High Spectrum Prices Might be a Problem, But Are Headed Lower

There is more evidence that observers expect spectrum prices to begin trending lower, as already has been seen in recent big spectrum auctions in India and the United States. In the big Indian spectrum auction, the auction proceeds were about 11 percent of government projections.

To be sure, there are several compelling reasons for the caution, including a need to deploy capital elsewhere. But potential bidders also recognize they have many more ways to create and use spectrum resources, ranging from small cell architectures and better radios to huge new allocations of millimeter wave spectrum to support 5G networks, plus use of unlicensed and shared spectrum.

That noted, high prices are an impediment to consumer use of mobile data services and a drag on economic growth, a new study sponsored by GSMA suggests.

High spectrum prices negatively impact consumers, while high spectrum prices also can damage economic growth, say researchers at NERA Economic Consulting, in the report. Those findings should not surprise anybody.

Spectrum costs always are incorporated into retail product prices, so high spectrum prices ultimately are paid for by consumers of those services.

A moving average of prices for mobile spectrum over the 2000 to 2016 period shows a U-shaped path. The beginning of the 3G era coincided with the so-called “tech bubble”, which generated huge enthusiasm regarding the potential of 3G data services, the study says.

This was reflected in the very high prices achieved in some early awards, most notably the United KIngdom and German 3G auctions in 2000, which raised $5.30 and $6.90 per MHz/pop respectively.

Subsequently, there was a sharp drop in prices for 3G spectrum, and most awards for the remainder of the 2000s generated modest prices. Since 2008, however, there has been an upward trend in prices, coinciding with the take-off of 4G services, the researchers note. That might now be changing, as suggested by the Indian and U.S. auctions.

“The era of judging the success of auctions based on headline-generating revenue figures is over,” said Brett Tarnutzer, Head of Spectrum, GSMA. “The damage done to consumers –and the wider digital economy – by policies that artificially inflate spectrum prices has been too great.”

“While auctions remain an effective means of awarding spectrum, regulators should adopt spectrum policies that focus on maximising the benefits for society, rather than simply driving up the cost of spectrum,” said Tarnutzer.

Average final prices paid in auctions were found to have risen 250 per cent1 from 2008 to 2016 with the most exorbitant price tags often influenced by policy decisions.

The report highlights four key pricing policy recommendations:

1. Set modest reserve prices and annual fees and rely on the market to set prices;

2. License spectrum as soon as it is needed, so as to avoid artificial spectrum scarcity;

3. Avoid measures that increase risks for operators (e.g. that put the value of their company in jeopardy); and

4. Publish long-term spectrum award plans that prioritise public welfare benefits over state revenues.

High spectrum prices lead to lower quality and reduced take-up of mobile broadband services, the study argues.

“There was a time when it was believed that the cost of spectrum, no matter how high, would not impact consumers through higher mobile bills or reduced investment in networks,” said  Richard Marsden, Managing Director at NERA Economic Consulting. “The academic and empirical research no longer backs this up.”