Martin Sims

Welcome to the Spectrum Policy podcast brought to you by PolicyTracker, which provides news, research and training about spectrum management. I’m Martin Sims, PolicyTracker’s Managing Director, and on this edition of the podcast, we’re talking to Peter Cramton, Emeritus Professor of Economics at the University of Maryland in the US. Our topic today is a proposal to set up a wholesale spectrum regulator for the Thai market, which would be a global firs

And if you follow Spectrum Auctions, you’ll have heard of Peter. He’s one of the best known academics in the field. So rather than me going through your CV, Peter, tell us some of the highlights of the things that you’ve done and the things that you think have been most significant.

Peter Cramton

Sure. Well, I’ve been involved in auctions since 1982, when I was working on my dissertation at Stanford. And then I really got involved in them in 1993 with the start of Spectrum Auctions and was engaged with a market participant, MCI, in the FCC’s first auction. Before the first auction as they were thinking about how to design the auctions and everybody was commenting and of course Paul Milgram and Bob Wilson proposed the simultaneous multiple round auction to the FCC and it was adopted quite remarkably thanks to the great work of Evan Kwerel who managed to convince the chair that this indeed was the best approach among all those that were presented by experts. And it was adopted and it worked really well. It was first tested in the narrowband auction where I was advising the largest paging company in the world that now no longer exists. That industry has pretty much vanished.

And from there,bI just kept working on the new improving the spectrum auctions around the world, implementing them around the world, advising governments around the world and bidders around the world. And at this point, I probably have 60 papers on spectrum auctions. And I’ve advised dozens of governments and many dozens of bidders in these spectrum auctions around the world. So it’s been a great opportunity.

And in 2020, the Nobel Prize was awarded to Bob Wilson and Paul Milgram in large part for their practical auction design, proposing the spectrum auction and its enormous success in the United States and globally, raising hundreds of billions of dollars for the treasuries of governments around the world. So yeah, it’s been an exciting area. There continues to be very exciting developments in this space. And you’re absolutely right.

Spectrum auctions have, know, initially there was resistance. They were proposed quite forcefully by Ronald Coase in the 60s, early 60s. And they, but it took till 1993 to get it adopted in the United States. And then it spread like a virus, a good virus around the world. So quite exciting.

Martin Sims

Do you detect any kind of lessening in enthusiasm for spectrum auctions? We’ve sort of noticed that some countries have felt they haven’t delivered the coverage that is necessary.

Peter Cramton

Yeah, there’s a couple things. you of course this is new innovation. So there were design issues that have been improved over the years and pretty much all the countries around the world, have adopted the state of the art, which is very nice. And so everybody can enjoy those improvements. There has been a decline in enthusiasm for spectrum auctions. And the reason for that is simply the economics of mobile communications has struggled. The economics have been very challenging for the last 10 years.

If you look at the relative performance of the largest carriers in the world over the last 10 years, you’ll find that they are now, their relative performance is 60 % of the Standard Poors those 10 years. So that’s not good performance. That’s from 2014 to 2024. By contrast, if you look at Big Tech, their relative performance is 360%. So Big Tech has done tremendously. The carriers have done terribly.

Contrast that with the 2000 tech boom where the mobile carriers and the big tech companies were all moving together in lockstep. So that’s why the enthusiasm has diminished. And the reality is it’s a pretty competitive environment out there. The carriers are having to continue to procure spectrum, additional spectrum, or the ever-increasing demands of consumers who anticipate and expect the next generation to arrive and present them with wonderful new services. And at the same time, mobile is having to compete with ever improving Wi-Fi. So now we’re in Wi-Fi 7.

So the reality is most communication takes place in one’s home and one’s office where we don’t need mobile communications. We need fixed broadband. And you can get your fixed broadband from the mobile carrier, but they have to compete with fiber, certainly fiber to the office. And for many people in urban centers, fiber to the home. So, you know, essentially the case for mobile has become increasingly difficult.

Now there are, of course, lots of times when we’re out and about on the road and we don’t have fixed broadband and so then we rely on our mobile. Mobile is certainly an essential service, but it is having to compete with these other elements.

