Spectrum Prices are Falling, Finally

Supply and demand does matter: increase supply and prices fall; decrease supply and prices climb. The same happens with demand. It does not matter whether the commodity is mobile spectrum or college tuition.

If ways to multiply the use of any discrete amount of spectrum multiply; if ways to use fair amounts of spectrum without a license become possible; if the physical supply of spectrum grows substantially and the cost of using small cell architectures grows, we should expect

lower spectrum prices.

To make an analogy, spectrum is beachfront property, but we are making more beach. Over the past few years, some have worried about the cost of 5G spectrum, although spectrum prices are dropping, generally speaking, in part because there is a huge increase in supply, and because mobile operators must now more carefully weigh the cost of new spectrum against expected financial return.  

Also, firm strategies now vary. Some firms believe use of unlicensed spectrum will be more important. Others substitute small cells for additional spectrum. Some need additional spectrum more urgently than others, based on present holdings.

On the demand front, if it becomes clear that revenue per bit continues to decrease, then the ability to wring revenue out of any fixed amount of spectrum decreases as well.

Mobile and fixed network internet data consumption is unlike that of voice in one key respect: revenue and usage are not linear. In the past, consumer and business usage tended to be priced “by the minute of use.” Use more; pay more.

Internet access tends to be priced less linearly: either a fixed price for unlimited usage; or a fixed price for some amount of usage. In the former case, the correlation between usage and revenue is quite imprecise; in the latter case is a statistical matter. Customers buy the right to use a certain amount of access, but the actual revenue per byte for the supplier depends on actual behavior.

Demand also is affected by the fact that early adopters tend to spend more than later adopters. That applies to whole regions and countries as well as between regions and countries. Later adopters are lighter users, either for behavioral reasons (they use the internet less) or for cost reasons (they have less money to spend on internet access).

The big takeaway is that we should expect spectrum prices to fall, as demand increases dramatically.