The auctioning of satellite spectrum is a topic of debate that is being passionately discussed among all stakeholders. One of the proposed models is the auctioning of satellite spectrum using % revenue share as a metric. The idea is to artificially restrict the number of winners, and allow only those to win who end up bidding the highest value in terms of % revenue share (i.e. % of AGR) payable on a yearly basis. The purpose of this note is to show how the auctioning spectrum using % revenue share is a bad auction design (actually the worst of all models) – requiring the GOI to keep changing rules in perpetuity for managing the opportunities of arbitrage emanating out of this design.
% Revenue Share Auctions Will Create Opportunities For Arbitrage
This auction model does not scale. In other words, it opens not only opportunities for arbitrage but will make it extremely difficult for the GOI to manage it in the future. Let me explain with an example. Assume, an operator wins 2500 MHz (Uplink + Downlink) of spectrum in a revenue share auction held today at X % Rev Share in the KA/KU band. Then at an auction held sometime later, it wins 7000 MHz (Uplink+Downlink) at a different band (let’s say V Band) at a different Y % Rev Share. Then the values of the weighted average % Revenue Share for different values of y are listed in the table below.
