The New Spectrum Value

Posted: 31 Mar 2017

Date Written: March 31, 2017

Abstract

Spectrum is not inherently valuable. Rather, its value derives from the uses that can be made of it. It is generally accepted that for exclusively licensed spectrum, its value is a form of rent where the willingness to pay for access to any specific set of frequencies is based on the profits that can be made from those frequencies. The value of spectrum changes over time as expectations about the future profitability of deploying given frequencies changes.

Historically, there are several well established patterns of spectrum value. Frequencies that cost less to deploy tend to be more valuable. For example, harmonized frequencies with established ecosystems or lower frequencies at a time when coverage is the focus of most networks tend to be worth more. Also, frequencies in geographic areas that are expected to generate more revenues — and ultimately profits — such as in cities are also more valuable than frequencies in lower population density areas. The historical understanding of spectrum value, however, has generally been with the backdrop that roughly the same number of MHz is allocated everywhere. This understanding will no longer hold going forward with the deployment of 5G networks in the near future.

A distinguishing feature of 5G network architecture will be the integration of higher frequency spectrum into mobile networks. These higher frequencies will mainly be deployed in urban centers because the very short reach of each transceiver will only be justified in the highest demand areas. This new network configuration will upend the historical understanding of spectrum value in two ways.

First, by allocating significantly more spectrum that will be deployed in cities, the historical relationships of urban to rural spectrum value will change. In essence, the new 5G architecture will allow for flooding the urban centers with spectrum, but without adding any significant new capacity to rural areas. This should decrease the relative value of urban spectrum when compared to rural frequencies.

Second, by greatly increasing the capacity of urban networks (or, equivalently, lowering the cost of capacity in cities) 5G is expected to significantly increase the demand for wireless connectivity. The impact of urban-centered greater capacity/lower cost networks is expected to lead to increases in uses and, likely, new uses that leverage the higher capacity networks.

The net impact of the new 5G architecture on overall spectrum values is uncertain. On the one hand, the increased supply in cities should put downward pressure on the rents earned from controlling licensed spectrum. On the other hand, the higher demands for wireless connectivity should put upward pressure on the value of non-urban areas that must rely on more traditional macro networks to meet growing demand. This paper will model these two competing effects and lay out the conditions for when the demand increasing (and value enhancing) effects of 5G outweigh the value decreasing effects from increased supply of spectrum in urban areas.

Suggested Citation

Bazelon, Coleman, The New Spectrum Value (March 31, 2017). Available at SSRN: https://ssrn.com/abstract=2944262

Coleman Bazelon (Contact Author)

The Brattle Group ( email )

44 Brattle Street
3rd Floor
Cambridge, MA 02138-3736
United States
202-955-5050 (Phone)

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