Using a fuzzy multi-criteria decision making approach to evaluate alternative licensing mechanisms

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Using a fuzzy multi-criteria decision making approach

to evaluate alternative licensing mechanisms

Hsiao-Cheng Yu

*

, Zon-Yau Lee, Shih-Chi Chang

Institute of Management of Technology, National Chiao-Tung University, 1001 Ta Hsueh Rd., Hsinchu 30010, Taiwan, R.O.C. Received 25 August 2001; received in revised form 15 October 2002; accepted 14 December 2002

Available online 10 July 2004

Abstract

Selecting a licensing policy for third-generation (3G) mobile communications services in Taiwan will have a profound impact on the government’s fiscal income, the advancement of domestic telecommunications technologies and services, and the potential return on investment for 3G licensees. Evaluation criteria should include satisfying multi-goals. The top-level goals are set to satisfy requirements of the government, consumers, and need for competence of the operators. Under each of these three first-tier goals, four second-tier evaluation criteria may be used to assess to what extent the first-tier goals are satisfied. Scholars and experts in the Taiwan telecommunications arena were surveyed to determine their preferences between pairs of evaluation criteria. Additionally, they were asked to estimate the utility scores of each criteria achieved by alternative licensing policies. Fuzzy multi-criteria decision making (MCDM) methodology was then used to evaluate four 3G licensing policies in Taiwan, including: auction, beauty contest, tender, and beauty contest with fixed license fee. The survey results revealed the views and preferences of experts with different backgrounds. The methodology and experience presented in this study could serve as a reference for telecom regulators in constructing their 3G licensing policies.

Keywords: Third-generation; License; Auction; Beauty contest; Tender; Beauty contest with fixed fee; Fuzzy; Multi-criteria decision making

1. Introduction

In the past, telecommunication services were mostly state owned and operated. This was necessary because of the huge investment required to construct a nationwide telecommunications network; also it is easier to ensure equipment compatibility and inter-operability among telecommunications systems if they are operated by a single telecommunications operator. However, in the past two decades,

interna-tional standards bodies have established communica-tions protocols and interface standards; these have opened up the telecommunications equipment market to competition. As interoperable telecommunications equipment is readily available, independently oper-ated networks can make up a nationwide network. This has further opened up the telecom marketplace. As the networks start to be operated by private enter-prises, they are subject to competition, which usually results in improvements in service quality and opera-tional efficiency. The mobile communications market provides a good proof of this trend of liberalization. The Directory General of Telecommunications (DGT) in Taiwan decided to award five 3G licenses

*_{Corresponding author. Tel.:}_{þ886-3-5712121x57508;}

fax:þ886-3-5726749.

E-mail address: chengyu@cc.nctu.edu.tw (H.-C. Yu).

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in the end of 2001. The challenge of selecting a 3G licensing mechanism falls into satisfying multiple objectives. This study used a multi-criteria decision making model to evaluate alternative mechanisms. Experts in the Taiwan telecommunications arena were surveyed to provide input to this model.

Until recently, there was very little literature about the models/methodologies that could be used to select telecom licensing policies. Only expert opinions or government policies on this subject were available. The purpose of this study was to demonstrate the effectiveness of using an MCDM to evaluate 3G licensing mechanisms.

2. Alternative 3G licensing mechanisms 2.1. Descriptions of 3G licensing mechanisms

Alternative 3G licensing mechanisms used by different countries can be classified into four cate-gories:

2.1.1. The auction mechanism

In this, 3G licenses are awarded to contenders with the highest bids. Under a multiple-round bidding system, every contender feels pressure from each other. Often this results in extraordinarily high bids. If a country adopts the auction mechanism, it usually does not levy annual 3G permit fees or frequency usage fees.

2.1.2. The beauty contest mechanism

For this, a selection committee evaluates each of the contender’s potential contribution to society, benefits to service subscribers, fulfillment of government objectives, etc. The 3G licensees in Taiwan would pay 2% of their annual revenue as the 3G-permit fee in addition to the frequency usage fee. Since the 3G-permit fee is directly proportional to the revenue, income to the government would increase as the 3G businesses expand. The Taiwan frequency usage fee is related to the bandwidth used and the number of subscribers; it would also increase as the 3G business grows. The biggest criticism of this licensing mechan-ism is the concern that the selection committee might not be completely objective and impartial when making their decision.

