Industry, recently concluded with surprising outcomes. A consortium led by Kcell and Tele2-Altel acquired the spectrum, which is crucial for 5G deployment, for a total of US$ 336 million. However, the prices paid were exceptionally high, exceeding benchmarks by 79% and 167% for the two lots.
This commentary raises concerns about the auction design and its impact on competition in the mobile market. With only 200 MHz available and three major players, the decision to auction in two lots of 100 MHz each created artificial scarcity, contrary to industry best practices. Additionally, the absence of spectrum caps increased risks for bidders and also contributed to what the report terms as “blocking value.”
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The sequential auction process, without spectrum caps, allowed the consortium to block a competitor in the final auction, leading to inflated prices. The report emphasises that the high prices achieved may damage the competitive landscape, adversely affecting consumer welfare in the long term.
To address these issues, the report suggests that smaller lot sizes, spectrum caps, and a simultaneous auction format could have achieved a better outcome. The report urges the Ministry to swiftly auction the remaining spectrum with tight caps to rectify the current imbalance. Furthermore, it advises against using the recent high auction prices, which were influenced by artificial scarcity, as a basis for future reserve prices.
In conclusion, the report encourages the Ministry to consider alternative auction approaches, that balance revenue objectives with competition concerns, to ensure a fair and economically efficient distribution of spectrum.
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