Edge License Discounts in Cellular Auctions

26 Pages Posted: 20 Jan 2012

See all articles by Jean Pierre De Vries

Jean Pierre De Vries

University of Colorado at Boulder Law School - Silicon Flatirons Center

Cheng-Yu Chan

affiliation not provided to SSRN

Date Written: August 15, 2010

Abstract

The risk of interference from operations in adjacent channels has been largely ignored in estimating the value of radio licenses. This is surprising since adjacent channel and out-of-band interference have figured prominently in recent license conflicts, including public safety vs. Nextel in the 800 MHz band, WCS vs. satellite digital radio, interference between AWS-1 base stations and Broadcast Auxiliary Service receive stations, and disputes over AWS-3 rules.

This work analyzes the impact of cross-channel interference risks on the prices paid at auction for cellular licenses. We test the hypothesis that “edge” licenses (those frequency blocks at the lower or upper edges of an auctioned band) sell at a discount to “inside” licenses (auction blocks surrounded by other auction blocks).

We first build a composite linear regression model to account for winning bid results in auctions 4, 5, 58, 66, 71 and 73. We then analyze the price difference between edge and inside licenses for the same geographic market and with the same bandwidth for specific blocks in auctions 4, 58, 66 and 73. The hypothesis that there would be a discount for edge vs. inside blocks is not borne out in general. The composite model auctions shows an edge discount of about 20%, but this was due to the influence of auction 73, which shows a discount of about 50%; the remaining auctions do not have a discernible discount.

We speculate that bidders have ignored and even under-estimated the risk of cross-channel interference. When incoming interference is absent at the time of auction, there serene confidence that no edge discount is warranted – confidence that has not been borne out by experience in the AWS-1 A and F blocks. On the other hand, when strong interferers are present for a few markets, as in the auction 73 A block, there is a dramatic discounting of all edge licenses, not just the ones affected by current transmissions.

As more closely packed concurrent operations become the norm, one can expect marked discounts for edge blocks in future auctions.

Suggested Citation

De Vries, Jean Pierre and Chan, Cheng-Yu, Edge License Discounts in Cellular Auctions (August 15, 2010). TPRC 2010. Available at SSRN: https://ssrn.com/abstract=1988429

Jean Pierre De Vries (Contact Author)

University of Colorado at Boulder Law School - Silicon Flatirons Center ( email )

1070 Edinboro Drive
Boulder, CO 80309
United States

Cheng-Yu Chan

affiliation not provided to SSRN

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