2.1.3. The tender mechanism

With this, the selection committee first screens the qualifications of the contenders. Those that pass the first screening can then enter the bidding process. The bidding may consist of either a single round or multi-ple rounds. The final bid under single-round bidding will generally be lower than that with multiple-round bidding, because contenders do not have a second chance to topple other contenders’ bids. This mechan-ism generally does not require the operators to pay 3G permit fees or frequency usage fees. The rationales are the same as those in the auction mechanism, because the fees could have been reflected in the bids. The main difference between the ‘‘Auction’’ and ‘‘tender’’ mechanisms is that the former does not screen con-tenders and there are multiple rounds of bidding, while the latter does screen contenders and there is generally a single round of bidding.

2.1.4. The beauty contest with fixed fee mechanism This mechanism uses a selection committee to decide the candidate licensees who will pay a fixed 3G-license fee to the government. As in the beauty contest mechan-ism, the licensees must still pay annual 3G permit and frequency usage fees. This system is, however, different from the beauty contest system in that the former needs to pay a license fee while the latter does not.

2.1.5. The fees for each mechanism

The major differences among the four 3G licensing mechanisms lie in how selection decisions are made and the different kinds of fees that each has to render during the 15-year license period. Some fees are due when the 3G licenses are awarded and others are annual recurrent fees. The unpredictability of the bid result is due to competition among auction contenders. The license fee, the 3G-permit fee, and the frequency usage fee are either a fixed amount mandated by the government or can be calculated from the equations in the rate struc-ture, which increase only when the 3G business grows. These fees have much less risk than auction bids. Fees that different governments collect under the different 3G licensing mechanisms are illustrated inTable 1. 2.2. Comparison of 3G licensing mechanisms

The advantages and disadvantages of the four cate-gories of 3G licensing mechanisms are compared in

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Table 2. The selection of a 3G licensing mechanism will have a profound influence, not only on consumers and 3G operators, but also on the domestic mobile telecommunications industry.

3. Constructing a multi-criteria decision-making model

3.1. The model

When making a multi-objective decision, its impact on multiple dimensions must be considered

[3]. Each dimension has its own multiple evaluation criteria, which form a hierarchical multi-tier problem structure[4]. Many scholars use the Analytic Hier-archy Process (AHP) method [7,8] to deal with strategy selection problems. A fuzzy notion was introduced into the AHP method[2,6,9,10]. Instead of asking the survey respondents to select a specific utility score, this notion allows a range of utility scores; this was used to study the marketing strate-gies of the information service industry[11] and to analyze the strategy choices of IC companies in Taiwan [5]. Here, we use the fuzzy AHP method to select multi-criteria 3G licensing strategies.

We learned why different countries chose one 3G licensing mechanism over others and brainstormed with domestic regulators/scholars in the telecommu-nications arena to determine what is expected from a good 3G licensing mechanism. Then, we decided on the three top-level goals that a 3G licensing mechan-ism must accomplish.

Under government goals, we defined four evalua-tion criteria that can be used to measure to what extent the goal is satisfied: (1) whether 3G licensing

gen-erates significant fiscal income; (2) whether the 3G spectrum is utilized effectively; (3) whether the licen-see selection process is fair and impartial; and (4) whether the result of 3G licensing can benefit Taiwan’s domestic telecommunications industry.

Under consumer goals, we also defined four evalua-tion criteria: (1) whether the quality of 3G services is good; (2) whether the tariff of 3G services is reason-able; (3) whether the functions of 3G services are useful; and (4) whether 3G services can be deployed quickly and widely.

Under the goal of selecting competent operators, we defined four evaluation criteria: (1) whether the opera-tors have the financial capabilities; (2) whether the operators have the technical capabilities; (3) whether the operators have the management capabilities to operate 3G businesses successfully; and (4) whether the operators can cope with foreign competition.

A multi-criteria decision-making model with three first-tier goals, and four second-tier evaluation criteria is shown in Fig. 1.

3.2. Solution to this multi-criteria decision-making model

We use the MCDM model to evaluate four 3G licensing mechanisms to determine how well each of them to meet the 12 criteria.

We convened five groups of experts in Taiwan; they are the most knowledgeable in 3G technologies and services. These included telecom service operators; telecom equipment manufacturers; scho-lars in telecommunications engineering; schoscho-lars in non-technical fields such as management, eco-nomics, and law; and government officials and researchers.

