Edge License Discounts in Cellular Auctions
26 Pages Posted: 20 Jan 2012
Date Written: August 15, 2010
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.
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