At the beginning of the twenty-first century, many European governments have allocated the right to use third-generation mobile telephony (UMTS) frequencies to private telecommunications parties. The allocation mechanisms that were adopted differed widely among countries. Some countries chose to use one or other form of auction for allocating the rights, whereas others chose a Beauty Contest in which market players were selected on the basis of the proposals they had submitted for how to use the frequencies. Some allocation procedures were considered successful, while others were heavily criticised. The first auction, the one in the United Kingdom, was declared a big success as there were many interested parties participating in the auction, one of the licences was won by a newcomer and the government raised a very large sum of money. The second auction, the one held in the Netherlands, was termed a failure by many commentators. The revenue was only a fraction of the revenue in the UK, even when calculated per head of the population. Moreover, all licences were won by incumbent parties and only one newcomer showed up for the first bidding round, indicating that newcomers were not interested in participating in the auction.

The mixed experience, together with the changing prospects for profitability of the UMTS technology, has led to the question whether, and under what circumstances, auctions are appropriate allocation mechanisms.