Table 1

Government Income from alternative 3G licensing mechanisms Government income Licensing mechanism

Auction Tender Beauty contest with fixed fee Beauty contest

Auction bid Yes Yes No No

License fee No No Yes No

3G permit fee No Yes Yes Yes

Frequency usage fee No Noa Yes Yes

Sales tax Yes Yes Yes Yes

Income tax Yes Yes Yes Yes

a

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Table 2

A comparison of the advantages and disadvantages of 3G licensing mechanisms Licensing

Mechanism

Advantages Disadvantages Suggestions and Supporting

Regulations Auction Free market decides

the value of 3G license

Operator’s financial burden and operational costs are high

Auction based on promise of a percentage of future 3G revenue instead of a fixed payment of cash could reduce operators’ risk. Spectrum resource is

utilized effectively

Impedes the development of 3G services

Auction price is paid over the license period Generates substantial income

for government

Cost structure is higher than that of 2G operation. 3G is at a disadvantage in competing against 2G

There should be a security deposit for auction participants

Attracts foreign investment and technology inflow

Higher costs result in a higher tariff to consumers

Auction winners should be allowed to sell or lease their 3G frequencies to other parties.

Improves Taiwan’s image in telecommunications liberalization

Unable to support domestic telecommunications industry If 3G prospers beyond expectations, government income cannot increase Beauty contest 3G permit and frequency usage fees

could be adjusted with reference to 3G profitability and license fees paid

Is difficult to maintain objectivity and impartiality in the selection process

Establishes open and fair selection procedure License fee could be determined by a

panel of manufacturers, officials, scholars, researchers, and other experts

Does not reflect the market value of the 3G spectrum

3G permit fees and frequency usage fees could be adjusted with reference to 3G profitability Could require 3G licensees to

meet specific targets and requirements

Criteria and fairness of the selection process may be challenged

Extra credit could go to applicants who purchase equipment from domestic manufacturers Require 3G licensees to meet specific targets and requirements Tender Operator’s financial burden is

lower than that of auction policy

Difficult to maintain objectivity and impartiality in the selection process

3G permit and frequency usage fees could be adjusted with reference to its profitability and license fees. Has advantages of beauty

contest and the fairness in selection of auction

Unable to assess a 3G license’s true market value

License fee should be determined by a panel of manufacturers, officials, scholars, etc. Minimizes resource depletion Criteria and fairness of the

selection process may be challenged

Require 3G licensees to meet specific targets and requirements Facilitates government policy

implementation (e.g., sharing of base station and antenna facilities) License fees also generate significant income to government Government can support domestic telecom industry

Minimizes operator’s uncertainty risks Beauty contest

with fixed license fee

Has most of the advantages of beauty contest

Has similar disadvantages to beauty contest but to a lesser extent

The license fee should be determined by an impartial panel License fees also generate

income to government

If the license fee is too high, it could still impede the operators’ investment in 3G

Adopt similar suggestions given for beauty contest

Government can support domestic telecom manufacturers Fixed license fee causes no risk of uncertainty to operators

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In the survey, we asked subject n of survey group i about his/her perception of the ratios of relative importance between pairs of the twelve multi-criteria. A set of twelve weighting factors associated with the twelve multi-criteria can therefore be derived as follow:

Let ~Vnbe the vector of weighting factors of subject

n in group i ~

Vn¼ ðvn1; vn2; . . . ; vn12Þ (1)

where vnjis the weighting factor for the jthevaluation

criterion by subject n. Averaging ~Vn among all

sub-jects within group i generates an overall set of weight-ing factors for group i. Assume there are Nisubjects in

group i.

Let ~Wibe the vector of weighting factors of survey

group i. ~ Wi¼ X n¼N1 n¼1 ~ Vn Ni (2) ~ Wi¼ ðwi1; wi2; . . . ; wi12Þ (3)

where wijis the weighting factor for the jth evaluation

criterion by the ith group. We repeated this process for each of the five groups.

For the four 3G licensing mechanisms, we wish to derive, from each subject, a utility score that represent

the level of satisfaction for each of the twelve multi-criteria. We asked each subject to select one out of five linguistic variables from: ‘‘very highly effective’’, ‘‘highly effective’’, ‘‘fairly effective’’, ‘‘low effec-tive’’, and ‘‘very low effective’’ as a way to measure the level of satisfaction for a criterion. Because the perception or the interpretation of these linguistic variables is likely to be different for each subject, this study used the notion of triangular fuzzy numbers (TFN) to represent each survey subject’s perception of the linguistic variables [1]. We asked each survey subject to assign a fuzzy range of utility scores between 0 and 100 with lower estimate LE, medium estimate ME, and Upper estimate UE. We adopted the Center of Area (COA) method[12,13]to convert the fuzzy range of utility scores to a non-fuzzy utility score (NFUS). We used the following method: The utility scores constitute a 12 4 matrix~Sn, where sknjis

the utility score of the jth evaluation criterion for

licensing mechanism k by user n.

