Spectrum Auction Policy Design for International Mobile Telecommunications in South Korea: Application of Agent-Based Simulation

Abstract

Spectrum auctions in international mobile telecommunications (IMT) are a representative method for selling the right to transmit signals within a specific band of electromagnetic waves to communication service providers (CSPs); it is important to design a fair spectrum auction that can benefit both government and auction bidders. The government should reduce the burden of maintenance costs by setting a reasonable initial price and selling it to bidders at the highest price they can afford. However, due to the complex auction rules and decision-making process, not many studies has been conducted on how to select an appropriate initial price for the auction. This study aims at introducing a novel simulation modeling approach to develop a spectrum auction policy for international mobile telecommunications (IMT) using agent-based simulation (ABS), which involves three telecommunications service provider types (i.e., the Aggressive bidder, the Moderate bidder, and the Conservative bidder) and the auction environment of IMT in South Korea. In particular, the proposed approach adopts the exponential utility theory to model the behavior of auction bidders and identify the optimal initial bid price. The devised ABS model is calibrated to the IMT spectrum auction conducted in 2018 in South Korea, and the best initial pricing policy identified (i.e., $85.24 million per spectrum block) regarding a sustainable market environment for existing service providers (i.e., 10 blocks for the Aggressive bidder, 10 blocks for the Moderate bidder, and 8 blocks for the Conservative bidder). The proposed approach will be beneficial to both government agencies and auction bidders under fair competition in the IMT market.