Spectrum Valuation: Implications for Sharing and Secondary Markets

Abstract

How much is electromagnetic spectrum worth? Appropriate metrics and methodologies for valuing spectrum help policymakers, network operators, service providers, and end-users in planning wireless-related investment and in ensuring that spectrum resources are used efficiently. Secondary markets have often served to provide publicly observable, market-based valuation metrics, but in the case of spectrum, these are under-developed and segmented, limiting the availability and comparability of market transactions as indicators of spectrum value. Furthermore, the continued growth in wireless services and networks of all types and further advances in wireless technologies enabling more dynamic and granular spectrum sharing are transforming the supply and demand conditions for RF spectrum. Today, the most common metric for valuing spectrum resources is $/MHz-POP, derived from dividing the value of a spectrum transaction by the total population in the coverage area of the license times the bandwidth (in MHz). Traditionally, spectrum value has been observed in spectrum auctions, M&A transactions involving the transfer of spectrum usage rights, or from infrequent secondary market activity. This was a viable approach when the fungibility of spectrum resources was limited by technical, market, and regulatory factors that constrained the commodification of highly differentiated spectrum resources and limited the potential for dynamically reallocating, substituting and transferring spectrum rights via markets. With increased opportunities for spectrum sharing, the transition to 5G, smaller cell architectures, and the emergence of IoT, new spectrum usage patterns are arising and enabling more granular, multi-dimensional, virtualized spectrum management (in terms of frequency, location, time, etc.). In a world of increasing spectrum sharing, dynamic spectrum access, and commercial applications of higher frequencies for wireless service, $/MHz-POP may be an increasingly noisy indicator of spectrum value. In this paper, we consider how changing technology, markets and policy are enabling the commoditization of spectrum resources and explore what that implies for traditional spectrum value metrics that are used to project auction proceeds and value spectrum transactions.