~_S_n_¼ sA n1 s B n1 s C n1 s D n1 sA_n2 sB_n2 sC_n2 sD_n2 sA n12 sBn12 sCn12 sDn12 2 6 6 6 6 6 6 4 3 7 7 7 7 7 7 5 (4)

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The utility score matrix ~Sn of subject n will be

multiplied by the vector of weighting factors of its group, ~Wi, to get ~Un, where ukn is the utility score

weighted by the weighting factors of group i for licensing mechanism k by subject n.

~ Un¼ ~Wi ~Sn¼ ðuAn; u B n; u C n; u D nÞ (5)

Averaging ~Un among all subjects within group i

generates an overall set of utility scores Ti,

~ Ti¼ X n¼N1 n¼1 ~ Un Ni ¼ ðtAi ; t B i; t C i; t D iÞ (6)

where t_iAis the utility score of licensing mechanism k by group i. The licensing mechanism with the highest utility score is the most favored licensing mechanism by that subject.

The survey experts’ opinions about 3G licensing mechanisms will provide valuable references to Tai-wan DGT with respect to selecting a licensing mechanism for 3G services.

4. Evaluation results of the MCMD model Ideal survey candidates for evaluating 3G licensing mechanisms are people who are familiar with the subject. The background or sources of the survey candidates included:

1. The National Telecommunications Project Office of Taiwan keeps a correspondence database of over 200 e-mail addresses of people who con-stantly receive a bi-weekly newsletter concerning the latest telecommunications developments from the project office. This group consisted of specialists in every field of telecommunications in Taiwan, e.g., operators, manufacturers, govern-ment officials, scholars, and researchers.

2. A total of 35 professors of telecommunications engineering from National Taiwan University and National Chiao-Tung University.

3. A group of 20 of professors in industrial economics, management, law, and regulatory policy.

4. Ten selected experts in the telecommunications industry.

5. Thirty-five members from the Bell Laboratory Alumni Club in Taiwan.

This survey was intended to be comprehensive and cover most perspectives of every relevant types of experts in 3G licensing. Although some people might have received duplicate questionnaires from more than once source, they responded only once. We received 76 responses with 7 discarded because they were incomplete, so 69 were complete and acceptable resulting in a 23% return rate.

Among the 69 survey respondents, 18 were from the telecom manufacturing sector; 15 were from the telecom service sector; 10 were university professors from non-technical areas; 9 were university profes-sors in telecommunications engineering departments, and the remaining 17 were from government, research, and other organizations. In addition to assessing the preferred 3G licensing mechanism for each of the five groups, the preferences of all the survey respondents as a whole was also studied. Based on the survey responses a fuzzy MCDM model was constructed.

4.1. Opinion of the telecom manufacturers group 4.1.1. Weighting factors

The manufacturers surveyed included domestic and international manufacturers in Taiwan. The weighting factors for the first-tier goals are: (1) the goal of satisfying consumers’ needs (0.527); (2) the goal of selecting competent operators (0.276); and (3) The goal of reaching government objectives (0.107). The importance of satisfying consumers’ needs was five times higher than that of reaching government objec-tives. The priorities of the evaluation criteria used to measure how well customers’ needs are satisfied are: (1) deploying 3G services quickly & widely (0.317); (2) having a reasonable 3G service tariff (0.242); (3) having good 3G service quality (0.241); and (4) hav-ing useful 3G functions (0.201). The weighthav-ing factors of the 12 evaluation criteria for the telecom manu-facturers group are shown inTable 3.

In order to reach the goal of selecting competent 3G operators, telecom manufacturers place the greatest importance on the management’s ability to run a successful 3G business. Regarding reaching the goal of satisfying government’s objectives, telecom man-ufacturers place the greatest importance on the ability to benefit Taiwan’s domestic telecommunications industry.

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4.1.2. Utility scores of four licensing mechanisms

The vector of weighting factors by the telecom manufacturers group is denoted as ~WI:

~

WI ¼ ð0:041; 0:042; 0:037; 0:078; 0:061; 0:059;

0:098; 0:060; 0:127; 0:128; 0:105; 0:167Þ If we multiply ~WIby the score matrix ~Snof subject n

in the telecom manufacturers group, it is possible to calculate the utility scores of the four licensing mechanisms for subject n. Averaging the utility scores of the four licensing mechanisms by all survey sub-jects in the telecom manufacturers group, we may derive the group’s utility scores for each of the licen-sing mechanisms listed inTable 4.

