The Economic Journal, 112 (March), C74±C96. Ó Royal Economic Society 2002. Published by Blackwell Publishers, 108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street, Malden, MA 02148, USA.
THE BIGGEST AUCTION EVER: THE SALE OF THE BRITISH 3G TELECOM LICENCES*
Ken Binmore and Paul Klemperer
This paper reviews the part played by economists in organising the British third-generation mobile-phone licence auction that concluded on 27 April 2000. It raised £221 billion ($34 2 billion or 21% of GNP) and was widely described at the time as the biggest auction ever. We 2 discuss the merits of auctions versus `beauty contests', the aims of the auction, the problems we faced, the auction designs we considered, and the mistakes that were made.
Twenty-two and a half billion pounds (34 billion dollars) is a great deal of money to raise for selling air, but that is what the British government raised in an auction for ®ve telecom licences.1 The auction ran from 6th March to 27th April 2000, and was frequently described as the `biggest ever' ± not since the Praetorian Guard knocked down the entire Roman Empire to Didius Julianus in AD 195 had there been an auction quite as large.2 We led the team that advised on the design of the British auction (the `thirdgeneration mobile spectrum licence auction', or `3G auction', or `UMTS auction').3 This paper summarises our experience.4
In 1997, when our advice was ®rst sought, four mobile-phone companies operated in Britain using `second-generation' (2G) technology. The incumbents were Cellnet, One-2-One, Orange, and Vodafone. (British Telecom (BT), the erstwhile stateowned monopolist privatised under Mrs. Thatcher, held a 60% stake in Cellnet which it increased to 100% in 1999.) The proportion of the population using a
* Disclaimer: We led the academic team advising the UK government's Radiocommunications Agency, which designed and ran the UK mobile-phone licence auction. The views expressed in this paper are...