Korea Information Society Development Institute (KISDI) said on the 1st that it proposed introducing an indirect regulation plan that uses a "score auction" in spectrum allocation auctions to give operators incentives to build networks. In a score auction, operators submit their bids along with the level of network buildout, such as network quality and coverage, and the spectrum is allocated to the operator with the highest score based on preset rules.
KISDI explained in a recently published report, "A study on how to introduce network buildout conditions in spectrum auctions," that "a score auction is an indirect regulatory approach that encourages network investment by granting extra points based on the level of buildout, instead of mandating a specific level of network buildout."
The report analyzed that if the extra points based on the level of network buildout are designed to match the positive externalities of the network, it is possible to achieve optimal resource allocation that maximizes social welfare by aligning operators' incentives with policy goals. It also said that each operator would invest in the network up to a socially efficient level by reflecting its own expense structure, and that the spectrum would likewise be allocated to the operator that creates the greatest social welfare.
Associate Research Fellow Baek So-seong said, "Even under real-world constraints that make it difficult to precisely estimate the relationship between the level of network buildout and external effects, we showed that a simple score auction designed using only limited information on the additional external effects from quality improvements can achieve better outcomes than existing direct regulations." Baek added, "While this may be somewhat less efficient than the most ideal institutional design, it is a compromise that outperforms direct regulation and is more feasible to implement as policy."
Baek said, "This report is meaningful in that it presents the theoretical basis and a policy design framework for shifting from traditional direct regulation on network buildout to incentive-based indirect regulation to improve the efficiency of spectrum use," adding, "However, to introduce this in reality, empirical estimation of the social benefits generated by mobile networks must come first."