4.1.3. Opinion on alternative licensing mechanisms

The telecom manufacturer group rated beauty contest the highest, with tender second, beauty con-test with fixed fees third, and auction last. Choosing the beauty contest mechanism, which does not need to pay a high bid price or license fee to the govern-ment at the beginning of 3G operation, reflects tele-com manufacturers’ concern that a high auction bid or high 3G license fee will jeopardize 3G operators’ financial capability to invest in and operate 3G services.

4.2. Opinion of the telecom operators group 4.2.1. Weighting factors

The telecom operators here included mobile and fixed-line operators in Taiwan. The weighting factors for the first-tier goals are: (1) satisfying consumers’ needs (0.516); (2) selecting competent operators (0.296); and (3) reaching government objectives (0.189). Thus the importance of satisfying consumers’ needs is greater than the combined importance of the other two goals. The priorities of the evaluation cri-teria used to measure how customers’ needs are

Table 3

Weighting factors by telecom manufacturers group

Goals Evaluation criteria

Weighting factors of goals Weighting factors of evaluation criteria within a goal Weighting factors of evaluation criteria across goals The goal of reaching government objectives 0.107

Generate a significant amount of fiscal income 0.210 (2) 0.041 (11)

Effective use of spectrum resources 0.207 (3) 0.042 (10)

Fair and impartial licensee selection procedures 0.185 (4) 0.037 (12) Benefit to domestic telecommunications industry 0.397 (1) 0.078 (6) The goal of selecting competent operators 0.276

Financial capability of operators 0.216 (2) 0.061 (7)

Technical capability of operators 0.212 (4) 0.059 (9)

Management capability of operators 0.356 (1) 0.098 (5)

Ability to cope with foreign competition 0.216 (3) 0.060 (8)

The goal of satisfying consumers’ needs 0.527

Good 3G Service quality 0.241 (3) 0.127 (2)

Reasonable 3G service tariff 0.242 (2) 0.128 (3)

Useful 3G service functions 0.201 (4) 0.105 (4)

Deploy 3G services quickly & widely 0.317 (1) 0.167 (1)

Note: The numbers in parentheses represent the order of importance.

Table 4

Utility scores by telecommunication manufacturers group 3G licensing mechanisms Utility scores (rankings)

A. Auction 49.2 (4)

B. Tender 59.7 (2)

C. Beauty contest 60.9 (1) D. Beauty contest with fixed fee 53.9 (3)

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satisfied are: (1) 3G services have good quality (0.306); (2) 3G services have useful functions (0.266); (3) 3G services are reasonably priced (0.230); and (4) deploying 3G services quickly & widely (0.197). The weighting factors of the twelve evaluation criteria for the telecom operators group are listed inTable 5.

In order to meet the goal of selecting competent 3G operators, existing telecom operators value their abil-ity to cope with foreign competition the most. They value this because Taiwan is about to join the WTO, and therefore the domestic telecommunications mar-ket shall be open to international telecom operators. Regarding reaching government objectives, telecom operators deem benefiting Taiwan’s domestic telecom industry the most important criterion.

4.2.2. Utility scores of the four licensing mechanisms The vector of weighting factors by telecom opera-tors group is denoted as ~WII:

~

WII¼ ð0:017; 0:054; 0:058; 0:059; 0:068; 0:064;

0:081; 0:083; 0:158; 0:119; 0:137; 0:102Þ When we multiply ~WII by the score matrix ~Sn of

subject n in the telecom operators group, we can

calculate the utility scores of the four licensing mechanisms by subject n. Averaging the utility scores of the four licensing mechanisms by all survey sub-jects in the telecom operators group, we may derive this survey group’s utility scores for each of the four licensing mechanisms, seeTable 6.

The telecom operators group rated beauty contest the highest, beauty contest with fixed fees second, tender third, and auction last. The utility score of auction is only 38.42, which is well below those of the other three licensing mechanisms. This shows that Taiwan telecom operators are very concerned about the negative impact caused by potentially high auction bids.

Table 5

Weighting factors by telecom operators group

Deploy 3G services quickly & widely 0.197 (4) 0.102 (4)

Table 6

Utility scores by telecom operators group

3G licensing mechanisms Utility scores (rankings)

A. Auction 38.4 (4)

B. Tender 61.4 (3)

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4.3. Opinion of the non-technical scholars group 4.3.1. Weighting factors

The non-technical scholars surveyed in this study included university professors in the field of manage-ment, law, and economics, etc. The weighting factors for the first-tier goals are: (1) satisfying consumers’ needs (0.582); (2) selecting competent operators (0.260); and (3) reaching government objectives (0.157). The importance of satisfying consumers’ needs is twice as important as the goal of selecting competent operators and almost four times as impor-tant as the goal of reaching government objectives. The priorities of the evaluation criteria used to mea-sure how customers’ needs are satisfied are: (1) 3G services have good quality (0.391); (2) 3G services are reasonably priced (0.262); (3) 3G services have useful functions (0.212); and (4) Deploy 3G services quickly & widely (0.135). The weighting factors of the twelve evaluation criteria for the non-technical scholars group are listed inTable 7.

