Satellite Spectrum Auctions:
Regulatory Feedback in Transnational Markets

Julia Kwok, George Morgan and Pankaj Lal
Center for Commercial Space Communications
Center for Wireless Telecommunications
Virginia Polytechnic Institute and State University
Blacksburg, Virginia, USA

Abstract

The objective of this study is to assess the effect of a
U.S. auction on the economic risks of providing satellite services that
cross national borders. The differences between satellite communications
services and terrestrial communications could induce significant
distortions because satellite licensing involves a time-consuming parade of
licensing decisions, conflicting cultural norms, and differing technical
and economic characteristics of geographically segmented markets. In the
proposed "sequential game" framework, governments and potential licensees
play against one another to find the best strategy. We assess the costs in
terms of the political and regulatory receptiveness of a U.S. company in
other countries and correlate the reaction in those countries with the
degree of market attractiveness in those countries. We argue that the
reaction to foreign (and especially U.S.) companies' applications for
operating licenses will differ across the three country types. The
reactions consist of informed fears that U.S. auctions will accomplish the
goal of awarding licenses to the "best" and strongest company as well as of
fears that auctions are inconsistent with cultural abd interantional norms.
We find that the most attractive countries with the largest potential
demand are typically those countries that have the most negative reaction
to U.S. auctions. The analysis shows that U.S. auction of satellite
spectrum is a risky policy establishing a precedent for the sale of
satellite spectrum. While there is the prospect of efficient domestic
allocation of licenses and the tempting specter of large private sector
contributions to the federal budget deficit, there is a large downside risk
that foreign reactions will thwart the economic viability of satellite
communications projects. We suggest some policy initiatives that could be
taken to ameliorate some of the risks.