Welfare Cost of Mobile Spectrum (Mis)allocation

Conditions under which spectrum is allocated are significant in determining the market structure in the telecom sector which in turn affects the prices and the quality of mobile services. 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, consumers can benefit from a lower price but at the expense of less quality for each operator. To address this trade-off, we first fit a demand model of mobile telecommunications services on a unique panel database of 23 European MNOs; we then conduct counterfactual simulations to measure the effect on consumer surplus of different schemes of spectrum allocation in Germany. Reallocating additional spectrum to three instead of four operators is consumer welfare improving as increasing prices is compensated by larger improvement in quality.