In order to meet the goal of selecting competent 3G operators, non-technical scholars most value manage-ment capability to operate a successful 3G business. Regarding reaching the goal of satisfying government objectives, the non-technical scholars also deem

ben-efiting domestic telecom industry the most important criterion.

4.3.2. Utility scores of the four licensing mechanisms The vector of weighting factors by non-technical scholar group is denoted as ~WIII:

~

WIII¼ ð0:021; 0:049; 0:034; 0:054; 0:044; 0:056;

0:084; 0:075; 0:228; 0:153; 0:124; 0:079Þ When we multiply ~WIII by the score matrix ~Sn of

subject n for the non-technical scholars group, we can calculate the utility scores of the four licensing mechanisms by subject n. Averaging the utility scores of the four licensing mechanisms by all survey sub-jects in the non-technical scholars group, we may derive this survey group’s utility scores of the four licensing mechanisms, see Table 8.

The non-technical scholars group rated beauty contest the highest, beauty contest with fixed fees second, tender third, and auction last. The utility score of auction is substantially below those of the other three licensing mechanisms and shows that

Table 7

Weighting factors by non-technical scholars group

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non-technical scholars are very concerned about the negative impact, which may be caused by potentially high auction bids.

4.4. Opinion of technical scholars group

4.4.1. Weighting factors by technical scholars group The technical scholars included university profes-sors in the fields of telecommunications and electrical engineering. The weighting factors for the first-tier goals are: (1) satisfying consumers’ needs (0.571); (2) selecting competent operators (0.233); and (3) reach-ing government’s objectives (0.169). The importance of satisfying consumers’ needs is much higher than the other two. The priorities of the evaluation criteria used to measure how customers’ needs are satisfied are: (1) 3G services have useful functions (0.310); (2) 3G

services have good quality (0.274); (3) 3G services are reasonably priced (0.249); and (4) deploy 3G services quickly & widely (0.165). The weighting factors of the twelve evaluation criteria for the tech-nical scholars group are shown inTable 9.

In order to meet the goal of selecting competent 3G operators, technical scholars emphasize operators’ capability to cope with foreign competition the most. Regarding reaching the goal of satisfying government objectives, the technical scholars put special emphasis on the effective use of spectrum resources as most important (Table 9).

4.4.2. Utility scores of four licensing mechanisms The vector of weighting factors by technical scho-lars group is denoted as ~WIV:

~

WIV¼ ð0:031; 0:070; 0:049; 0:047; 0:048; 0:061;

0:055; 0:069; 0:157; 0:142; 0:177; 0:094Þ When we multiply ~WIV by the score matrix ~Sn

subject n in the technical scholars group, we can calculate the utility scores of the four licensing mechanisms by subject n. Averaging the utility scores of the four licensing mechanisms by all survey sub-jects in the technical scholars group, we may derive

Table 8

Utility scores by non-technical scholars group

A. Auction 55.6 (4)

B. Tender 68.8 (3)

Table 9

Weighting factors by technical scholars group

Good 3G service quality 0.274 (2) 0.157 (2)

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this survey group’s utility scores of the four licensing mechanisms, seeTable 10.

4.4.3. Opinion on alternative licensing mechanisms The technical scholars group rated tender the high-est, auction second, beauty contest with fixed fees third, and beauty contest last. Although the utility scores of the four licensing mechanisms are quite close, the survey results show that the technical scho-lars are very skeptical of the fairness and impartiality in the decision-making process of a selection commit-tee in the beauty contest mechanism.

4.5. Opinion of the undesignated survey group 4.5.1. Weighting factors

All survey respondents who do not belong to the previous four groups were placed into the undesignated

group, which therefore consists of government regula-tors, researchers, etc. The weighting factors for the three first-tier goals are: (1) satisfying consumers’ needs (0.422); (2) selecting competent operators (0.294); and (3) reaching government objectives (0.283). The priorities of the evaluation criteria used to measure how customers’ needs are satisfied are: (1) 3G services have good quality (0.297); (2) 3G services are reasonably priced (0.294); (3) 3G services have useful functions (0.237); and (4) deploy 3G services quickly & widely (0.173). The weighting factors of the twelve evaluation criteria for the undesignated group are inTable 11.

