Valuing Spectrum: From DC to Daylight
Posted: 1 Apr 2014
Date Written: March 31, 2014
Spectrum is a valuable asset. While recent discussions have focused mostly on the value of a relatively narrow range of commercially attractive frequencies, essentially all radio frequencies have value. Moreover, depending on the specific rules of an assignment, the actual commercial value may differ — sometimes quite dramatically — from the highest marginal valued use. Focusing on radio spectrum in the United States, this paper will value both the marginal and total economic values across the entire radio spectrum.
We will first estimate the marginal commercial value of spectrum across the continuum of frequencies. The marginal commercial value of any spectrum band is what it would be worth if it were put to its highest valued commercial use. This marginal value essentially measures the opportunity cost of the given or proposed spectrum use. The difference between this marginal value (based on the highest valued use) and the actual value is the foregone value that is the cost of allowing a band of spectrum to be allocated for a particular use.
To develop this mapping of marginal spectrum values, we will rely on market transactions to value particular commercial “anchor” spectrum assignments. We will then adjust these anchor valuations for frequency and other license characteristics to provide approximate valuations of what all bands of spectrum would sell for if license rules were fully flexible and absent of coordination problems. This approach will be similar to spectrum valuation techniques previously implemented to value target spectrum bands.
A separate, but related, issue is the economic value of the existing stock of radio spectrum allocations and assignments. To assess this value, we will first estimate the amount of economic value created in the U.S. economy that relies on radio spectrum as an input. From there, we will estimate the contribution of the radio spectrum to that total value, yielding estimated asset values for the stock of radio spectrum in commercial use. Finally, we can leverage these estimates to calculate the value of radio spectrum in all uses.
These value estimates can serve many purposes. Simply understanding the marginal and total economic value generated by the stock of spectrum licenses is a useful illustration of the importance of wireless telecommunications policy. Changes in spectrum value can be an important input into policymakers’ decision making process. Recognizing the difference between the marginal and asset value of a particular band is also useful in identifying what spectrum might best be reallocated to a higher valued use — that is, identifying bands with the greatest gains from trade. The marginal and economic values of spectrum bands could also be used to set fees for Federal spectrum users, as suggested in prior research. As a final step, our analysis will illustrate how the approaches used in this paper could be used to calculate spectrum fees for Federal users.
Keywords: Spectrum, Spectrum Valuation, Wireless, Economics, Telecommunications
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