Another element that’s coming up and is going to be transformative, I believe, is satellite communications. So right now, pretty much anybody in the world can get a Starlink contract, which might be $150 a month, but you get this phenomenal service where you have access everywhere. Whether you’re climbing in Nepal or you’re in the Alps or you’re on safari in Africa or you’re out in the ocean, it’s pretty amazing. So they’re having to compete with that. And I got to say that

Satellite is something, know, today it’s just Starlink. Tomorrow it’s Starlink, it’s Amazon, it’s other guys that are not providing the Starlink service of the day, which is just sending a signal from the user up to the satellite and then back down, immediately back down to the terrestrial connection where it goes on the internet backbone to find whoever they’re trying to reach. The future is these LEO satellites that are equipped with lasers. And the lasers, each satellite has four lasers that then create an optical mesh network in space. And so you don’t need the backhaul.

The backhaul is not needed at all, you can optimize the routing of the communication in the optical mesh network in space. And the bottleneck that you have is the uplink and the downlink between the satellite and the user. This brings enormous benefits. So if you’re going long distance, let’s say from Bangkok to New York, then you’re going to have reduced latency relative to fiber. And the reason for that is

When light travels through glass fiber, it travels at two-thirds speed. So it’s traveling, whereas when it’s traveling in this lower-thorough network, it’s moving at the full 100 % speed of light of a vacuum. the air is so thin, it’s effectively a vacuum.

It is amazing and it’s transformative. And just think of the security too. Not only can you optimize the routing consistent with the market participants objectives, but you can, you know, so for example, if I’m a high frequency trader and I’m trading between New York city and Bangkok, then I’m going to do this optical mesh network in space because I’m going to get lower latency.

I’m gonna beat all the other guys that are trying to send the information from New York to Bangkok or Bangkok to New York. And so I get this prize, which is I get to pick off all the stale quotes that are sitting in the order books. And that’s worth a lot of money. And so the high frequency trader is gonna pay a lot of money for this service.

And then think of the military, the security that they get with not having to touch the internet is pretty amazing too. So global communications without touching the, you know, working with one provider who could be, you know, totally optimized for security and the communications is never touching the internet. That’s impressive.

Martin Sims

And do you think that has implications for how we assign spectrum at the moment?

Peter Cramton

Well, yes, I do. In particular, what happens with satellite has to change. It’s just way too slow regulatory process for a global satellite provider to negotiate arrangements with every single country in the world. And the problem is exacerbated by countries that are trying to protect their dominant incumbents in the mobile communication space. For example, in Thailand, the government has banned Starlink. Why would they do something crazy like that? The ban is because of the special interests, the satellite guys who say, no, we don’t want, if you let Starlink in, they’re better than we are and that will effectively destroy us.

Well, you know, that’s right. If they are better than you, yes, it will destroy you. But you got to think about the Thai people. The Thai people benefit enormously from the competition of Starlink and Amazon, who’s an Amazon already has tested, launched optical net mesh work in space. And, you know, the capability is amazing. Starlink has developed, launched optical mesh network in space.

It hasn’t been released as a commercial service yet, but that time is going to come probably in 2025. so, know, landscape is changing and this opportunity for competition. And when we think about countries like Thailand, Thailand now has a duopoly, a symmetric duopoly in mobile communications.

This is the worst from a competition perspective because the two guys have a very strong incentive to set the monopoly price. And they have, yet, little incentive to innovate because they aren’t disciplined by the market. So competition policy is absolutely essential in Thailand. And that’s just an example. It’s true in every single country around the world.

And as you know, mobile communication is an enabling technology. If you have robust, competitive mobile communications, you are going to be a world leader in innovation, period. So there can be nothing, almost nothing more important for a society. The regulators need to understand this, and perhaps even more importantly, the top government leaders need to understand that so they don’t accept the arguments of special interests and harm their country by not allowing competition and innovation in mobile communications. Plus, this also brings competition to fixed broadband as well.

So the whole thing is going to change. So I think very quickly you’ll find that there is a convergence of terrestrial and satellite into one competitive mix, which is much more robust and has much better economics to promote the innovation that the technology enables, but quite frankly governments around the world can stand in its way. And that is highly destructive. It’s, you know, I can’t say it’s destructive as war, but it’s on that order of magnitude.

Martin Sims

You brought up Thailand and that was the topic of our conversation. And what you’re proposing for Thailand is a wholesale spectrum regulator, so a body that specifically regulates wholesale spectrum, which to my knowledge hasn’t been done around the world. So just explain why you think that would be a good idea for Thailand.