In order to meet the goal of selecting competent 3G operators, the undesignated group places the most importance on operators’ capability to cope with foreign competition. Regarding reaching the goal of satisfying government objectives, the undesignated group emphasizes the effective use of spectrum resources as the most important criterion.

4.5.2. Utility scores of four licensing mechanisms The vector of weighting factors by the undesignated group is denoted as ~WV:

~

WV¼ ð0:031; 0:070; 0:048; 0:047; 0:056; 0:071;

0:072; 0:096; 0:125; 0:124; 0:101; 0:073Þ

Table 10

Utility scores by technical scholars group

A. Auction 63.6 (2)

B. Tender 65.7 (1)

Table 11

Weighting factors by the undesignated group

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When we multiply ~WV by the score matrix ~Sn of

subject n in the undesignated group, we can calculate the utility scores of the four licensing mechanisms by subject n. Averaging the utility scores of the four licensing mechanisms by all survey subjects in the undesignated group, we may derive this survey group’s utility scores of the four licensing mechan-isms, seeTable 12.

The undesignated group rated beauty contest the highest, beauty contest with fixed fees second, tender third, and auction last. Choosing the beauty contest mechanism, reflects the undesignated respondents’ concerns that a high auction bid or high 3G license

fee will jeopardize 3G operators’ financial capability to invest in and operate 3G services.

The utility scores of beauty contest and beauty contest with fixed fee are very close and they are higher than those of tender and auction. This shows that survey respondents in the undesignated group favor non-auction type licensing mechanisms to auc-tion type licensing mechanisms.

4.6. The overall opinion of all survey respondents 4.6.1. Weighting factors

All of the survey respondents were finally consid-ered as one group. The weighting factors for the three first-tier goals are then: (1) satisfying consumers’ needs (0.521); (2) selecting competent operators (0.270); and (3) reaching government objectives (0.209). The importance of satisfying consumers’ needs is greater than the combined importance of the other two. The priorities of the evaluation criteria used to measure how customers’ needs are satisfied are: (1) 3G services have good quality (0.291); (2) 3G services are reasonably priced (0.258); (3) 3G services have useful functions (0.239); and (4) deploy 3G services quickly & widely (0.211). The weighting

Table 12

Utility scores by the undesignated group

A. Auction 45.7 (4)

B. Tender 58.7 (3)

Table 13

Weighting factors by the group of all survey respondents

Weighting factors of goals Weighting factors of evaluation criteria within a goal Weighting factors of evaluation criteria across goals The Goal of Reaching Government Objectives 0.209

Generate a significant amount of fiscal income 0.177 (4) 0.037 12)

Effective use of bandwidth resources 0.314 (1) 0.066 (7)

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factors of the twelve evaluation criteria for the group of all survey respondents are shown inTable 13.

In order to meet the goal of selecting competent 3G operators, the respondents valued management cap-ability to operate 3G services successfully. Survey respondents deem effective use of spectrum resources a most important evaluation criterion.

4.6.2. Utility scores of four licensing mechanisms The vector of weighting factors by all survey respondents is denoted as ~WVI:

~

WVI¼ ð0:037; 0:066; 0:048; 0:059; 0:057; 0:063;

0:082; 0:068; 0:125; 0:124; 0:101; 0:073Þ The product of ~WVIand the score matrix ~Snof any

subject n calculates the utility scores of the four licensing mechanisms by subject n. Averaging the utility scores of the four licensing mechanisms by all subjects, we may derive the utility scores of the four licensing mechanisms, seeTable 14.

4.6.3. Opinion on alternative licensing mechanisms Overall, the survey respondents rated beauty contest the highest, beauty contest with fixed fee

second, tender third, and auction last. The utility scores of the three former-runner licensing mechan-isms are quite close and significantly higher than the utility score of auction. This survey result shows that a majority of survey respondents are not in favor of auction to be Taiwan’s 3G licensing mechanism.

5. Conclusions

Selecting 3G licensees is a complex problem involving consumers, operators, and telecom regula-tors, each of whom have different objectives and interests. We constructed a multi-criteria decision-making model to evaluate four 3G licensing alter-natives. The model defines three first-tier goals. Each of these goals has associated evaluation criteria that can be used to measure the level of fulfillment of the goals.

In this study, about 300 experts and scholars in the Taiwan telecommunications arena were surveyed to find out their priorities with respect to these goals and evaluation criteria. The 69 survey respondents can be categorized into five groups.

