Mobile operators spend a lot of money at spectrum auctions. That’s been the case for many years.
It’s no surprise that they’re not happy about this. They frequently complain about governments and regulators demanding too high a price when selling the airwaves. They say this reduces the funds available for investment. It also holds back the quality, speed and reach of mobile broadband.
Being forced to pay these huge amounts upfront makes life even more difficult. And on this issue, in Europe at least, the licensing authorities seem to be listening. Increasingly, operators are being allowed to pay for their spectrum licences in instalments.
Half of the 5G pioneer band auctions recently held in Europe have allowed payments to be made in instalments rather than upfront (see the table below for a few examples or click here for the detailed breakdown).
Getting hold of spectrum licences in Europe is becoming a case of buy now, pay later.
The logic is that spreading licence payments across several years enables operators to manage their cash flow and other investments better. This makes it easier for them to invest in infrastructure and affordable services.
A Research Note on this phenomenon has just been added to our Spectrum Research Service. Subscribers to the Service can read it here.
What follows is my personal view and does not represent the views of my employer or the government. The issue I see with the single payment vs instalment payments argument is that it often overlooks the dynamics of corporate financing. When a licensee makes a single payment, they don’t usually pay it from their company reserves to the regulator. They usually borrow it from a bank and repay it over whatever terms the bank is willing to provide, but 10-15 years wouldn’t be unusual. They pay an interest rate depending on their credit rating, amount of finance, etc.
If a licensee makes instalment payments, they pay them to the regulator in similar instalments over a similar term. Therefore, the government takes on the role that the bank plays in the single payment scenario, although perhaps at a lower interest rate. Why should the government provide banking services if there is a competitive financial market? The government also takes on the risk of the licensee defaulting on their payment. Governments have to offer the same payment terms to every licensee and can’t discriminate, unlike a bank which can adjust its commercial terms according to the borrower’s credit rating and risk profile. In summary, the financial markets are much better placed to provide finance than governments.