Peter Cramton

Yes, it is innovative. And the interesting thing, so some people have criticized it saying, it’s unproven. But in fact, it is very much proven. It’s been proven for thousands of years. Because it relies on two fundamental principles. One is from economics, which is basically efficient and transparent markets are induced by a competitive marketplace. And this is the idea of Adam Smith, that the market can align, if there’s competition, the market aligns the incentives of the baker and the consumer who’s buying bread. Both of them pursuing their self-interest leads to prices and quantities and products that maximize social welfare. So that’s the principle number one that the market is based upon. And the second is the most basic element of optimization theory, which is convex optimization. We’ve learned today that there’s basically two types of optimization problems, hard problems and easy problems.

Hard problems are non-convex, easy problems are convex. And so essentially we can solve these easy problems, the convex problems, regardless of the size of the problem, we can solve them extremely quickly and robustly. And so the trick of good market design, which is what I’m proposing, is to come up with market rules that align the incentives of the market participants. So we get the benefits of Adam Smith and then to employ the power of convex optimization. And one concern is, well, if we restrict participants to a convex expression of bids, is that somehow limiting what they can do? And the answer is absolutely not.

Martin Sims

Just explain convex optimisation for us.

Peter Cramton

The simplest thing is think of a quadratic. So a quadratic, that nice U-shaped thing that you studied in elementary school. So that’s a quadratic, which is optimized very simply. Using Newton’s method, get the taking the derivative and setting it equal to zero. You get to the exact solution in one step. So now let’s do that not in one dimension that you’re familiar with, which is plotted on two dimensions. So it’s a function of one dimension that’s plotted in two dimensions. Let’s do it with a million dimensions. Well, guess what? We get essentially the same thing. So with convex, you know, limiting their expression to piecewise linear demand curves.

The only restriction is that the demand curve be downward sloping. And guess what? Almost all demand curves are downward sloping. So there’s basically no restriction on preference expression within this model. So it’s extremely powerful. And yet, it does result in these aligned incentives and we can solve the problem and we can give them the participants great flexibility in terms of how frequently they can update their preferences. This can be done every hour or every day. We can give them an enormous set of products with which to express. And this is important in time and location commodities like communications.

Martin Sims

Applying this to the wholesale market in Thailand, my understanding was that you were suggesting that the MVNOs should bid for capacity and that the existing mobile operators should be required to offer this capacity to them. So kind of your Adam Smith idea of matching demand and supply but kind of requiring people to do that. Is that essentially it?

Peter Cramton

Yeah, so one is to create this very powerful market with powerful trading technology, which has been done and it’s been done for the last 20 years in electricity in the United States. So the United States has six different markets in various regions of the United States, which use this optimization for balancing supply and demand both day ahead for scheduling and in real time for dispatch of generating resources and also demand resources. So that is extremely powerful. It’s worked extremely well and has brought measurable gains to the vast majority of the country in the United States, which has adopted it.

So very, very powerful approach that is well tested. And so, and I’ve worked in this space for 20 years, which is why I was looking at other critical infrastructure industries like communication and transportation and saying, hey, we can do the exact same thing that we’re doing in electricity. And in fact, in electricity, can do, we can expand the scope of this, not just a day ahead in real time, but for all forward contracts, you know, from two days ahead to 48 months ahead, four years ahead, and still have a very rich time and location granularity. So, you know, that’s what I’m recommending in electricity. That’s what I’m recommending in communications.

I think it’s gonna happen first in electricity because there’s been a tendency to move towards efficient trade in the restructured electricity markets, at least in the United States, but other parts of the world too, Canada, Australia, New Zealand. It’s just Europe that’s been holding back in the developed world. But that’s a whole separate podcast. For communications, it hasn’t been done anywhere. And in fact,

Communications is quite remarkable that the way congestion has been managed in communications is to do things like drop calls or otherwise reduce the quantity that somebody is consuming by reducing the quality of the transmission that they’re receiving. So your 4K show falls down to HD and maybe worse when at 9 p.m. when everybody’s wanting to watch 4K shows. So a much better way to manage congestion is with price. And that’s where we do an electricity. So wholesale electricity is managed in all restructured markets around the world with price. And the better markets use a trading approach like we do in the United States, but there is quite a bit of variety. essentially price is the right instrument and that’s what Adam Smith argued and I’m arguing it as well.

