Optimization of Spectrum Allocation and Subsidization in Mobile Communication Services

The mobile traffic explosion has caused spectrum shortage and polarization of data usage among users, which will eventually decrease user welfare (UW) in mobile communication services. Governments around the world are planning to make more spectrum available for mobile broadband use, and the key policy issue is to find an efficient spectrum allocation method that will improve UW. In this paper, we propose a data subsidy scheme where the regulator offers a spectrum price discount to mobile network operators (MNOs) in return for imposing the responsibility of providing a predefined data amount to users free of charge. To analyze the subsidy effect, we adopt the two-stage approach of Cournot and Bertrand competition and find a Nash equilibrium (NE) of the competition. An interesting observation is that the increase in UW does not involve MNO profit (MP) loss and that the increasing amount is higher than the regulator's expenses for implementing the data subsidy scheme. Most of the paper concerns the duopoly competition, which is finally extended to the general case.