Valuing Spectrum

Valuing spectrum

Real Wireless Spectrum and Regulatory lead Abhaya Sumanasena takes a step back to consider why spectrum policy plays such a key role informing technology and investment decisions

The availability or otherwise of spectrum is one of the perennial determinants shaping the present and future of the communications sector. Real Wireless has investigated the subject at length for regulators and helped them develop policy to address future needs. In fact spectrum policy is so important it’s worth stepping back to consider the many ways in which spectrum impacts technology choices, economics and social inclusion.

Wireless networks cannot operate without spectrum. This is why MNOs spend millions to acquire it. However, the value for each MNO depends on many factors.

Mobile data demand continues to increase

More of the right kind of spectrum can mean higher network capacity and greater economic value from existing sites, better service quality and faster data rates available from additional capacity, increased depth of coverage, particularly from lower frequency spectrum and strategic and defensive values as additional spectrum can deprive rivals of access and hamper their ability to develop competing mobile services.

If an operator has more spectrum relative to its competitors, then the advantages can act as a differentiator that allows them to attract a greater number of customers and increase its market share. Therefore, additional spectrum is always beneficial to MNOs.

New spectrum bands suitable to deploy mobile services are mostly awarded using some flavour of auction. This means MNOs have to develop their business case to understand the value of the spectrum for their business. So how do MNOs value spectrum?

As the demand increases over time, network capacity must be increased. Typically, MNOs upgrade existing sites with new technologies, deploy additional spectrum in order to increase the capacity in their mobile networks or, generally as a last resort, deploy new sites.

Wireless - spectrum, technology, network infrastructure

The deployment cost of these capacity solutions varies significantly. For instance, the cost of deploying a new site is significantly higher compared to deploying an additional spectrum on an existing site. This means MNOs can save costs by deploying additional spectrum to serve the demand compared to deploying new sites (depending on the original cost of the spectrum).

If additional spectrum is not available, the MNO would have to deploy additional sites or use advanced technologies with increased spectrum efficiency, to meet the capacity demand. Access to additional spectrum may reduce deployment costs, as it would increase the network capacity and serve demand with the same site count. Similarly, additional spectrum could be used to increase coverage, particularly sub-1 GHz spectrum, without deploying additional sites.

This is the principle used in avoided cost modelling method, a best practice economic valuation methodology used by Real Wireless to estimate the market value of spectrum by regulators and MNOs. It is based on sound economic and engineering principles, and can be adapted to market circumstances. It also provides a robust estimate of spectrum value as it is based on the way MNOs plan network deployment and values additional spectrum to account for traffic growth.

It consists of two steps:

1. Estimation of the network deployment costs over a period with and without additional spectrum.

2. Calculation of the potential cost savings available to the MNO (i.e. ‘avoided cost’) with and without spectrum

Figure 1 shows the high-level block diagram of our overall approach:

Figure 1: Modelling approach

Figure 1: Modelling approach


Input parameters required for the assessment are grouped into four areas:

1. Estimation of traffic demand relevant to the local market.

2. Estimation of the capacity gain available from the technology upgrades: 3GPP LTE standards now dominate mobile broadband and are expected to continue to do so. The standards are being continually updated with new releases, each of which purports to increase the efficiency by which each Hz of spectrum can be used to carry bits of information (the spectrum efficiency measure).

3. Considerations on the existing infrastructure and spectrum

4. Estimation of the total cost to serve the demand: The total cost can be estimated in terms of Capital expenditure (Capex) and Operational expenditure (Opex) using costs related to sites, maintenance, equipment and transmission/backhaul.

This is an example methodology we use to estimate the value of spectrum for regulators. Where detailed information is available, we also use more detailed methodologies considering the discounted cash flows. We continue to work closely with regulators and MNOs around the world to help valuing spectrum as a part of their auction preparations. With our deep understanding of these issues, we are well placed to develop customised spectrum valuation models for MNOs and regulators to prepare for auctions.