Martin Sims

If you were an MVNO, for example, you would deal with the problem of if you were an MVNO, you would buy more capacity in order to be the best MVNO and then you would offer the highest speeds and you wouldn’t have the dropped calls that you mentioned. I suppose the difficulty with that approach is whether the mobile market is sufficiently dynamic to cope with that. What do you think about that issue?

Peter Cramton

It’s absolutely no problem. So we’ve actually done modeling of the approach in electricity markets and the electricity is actually much more complicated than communications. So the bid expression and all these things are changing much more rapidly. The variation in prices is orders of magnitude higher than in communications. And that’s because near scarcity, the prices go from minus $200 to plus $9,000 during scarcity. so electricity is really much more complicated. And what we’ve done is we’ve looked at, we’ve done a back cast of the last 12 years in the Texas market, which is a big market that has among the highest volatility because of the weather challenges.

And basically the way you deal with weather is air conditioning and heating, which is primarily electric in Texas. our analysis, we model the risk of the participants and behavior and how they effectively express their strategies through these trade of target strategies, which our trading technology enables, is that it’s amazing. It works perfectly. And it’s easy to do. It’s easy for the guys to manage.

And so it’s quite remarkable. So in communications, it’s going to be a little more boring, but it’s going to work incredibly well. So in terms of the dynamics, yeah, effectively the MVNOs will be able to easily participate. They will be able to count on competitive prices, which you can model and understand. And that’s sort of the beauty of competitive markets, that once the regulator says, okay, we’re going to use competitive pricing. Then what happens is you’ve just reduced a lot of regulatory risk, which is essentially unhedgeable.

So it’s very powerful. you might ask, well, know, Peter, this sounds amazing. Why don’t we use this trading technology outside of electricity? And the answer is because the guys that are the middlemen in other trading environments benefit from the inefficiency of the status quo. And so they maintain it. And it’s very hard to get entry because the regulator has basically set up the rules, so it’s very expensive to change the rules.

So in the United States, if I wanted to introduce this wonderful trading technology, let’s say I was NASDAQ and I want to introduce this wonderful trading technology, I could go to the regulator. and say, you know, we want to introduce these new market rules for trading and they’re inconsistent with your regulatory requirements. Will you allow efficient and transparent trade? And there’ll be this big debate and, but you know, probably if NASDAQ asks nicely, they’d be able to do it, but it would cost them about a hundred million dollars to work the regulator to make it happen. You know, that’s a lot of money.

And then what would happen is everybody would imitate NASDAQ and so they wouldn’t have the advantage anymore. But what the trading technology will have done was it basically destroy their core business, which is selling the arms and the arms race for speed. So the co-location with their trading servers and low latency data feeds you know, it’s like it would be insanity for them to implement it. Same thing for SME or Standard & Poor’s, I’m sorry, the ICE. So Intercontinental Exchange, which is the New York Stock Exchange and the others.

And this is something that is certainly fixable but it’s gonna take a long time to do it in financial markets around the world. It is totally doable and already done in electricity markets. We just need to expand its use from day ahead in real time to further forward. It is not yet done in any communications market, as you pointed out, but it could be implemented extremely quickly. This sounds like a clever idea, but yeah, you’d have to build this thing and regulate it. And wouldn’t that be hard? No, we’ve already built it. So what I’m talking about is a well-tested commercial platform that is available now. It’s open source. We’re giving it away.

So all the R &D we have done and are doing and we’re making all our research available on open access for free and we’re making this commercial platform available for free. I’m sure it would have to be customized for a particular country and application, but it could be done very quickly. And my team of talented computer scientists, applied math guys and OR guys is happy to stand there and help.

So that is, I think, quite promising. Now, I actually think it’s gonna take Thailand two years to implement. Why does it take so long to implement if my team can customize it for Thailand in two months? The reason it takes two years is the regulatory stakeholder process. So they have to go through the rulemaking just like any other country. And as you know, the regulatory process takes some time. So that’s why I’m saying it can be done in two years. And there are some decisions that have to be made. there are some parameters that have to be worked out. The most important ones are the way the products are defined and the the handoff between the market and the carriers is handled. And that is…

You know, that task is going to take a little bit of time too. So it’s a very exciting opportunity. It’s going to bring enormous value for Thailand if my recommendation is adopted. And I certainly hope that it will be. I’m actually here in Bangkok today and tomorrow I will be talking with the, with NBTC, the regulator and communications and arguing that in fact it is the path forward and explaining why it will bring so much value to the Thai people.

