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Working Paper

Maximum Impact for Minimum Subsidy: Reverse Auctions for Universal Access in Chile and India

Irene S. Wu, International Bureau.  

FCC Staff Working Paper 2 (Oct 2010) considers how U.S. government funding for universal service and broadband support programs could be quicker and more efficient. To improve efficiency and speed in delivering subsidies, several countries successfully use reverse or minimum subsidy auctions to support universal service programs. This paper discusses the implementation of such auctions in the last 15 years in Chile and India. The programs ranged from rural public telephones to wireless broadband networks.

While there can be drawbacks to such auctions, the advantages are that they can be quicker and more transparent than other approaches.  In a minimum subsidy auction, the government identifies a project and a maximum subsidy. Companies compete for the project by bidding down the value of the subsidy. The bidder requiring the lowest subsidy wins. Based on these case studies, minimum subsidy auctions include the following elements:

  • Setting clear policy targets and methods for identifying projects;
  • Establishing a method for calculating maximum subsidy available per project;
  • Specifying minimum technical and financial requirements for bids and regulatory advantages or requirements;
  • Specifying procedures for awarding and disbursing of funds;
  • Maximizing the number of competitors; and
  • Implementing the auction by evaluating bids in terms of technical quality and selecting the lowest bid.

In contrast to the request-for-proposals approach to contracts, with minimum subsidy auctions the government in advance states very clear criteria for technical evaluation; all qualified bids then move on to the auction. Two auction design challenges are defining projects and maintaining transparency in technical evaluation. A third design challenge is seeing that bidders comply with their commitments; in Chile and India, in early auctions rounds the incumbent won and then failed to build the infrastructure.

Issued: October 2010

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