Disclaimer, I'm not an economist so some of this may be arrant bollocks, but, please read on...
In economics there's a term called the Laffer curve which describes the relationship between rates of taxation and the resulting level of government revenue received, for example a low tax rate may achieve a better return than a higher tax that restricts the incentive to perform an activity, equally a tax rate that is too low may not receive the maximum possible revenue.
My contention is that an auction of 4G spectrum to mobile network operators may effectively be on the wrong (high) side of this curve, the UK operators may also believe so, as the recent UK auction results suggest.
A simplistic view may be that the 4G license is effectively a license for the operators to print money - to some extent this is true (but that's where corporation tax should come into play) - but it ignores the reality of the costs of network rollout (even if in some cases this is little more than software upgrades to existing masts), and the fact that the operators are running their businesses in a competitive regulated non-monopoly environment. The operators need to recoup their auction costs, and this invariably involves higher costs to the consumer (in effect following yet another Laffer style curve). Whilst these higher costs will in themselves raise more taxation (VAT) for the government, they will restrict innovation, and in a global market this may have a far more serious impact on the economy and the eventual tax take.
In these financially interesting times, should the government be encouraging mobile innovation, or hamstringing it via higher costs? Does the UK want to take the lead in the global mobile market, or not? Just a thought...
