The Spectrum Crunch is Dead, Long Live Spectrum Demand
14 Pages Posted: 24 Jun 2015 Last revised: 9 Jul 2015
Date Written: July 8, 2015
The assessment of future mobile data and spectrum demand is an important policy and business strategy question. The orthodox approach to these linked questions starts from a mobile data traffic projection to infer spectrum demand and value. However, future mobile data demand is uncertain, and spectrum demand and value is sensitive to data demand, since under the orthodox approach either there is a spectrum surplus or a spectrum crunch.
We explore an alternative “bootstrap” approach where mobile data demand and spectrum value are determined simultaneously, without the need for a data traffic forecast. The equilibrium is determined within the model as a function of underlying supply and demand side assumptions. Spectrum demand is found to be less sensitive to supply side assumptions including existing spectrum availability, since an increase in capacity stimulates data demand.
The bootstrap approach eliminates the “spectrum crunch”, replacing it with an economic concept of spectrum demand -- spectrum value as a function of spectrum availability. The bootstrap model can be used to explore a richer set of strategy and policy questions than the orthodox approach, including the sensitivity of data and spectrum demand to changes in willingness to pay for data.
Keywords: Spectrum value, mobile data, spectrum crunch
JEL Classification: D40, K23, L50, L96, O33
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