The opinions of survey respondents in each of the five groups as well as the aggregation of all respon-dents were analyzed. The utility scores of the four licensing mechanisms are summarized inTable 15.

The key findings from each group of survey respon-dents are:

1. There is consensus among all survey groups regarding the priorities of the three first-tier goals

Table 14

Utility scores by the group of all survey respondents

A. Auction 45.9 (4)

B. Tender 57.1 (3)

Table 15

Utility Scores of Four 3G licensing mechanisms by Six Survey Groups Survey Groups 3G licensing mechanisms

Auction Tender Beauty contest Beauty contest

with fixed fees

Telecom manufacturers group 49.2 (4) 59.7 (2) 60.9 (1) 53.9 (3)

Telecom operators group 38.4 (4) 61.4 (3) 69.2 (1) 64.1 (2)

Non-technical scholars group 55.6 (4) 68.8 (3) 71.5 (1) 69.2 (2)

Technical scholars group 63.6 (2) 65.7 (1) 62.1 (4) 62.5 (3)

Undesignated group 45.7 (4) 58.7 (3) 65.3 (1) 65.1 (2)

Group of all survey Respondents 45.9 (4) 57.1 (3) 61.6 (1) 59.1 (2) Note: The numbers in the parentheses are rankings within the same survey group.

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with respect to 3G licensing. The ranking is: (1) satisfying consumers’ needs; (2) selecting compe-tent operators; and (3) reaching government objectives. In most cases, the importance of pursuing satisfaction of consumer needs is much higher than that of the other two.

2. Generating a significant amount of fiscal income for the government is considered the least important evaluation criterion. The weighting factor is as low as 0.037 by all survey respondents: all groups ranked it last, except one group ranked it 11th. This clearly shows a consensus in Taiwan’s telecommunications arena that contributing to the fiscal income of the government should not be an objective for 3G licensing.

3. All survey groups, except for scholars in tele-communications engineering, are strongly op-posed to a multiple-round auction as Taiwan’s 3G licensing mechanism. Even for that group, the tender mechanism is preferred.

4. The telecom manufacturers, operators, and non-technical scholars stressed the importance of helping the domestic telecom industry in select-ing a 3G licensselect-ing mechanism in Taiwan. They favor beauty contest or beauty contest with fixed license fee, because a selection committee could incorporate measures that can benefit the domestic telecom industry in their selection process.

5. Scholars in non-technical fields are more con-cerned about the operators’ management ability to run a successful 3G business while scholars in telecommunications engineering are more con-cerned about the effective use of the spectrum and are more skeptical of the fairness and impartiality of selection decisions made by members of the selection committee. That is probably why they prefer to rely on the highest bids to award 3G licenses.

This 3G licensing multi-criteria decision-making model has demonstrated its applicability to the eva-luation process. It has also revealed the concerns and preferences of experts and scholars in Taiwan’s tele-communications arena. The results of this study could serve as a reference for telecommunication authori-ties.

Auctions of 3G licensing in Europe have generated significant incomes for the government. However, there are arguments that the huge auction fees may negatively impact the ability of mobile operators to invest in 3G infrastructures.

Acknowledgements

The authors wish to thank Edgar H. Sibley, the chief editor and anonymous reviewers for their helpful comments and detailed editing suggestions.

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Dr. Hsiao-Cheng Yu received BS de-gree in electronic engineering from Chung-Yuan University, Taiwam, in 1972, and PhD degree in Industrial & Systems Engineering from Georgia In-stitute of Technology, Atlanta, Georgia in 1981. He was a telecommunications consultant with Contel Information Sys-tem from 1981 to 1985. He then joined AT&T Bell Labs as a system engineer from 1985 to 1992. He is a professor in the Institute of Management of Technology, Chiao-Tung University, Taiwan. His current research interests include business strategies and government policies in Internet and telecommunications.

Mr. Zon-Yau Lee received BS in Civil Engineering from the Academy of Army in 1986. He received MS degree in Management of Technology from Na-tional Chiao Tung University, Hsinchu, Taiwan, in 1996. He is a lieutenant colonel in the army and is currently a PhD candidate in the same institute. His research interests include licensing poli-cies, radio spectrum pricing, and technol-ogy management.

Mr. Shih-Chi Chang received BS in International Trade from Cheng-Chi Uni-versity, Taipei, Taiwan in 1995 and MBA from Chung-Cheng University, Chia-Yi, Taiwan in 1997. He is currently a PhD student in Chiao-Tung University, and a lecturer in Ta-Tung Junior Technological College of Commerce, Chia-Yi, Taiwan. His research interests include telecom-munications policy, industry analysis, and technology management.