The Persistence of the Dirigiste Model: Wireless Spectrum Allocation in Europe, a la Francaise

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I. INTRODUCTION

The process of allocating radio spectrum for Third Generation ("3G") wireless communications (1) in the European Union ("EU" or "the Union") illustrates the convergence of serious economic and political challenges facing the Union and its member states in the near term. The European Commission's ("EC") telecommunications policy focuses in part on quickly establishing the groundwork for a 3G wireless market throughout the EU. (2) The EC's objective is, in essence, to create the structure of the 3G market before the demand for one actually exists. (3) In so doing, the EC hopes to create a large 3G market in Europe where European firms will have a very high market penetration. It is hoped that the European 3G market will, when fully developed, provide revenues and economies of scale that will allow European firms to compete effectively for 3G markets in Eastern Europe, Russia, Africa, Asia, and elsewhere. (4) The EC is wagering that 3G will be the network by which the world will maintain person-to-person voice contact and interface with the Internet. It is also wagering that the telecommunications sector, via 3G, will create a multiplier effect throughout the European economy, thereby rescuing Europe from the structural economic crisis that has plagued it for decades. (5)

This is a colossal wager. If the EC is right, then Europe may well be poised to make its broader Trans-European Networks (6) ("TEN") policy a reality. A successful TEN based on 3G would allow the EU to enter the twenty-first century with real economic growth and a European currency, the Euro, (7) that performs well against the dollar. If the EC has bet incorrectly, however, the prestige of the EU will be seriously damaged. This Note argues that signs exist which suggest that the failure of Europe's 3G policy is likely. (8) In Europe, 3G is much more than an EC economic policy initiative or a drama for telecom firms (and their investors) competing for market share. Third Generation technology is also a political initiative that the EC itself considers crucial in Europe's prosperity and for the survival of European integration, which is the cornerstone of the Maastrict and Amsterdam treaties. (9) The stakes are quite high.

This Note examines spectrum allocation for 3G mobile wireless networks in Europe in light of larger EC telecommunications and competition policies. The European Commission has allowed each member state to allocate spectrum to firms in two ways: (1) by the free market auction; and (2) by the "beauty pageant" method by which firms submit detailed proposals to the government, and government bureaucrats make the final selections. (10) This Note focuses on France as the prime example of the beauty pageant method. This Note argues that, despite the "excesses" of the prices of spectrum on the free market auctions, the beauty pageant method has even more disturbing drawbacks.

Clearly, each method of spectrum allocation has its dangers and its rewards. This Note posits that the EC committed itself to a schizophrenic policy when it allowed member states to devise their own methods of allocating frequency spectrum. The EC's general policy in the realm of telecommunications has been to liberalize markets. (11) Despite the bureaucratic overtones of the EC's 3G policy, deregulation and free market competition have been vital to the EC's telecommunications policy. (12) Yet, as allocation approaches go, the beauty pageant method of spectrum allocation is inherently very suspicious of the market. Again, this Note argues that France's activities show that national telecommunications authorities are capable of operating on nonmarket assumptions in much of their management of this emerging market. Essentially, French authorities have reverted to dirigiste traditions in the near term. Such a reversion, at a time when the EC is reassessing its role in European affairs, does not bode well for the EU.

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