Martin Sims

I suppose one different perspective on this is that the problem in Thailand is really the duopoly and the issue with a lack of access to MVNOs might be more easily solved by having at least a three-player market which would offer more competitive access for the MVNOs who wanted to get that wholesale access to the market.

Peter Cramton

So yeah, that’s just wrong. Let me explain why. The reason it’s wrong is that in my proposal, the MBDC requires as part of the license obligation to sell at least for each carrier at every time and location to sell 15 % of their capacity without a reserve price. So they’re offering 15 % of their capacity at a price of zero. Now, what that does is it guarantees that MVNOs can step up and buy capacity at every time and location at competitive prices. It won’t be zero. Actually, probably most locations, most of the time, it will be zero because there won’t be congestion. But whenever there’s congestion, for example, in Bangkok, I’m sure there’s lots of congestion most of the time. And we’ve seen this in other countries like Mexico City, where there, you know, at any moment, a cell tower might not be constrained, but it changes quite a bit and it’s so it’s something that our models and our trading structure handles. So that is incredibly enabling.

So what it says is any MVNO, you could decide, okay, I want to be an MVNO in Bangkok, let’s say, because I’ve got really great ideas on how to market to the Bangkok residents, a phenomenal service and a fantastic rate plan that makes sense for them. And so, for example, I could offer them a service that’s, for some people it could be the 4K service. And what the 4K service does is it guarantees you 4K service between eight and 10 p.m. when you wanna watch 4K programming. You could have the low latency service where you’re a high frequency trader, it’s sitting in Bangkok doing trades with New York and you need the low latency and your service is optimized for low latency. could be the, know, whatever.

So the smart guys can customize the service and rate plan for the participant to maximize their utility. And this is exactly what we do in electricity markets. And what our research does is we model the participants fully as rational participants that don’t like risk. And so we give them vehicles with which to hedge against the high volatility that is experienced in the electricity markets.

And you do the same thing in communications. So it’s very straightforward. Yes, it’s innovative, but we know how to do it. And yes, there’s some math, but folks don’t have to know the math. And it works perfectly. So it works better to the extent that they appreciate what’s going on and can express preferences more richly than they’re used to, but that’s fine. And the most clever MVNOs are going to be the ones that can explain things to consumers. And we see this in electricity markets. Companies like Octopus Energy in the UK, they’ve really simplified how the consumer can engage in a productive way with the electricity market.

And that’s creating value for them, especially for consumers that have adopted the low carbon technologies. And in communications, we would have the same thing. So you get this entry, but it’s not just MVNOs. Think about big consumers of communications, like the big tech guys, Microsoft, Google, and so on. They need tons of communications because they’re doing all this real time stuff and

They’re having to move a lot of information in order to provide the best services for the consumers. So this enables them to participate directly in the market. They don’t have to negotiate with one of the duopolists. No need to. They can see the competitive equilibrium prices for every time and every location throughout Thailand and they can optimize their consumption in response to the prices that they see. Not a single negotiation with one of the dominant incumbents, not a single lawyer involved in doing this. And then think about the regulatory process.

What happens in today’s regulatory process? Well, I like to think of it as a food fight with the regulator and all the stakeholders. And they’re essentially trying to shift the market rules in their favor to get some special treatment, just like banning Starlink in Thailand. That’s what goes on. And as you know, George Stigler explained it very well in his famous article in the Rand Journal of Economics, perhaps it was the Bell Journal of Economics at the time, where he basically said, you know, by and large, regulation is for and by those that are regulated. So it is the special interests that tend to dominate in the regulatory circles. The regulation serves as hindering competition and innovation rather than encouraging it.

But once you introduce this trading approach and introduce a marketplace where there’s efficient and transparent prices, then that regulatory mess goes away. The regulator can focus on the important questions, which are, do you manage, how do you make sure that consumers are not getting ripped off by clever marketing? Or how do you make sure, how do you enforce bad actors who are stepping in and doing bad things? Using communications to call your grandmother and get her bank account so that they can take all of grandmother’s money. know, that’s what, so regulators can do these very important things and focus on the big questions. It makes the regulator’s job much happier than if their job is simply to try to balance the needs of the special interests.

Martin Sims

Peter, that’s great. We’d better leave it there. I think we could talk about this subject for much longer and auctions generally as well. many thanks for your time and thanks to everyone for listening in.