KISDI Proposes a Score Auction-Based Indirect Regulatory Approach for Network Deployment Obligations in Spectrum Auctions (detail)

※ URL(Korean): https://www.kisdi.re.kr/bbs/view.do?bbsSn=114955&key=m2101113055776&pageIndex=1&sc=&sw=

KISDI Basic Research (25-13): A Study on the Introduction of Network Deployment Conditions in Spectrum Auctions

▲ Market-driven investment alone may not achieve socially optimal outcomes due to the positive externalities of mobile networks
▲ Traditional direct regulation may lead to inefficient resource allocation amid slowing telecommunications investment
▲ KISDI proposes introducing score auctions that evaluate both bid prices and network deployment commitments
▲ Bonus points based on network deployment levels could encourage greater investment in network infrastructure

The Korea Information Society Development Institute (KISDI, President Sangkyu Rhee) recently published a research report titled *A Study on the Introduction of Network Deployment Conditions in Spectrum Auctions* (KISDI Basic Research 25-13), which examines an indirect regulatory approach that uses score auctions to provide incentives for network deployment in spectrum allocation.

The report notes that mobile communications networks serve as critical infrastructure supporting the digital economy and generate various positive externalities, including increased industrial productivity and improved access to public services. As a result, market mechanisms alone may not provide socially optimal levels of investment in network infrastructure.

To address this issue, countries such as Korea and the United States have traditionally relied on direct regulatory approaches that require operators to meet government-imposed obligations, such as minimum numbers of base stations or specified coverage levels. However, the report points out that, amid a global slowdown in telecommunications investment, such regulatory approaches have faced criticism for their rigidity and potential to create inefficiencies in resource allocation.

As an alternative, the study proposes the introduction of a score auction mechanism as an indirect regulatory tool. Rather than mandating the achievement of specific deployment targets through direct regulation, the proposed approach incorporates network deployment commitments into the spectrum auction process.

Under a score auction framework, bidders submit both a bid price and information regarding their proposed network deployment levels, such as network quality and coverage. These elements are evaluated according to predefined scoring rules, and spectrum licenses are awarded to the bidder achieving the highest overall score. Instead of imposing mandatory deployment obligations, the system encourages investment by awarding additional points for higher levels of network deployment.

The report finds that if bonus points are designed to reflect the positive externalities generated by network deployment, the mechanism can align operators’ incentives with public policy objectives and promote socially efficient resource allocation. Under such a system, operators are expected to invest in network infrastructure up to a socially efficient level based on their individual cost structures, while spectrum resources are allocated to those capable of generating the greatest social welfare.

Baek So-seong, Associate Fellow at KISDI, explained that even under practical constraints—where it is difficult to precisely estimate the relationship between network deployment and its external effects—a simplified score auction design using limited information on the additional social benefits of network quality improvements can still outperform traditional direct regulatory approaches.

He added that while such a model may not achieve the theoretical optimum, it represents a practical policy alternative that is both more effective than direct regulation and more feasible to implement.

Baek further noted that the report is significant in that it provides a theoretical foundation and policy framework for shifting from traditional direct regulation of network deployment toward an incentive-based indirect regulatory approach aimed at improving spectrum utilization efficiency.

He also emphasized that empirical estimation of the social benefits generated by mobile communications networks will be necessary before such a framework can be implemented in practice.

The report is available for download from the KISDI website.

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KISDI Proposes a Score Auction-Based Indirect Regulatory Approach for Network Deployment Obligations in Spectrum Auctions