Welfare Cost of Mobile Spectrum (Mis)allocation

The conditions of spectrum allocation or reallocation are significant in determining the market structure in the telecom sector which in turn affects the prices and the quality of mobile networks. In a more concentrated market, the quantity of spectrum is less diluted, and operators can offer higher quality to their customers; In a more competitive market, where there are more operators, consumers can benefit from a lower price but at the expense of less spectrum for each operator. To address this trade-off, we first fit a demand model of mobile telecommunications services on a unique panel database for 23 MNOs of five major European countries from 2004Q3 to 2021Q4. Notably, we provide an adequate proxy of the mobile network quality for consumers by combining coverage data with spectrum data. Using this estimated demand model, we conduct a counterfactual simulation to measure the effect on consumer surplus of the incomplete spectrum allocation and the arrival of an additional operator in Germany. Results show that reallocating additional spectrum to three instead of four operators is consumer welfare improving as prices do not increase much while quality is significantly improved