This section provides further information on a subject introduced earlier in this module, namely the selection process for applicants for individual licences.
Two main approaches are used in competitive selection processes:
- Comparative Evaluation Approaches, and
In addition, there are many hybrid approaches that combine elements of these main approaches. Less common approaches include lotteries, first come-first served processes, and selections based on the best performance under previously held licences.
Comparative Evaluation Approach — In a comparative evaluation, or “beauty contest”, the award of licence is determined using a merit-based assessment of competitive applications. Each application is evaluated on the basis of a pre-set list of selection criteria or on the basis of the applicant’s ability to fulfil certain, more general, requirements. This approach allows regulators to award the licence to the service provider that is best placed to meet the specific objectives of the licensing process.
If more than one licence is being issued at the same time, the applicant with the most points is deemed the winner and is permitted to choose which licence it wants. The applicant with the second-highest amount of points has the right to choose next, and so on. This approach was used in the 2007 GSM spectrum auction in Iceland, where two licences were issued using a beauty contest.
There are many forms of comparative evaluation schemes. In some cases, licences are awarded to applicants expected to make the best use of the limited resources associated with the licence to serve the public. For example, in the 2007 Icelandic GSM spectrum auction, the evaluation centred on which applicant would be able to roll out its network and services in the shortest amount of time, to the greatest number of people. In other cases, the evaluation is based on criteria related to technical competence, experience, and cost efficiency. Some comparative evaluations rely in part on quantitative measures, such as the number of years of operational experience. Others rely on more qualitative (and thus subjective) criteria, such as the quality of management.
Specific selection criteria, should be clearly described in the guide to the licensing process. It is also useful to pre-determine and to publish the weighting for each criterion. This promotes transparency in the licensing process. This also helps applicants to prepare more responsive applications to ensure that the regulator selects the best qualified applicant for the award of the licence.
Auctions — While the comparative evaluation approach involves the selection of an applicant based on merit, auctions involve little or no qualitative analysis of the merits of the applicant. Instead, selection is based on a single evaluative criterion, namely the amount bid by qualified applicants.
Many different types of auctions are possible. The most common involves selection of the qualified applicant who submits the highest bid for the right to hold the licence. In least-cost subsidy auctions, which are described in Module 4, Universal Access, a selection is made based on which qualified applicant requires the lowest subsidy to provide a non-economic service. The services authorized using a least-cost subsidy auction are generally subsidized as part of a country’s universal access program. In a least-cost subsidy auction, applicants make offers of the subsidies they would require to provide the authorized services. The applicant that bids the lowest subsidy is awarded the licence, along with the right to the subsidy it has proposed. Such auctions have been used successfully on a number of occasions to license subsidized rural telecommunications services in Latin America, and more recently in other regions. For example, the Nepalese regulator used this mechanism to issue a rural telecommunications services licence in its country.
Auctions can also be based on any other measurable indicator that is financial or based on financial considerations. These might include the lowest consumer tariff to be charged, the highest quality of service, or the greatest level of service to non-economic areas.
In many auctions, bidders are pre-qualified or qualified using criteria similar to those used in comparative evaluation processes. As a result, participation in these auctions is limited to bidders with proven financial and technical capabilities.
While some auctions feature only a single round of bidding, many auctions include multiple bidding rounds. There are frequently rules governing how often a bidder must bid to avoid disqualification, minimum bid increments, the start-of-round price, the duration of each round, and so on. In many cases, all bidders participate in the auction until a winner has been determined or they have been disqualified. In some cases, however, the auction itself has two stages. During the first stage, all bidders participate and typically must provide a sealed bid. Only a certain number of bidders, however, are permitted to advance to the second stage, where the winner of the auction is actually determined through one or several rounds of bidding. This approach was used in the 2007 Nigerian 800 MHz auction. All Approved Bidders were required to submit a sealed bid during the first round of bidding. Only the two Approved Bidders who had submitted the top bids advanced to the second round of bidding. The winner of the auction was determined in the second round of the auction.
Regulators have frequently relied on auctions to issue spectrum licences. A discussion of various auction procedures in the context of spectrum licences will be included in the spectrum licensing module of this Toolkit.
Hybrid Approaches – There are many variations of the two main selection approaches. In some cases, hybrid approaches blend elements of a comparative evaluation with elements of an auction. For example, applicants may be scored on a number of quality-based criteria and market-based criteria, such as the amount of their bid for the licence, financial security, technical competence, and operational experience. In this case, the applicant with the highest combined score may be awarded the licence.