Israel takes the ‘Vickrey’ approach to 5G auctions

The Israeli telcos have taken a bit of a battering over the last 12-18 months and it seems the Government has a sympathetic ear with its new approach to auctioning 5G spectrum.

According to Globes, the Government will make use of an auction technique known as the Vickery method to divvy up the precious 5G frequencies. It is an interesting approach, and bundled together with other incentives, should create a much more investment friendly environment for the telcos.

A Vickery auction is a blind auction where the highest bidder wins the prize, but the second-highest value is actually paid. Although this approach is uncommon, for some it is believed to be fairer as it attempts to attract bids closer to the value of the asset but does not punish competition for inflated prices. Whether this proves to be true remains to be seen, though it certainly is an interesting approach.

This auction might turn some heads, but context is key. The Israeli telcos have had somewhat of a difficult period in recent years thanks to the introduction of aggressive new players and an on-going price war which has driven down profits. The Israeli Government has suggested revenues declined in telco by 5.6% in 2018, leading some to the assumption the telcos would struggle to fulfil the financial commitments of 5G networks.

“The financial state of the companies at this time has not escaped us, and the tender also takes this situation into account,” said Minister of Communications David Amsalem. “I congratulate my friends and participants in the tenders committee for their professional work. The dedication and responsibility exercised is what made it possible to lay the cornerstone today for the next era of technology.”

To attract further interest in the 5G bonanza, the Israeli Government will also introduce a number of incentives to lessen the burden of network investment. Payments for spectrum licenses can be delayed until 2022 for example, while there are also rebates being offered to those parties who meet geographical coverage expectations set over a four-year period.

Another interesting aspect of the auction is the shared network element. Some of the assets will only be offered to those telcos who agree to participate in the creation of shared infrastructure, a strategy the Government hopes will increase the efficiency of investments.

Looking at the frequencies available, the Government will attempt to ensure all telcos have a slice of the most desirable bands, 700 MHz for example, while a series of other lots will be available. The assets bought in the 2.6 GHz to 3.8 GHz frequencies will only be useable for 5G, while the other frequencies can be used to bolster 4G.

Only time will tell whether this approach will lead to a net-gain in terms of investment and network rollout, but the Israeli Government should be applauded for taking an alternative approach which is potentially better suited to local market dynamics.