Sunk Cost Analysis of Frequency Spectrum Auction Prices in Indonesia Using Data Envelopment Analysis

Siti Kurnia Rahayu Siti Kurnia Rahayu,Aju Widya Sari

doi:10.15549/jeecar.v9i1.879

Siti Kurnia Rahayu Siti Kurnia Rahayu, Aju Widya Sari

Open Access

https://doi.org/10.15549/jeecar.v9i1.879

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Abstract

The purpose of this study is to investigate the sunk cost argument on the auction price of the frequency spectrum by measuring the efficiency of the frequency license fee paid by the auction winner. The efficiency method employs a nonparametric approach, namely Data Envelopment Analysis (DEA) with the Linear Programming method, with the hypothesis model tested using Path Analysis. The dataset under consideration was Indonesia's Big Three Service Providers (2015-2020). The results show that the spectrum auction price is efficient in its impact on service prices, revenues, and income taxes. The spectrum auction price has no effect, lending credence to the argument that the spectrum auction price is considered a sunk cost in the telecommunications industry. The research reason is that the higher the auction price, combined with the lower cost of service due to high competition, the harder it is for small businesses to win the auction. The winning bidder will remain under the control of the prominent organizers, so the government issues a merger policy for small businesses to compete in spectrum auction bids.

Highlights

Since frequency spectrum is a natural resource with an economic potential that is inexhaustible, limited, non-renewable and ever-increasing demand, it is critical to use it efficiently and responsibly (ITU-R, 2018)
This study aims to collect all data on Spectrum License Fees charged by Service Providers, Service Prices (Tariffs) charged to service consumers, and Taxes paid by Service Providers in Indonesia
The testing of hypotheses for the research model shows that the frequency license fee has no effect on capital expenditure as a measure of the operator’s investment

Summary

Introduction

Since frequency spectrum is a natural resource with an economic potential that is inexhaustible, limited, non-renewable and ever-increasing demand, it is critical to use it efficiently and responsibly (ITU-R, 2018). Spectrum management by regulators must consider the impact of spectrum licensing fees on the telecommunications sector’s viability. When combined with Income Taxes, Value Added Taxes, regulatory fees, and other fees; Exorbitant Spectrum Licensing Fees can harm growth opportunities and investment levels (ITU, 2016). It is critical to consider this policy through planning that utilizes appropriate market-based methods following the goals of economic efficiency and adequate operational funding (ITU, 2016). Based on the experience of several countries, the auction method is the best frequency spectrum allocation method, where this method can determine the license winner who is considered able to use the spectrum effectively and efficiently to increase state revenues (ITU-R, 2018).

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