Socio-Economic Benefits of Lower Authorization Fees


Editors’ Note:

The following is excerpted from Chapter 4, “Licence Fee Practices:  Historical Perspectives and New Trends,” ITU Trends in Telecommunications Reform – 2004/05:  Licensing in an Era of Convergence (Geneva:  ITU, 2004).  The authors of Chapter 4 are Lynne Dorward and Clayton Rogers.


4.8 Socio-Economic Benefits of Lower Licence Fees

The social and economic benefits of lower licence fees are indisputable.  Lower licence fees allow operators to invest resources in infrastructure and innovations in services and applications.  Moreover, they lead to lower prices for consumers.


The trade-off between licence fees and other considerations must be analyzed.  All operators’ revenues are capped by demand factors in the countries where they operate.  These factors include demographics such as the size of the potential customer base, per capita GDP and the price elasticity of demand.  To the extent that regulators charge high licence fees, this affects the viability of an operator’s business case by increasing the costs of supply.  If the costs of supply exceed revenues, the viability of an operator’s business will be doubtful.  So regulators must understand the factors affecting both demand and supply before undertaking a licensing initiative.  If they decide that social and economic objectives such as universal access, lower consumer prices and technological innovation are key policy objectives, they have to realize that imposing high licence fees may jeopardize the operators’ ability to achieve these objectives.  And conversely, larding licences down with heavy socio-economic mandates may undercut the operators’ ability to pay high licence fees.   


Lower licence fees also allow regulators to ensure that capital remains within the telecommunication sector.  In many countries, licence fees are paid directly into the government’s general treasury and are not available to the regulator or telecommunication ministry.  But by structuring a tender as a beauty contest -- with a low licence fee and sector specific licence obligations (such as network build-out mandates) -- a regulator can ensure that capital is reinvested in the telecommunication sector. 


In addition to reducing the amount that operators are willing to pay for a licence, the imposition of licence obligations has one other notable disadvantage:  it may reduce the operators’ ability to adapt to changes in technology or market conditions.  This may be particularly problematic when licence obligations are not identical among all competitors within the same industry.  Unforeseen changes in technology or market conditions may place certain operators at a competitive disadvantage to other market participants.  Regulators are rightly hesitant to amend licence terms agreed to through an open and transparent licensing process.  But they should be open to periodic consultations.


Where the costs of supply can be reduced without substantially lessening competition (for example, by allowing infrastructure sharing), regulators should consider requests to modify licence terms.  Modification requests should also be entertained when it becomes clear that the assumptions about a market or technology that underpinned the original licensing have proven to be faulty.



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