Wednesday, 31 May 2006

Game Theory, the Greater Good and the Largest Loss

At the time, I thought the UK mobile phone spectrum auction was a wonderful piece of systems thinking. By designing the rules sensibly, the government raised over £20 billion from the mobile phone companies for what appeared at the time to be precious 3G bandwidth. Now, six years later, one view is that it was even smarter. Few people are using 3G capabilities on their phones so it seems obvious the companies overpaid. Vodafone has just unveiled the largest ever UK corporate loss, partly as a result of the revaluation of the asset that was Mannesmann - a company they acquired close to the height of the boom. But recently a friend of mine asked an interesting question: what strategy on the government's behalf would have produced the greatest good for society overall?

The answer is not straightforward: that £20B was spent on hospitals and schools and so on. But the cost of Vodafone and the others falling share price has been born by pension funds and individual investors: in Vody's case the stock still trades at around a third the price at the peak. Surely that wealth destruction effects society too. So would it have been better for the UK to charge less for the licenses and provide, if not an explicit state guarantee (vide France Telecom), then at least more support for such an important UK company? Answers on the back of an annual report please...

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