Spectrum value

Abstract

Radio spectrum is a scarce resource; understanding its economic value is one piece of information needed to manage it efficiently. Estimating the value of radio spectrum, however, creates significant challenges not found in valuing some other assets. Spectrum is somewhat of a special case; market transactions provide a basis for valuation, but almost always require significant adjustments. Some adjustments are best made using discounted cash flow (DCF) analysis or econometric evidence. A review of past work on spectrum valuations suggests that focusing on a single valuation technique leaves critical information about spectrum value unused.This paper presents the theoretical underpinnings of spectrum value, and describes how these principles of spectrum value manifest in various empirical applications. Similar to most scarce resources, the value of spectrum is determined by the value generated by its deployment. This concept is typically understood as economic rent. In the case of radio spectrum, economic rent can be thought of as having two components: a sea level spectrum value driven by the general profitability of spectrum based services, and band or license specific adjustments to spectrum value due to band or license specific characteristics. Clarity about these different sources of value can inform how to apply traditional valuation techniques in a hybrid approach to spectrum valuation. The key is to capture the useful information from disparate and incomplete valuation methodologies and then combine them in a meaningful and structured manner. We then demonstrate these proposed valuation techniques empirically.