Study Detangles How Spectrum Attributes, Restrictions Affect License Value
Contact: Amy Smorodin
January 24, 2013 – Spectrum license values have steadily increased over the past five years, explains Scott Wallsten in “Is There Really a Spectrum Crisis? Quantifying the Factors Affecting Spectrum License Value.” From 2007 to 2011, spectrum auction prices in terms of dollars per MHz-pop increased, suggesting that demand for wireless services outpaced technological improvements in spectrum usage. Therefore, Wallsten advises, “The FCC and NTIA should continue to move spectrum into the market and ensure that spectrum already available be able to move smoothly and efficiently through secondary transactions.”
Using data from Federal Communications Commission spectrum auctions since 1996, Wallsten, Vice President for Research at the Technology Policy Institute, analyzes how physical characteristics, institutional factors, demand, and technological change separately affect the value of spectrum licenses. In analyzing what factors make spectrum more valuable, and by how much, “it may highlight economic gains that come from reallocating spectrum to that use or, better yet, simply removing use restrictions.”
In addition to identifying that spectrum license prices increased, he finds that all else equal, when comparing values in dollars per MHz-pop:
- Licenses that allow broadband are most valuable, and those that allow only television or paging are the least valuable. License flexibility-the ability to use spectrum for multiple purposes including broadband, increases spectrum value.
- Nationwide licenses are the least valuable by geographic type, probably because those licenses include low value areas.
- More bandwidth in a license is correlated with lower spectrum auction prices in dollars per MHz-pop. This finding challenges conventional wisdom, but may reflect discounting due to longer buildout times before the provider can earn a return on all the spectrum.
- Licenses with paired spectrum are approximately twice as valuable as unpaired spectrum.
- Economic policy uncertainty is negatively correlated with the license value.
- Carrier-specific factors, such as cheaper access to capital and existing spectrum holdings, can also affect the value of spectrum licenses. Firms with more spectrum per subscriber tend to pay less for spectrum than firms with less spectrum per subscriber, meaning that AT&T and Verizon tend to pay more than other carriers.
“These results are not surprising,” Wallsten concludes, “but emphasize the economic costs of artificially restricting the supply or use of spectrum, the complex interplay of factors that affect spectrum license value, and the importance of making long-term credible regulatory commitments.”
“Is There Really a Spectrum Crisis? Quantifying the Factors Affecting Spectrum License Value” is available on the TPI website.
The Technology Policy Institute
The Technology Policy Institute is a non-profit research and educational organization that focuses on the economics of innovation, technological change, and related regulation in the United States and around the world. More information is available at https://techpolicyinstitute.org/.