Introduction

The way renewal prices are set will shape network investment levels, technological evolution, competitive outcomes and the quality of connectivity that users experience for decades.

When spectrum is originally assigned, if a well-designed and competitive auction can be established, this is often considered best practice and provides a mechanism for price discovery to establish the appropriate price for spectrum. However, in the case of renewal, best practice suggests that auctions are only appropriate in relatively rare circumstances and that some form of administered assignment is usually more appropriate. Even where the use of auctions may be justified, it may be difficult to design a suitable auction that will exhibit sufficient competitive tension to allow for an efficient outcome and effective price discovery. Where auctions are likely to be ineffective or simply not appropriate, the challenge of establishing an appropriate price for renewal falls to the regulator.

An approach often adopted by regulators is to rely on spectrum auction benchmarking and to seek to develop renewal prices with reference to the outcomes of spectrum auctions in other markets. Recent renewal process in the United Kingdom and Australia have highlighted the challenges of relying on historic spectrum auction outcomes. Many spectrum bands have seen a declining price trend and so relying on spectrum auction prices risks potentially over pricing spectrum. Furthermore, benchmarking represents a ‘blunt instrument’ that cannot take account of the nuances of a specific market. It is therefore not surprising that spectrum auction benchmarking is increasingly being challenged as an appropriate method for determining spectrum renewal prices.

This paper sets out an approach to spectrum valuation and pricing that is grounded in economic efficiency and practical policy realities. It combines the established economic principle of opportunity cost with the broader considerations that governments, regulators and operators inevitably face. It addresses political constraints and provides a pragmatic framework that can be applied in markets with differing structures and policy objectives to provide a guide to appropriate spectrum renewal prices.

The Purpose of Spectrum Licence Renewal Pricing

Spectrum renewal is not just an administrative procedure; it is a strategic policy intervention which must carefully balance multiple competing objectives:

  • efficient spectrum use – ensuring operators hold only the spectrum they need and use it productively;
  • sustained investment – supporting long‑term network quality, coverage improvements and innovation;
  • competitive markets – maintaining conditions for rivalry, choice and fair access to spectrum resources;
  • policy and societal goals – including rural coverage, economic inclusion and national digital strategies; and
  • government revenue – recognising fiscal considerations without allowing them to undermine sector health.

Historically, many countries prioritised the last objective. More recent experience shows that prioritising efficiency and a favourable environment for investment creates better long‑term societal and economic returns. A renewal framework grounded in the socio-economic value of spectrum, rather than fiscal maximisation, supports this balance.

Opportunity Cost as the Foundation and Its Limits

The opportunity cost of spectrum is defined as what another operator would rationally be willing to pay for a small, usable portion of the incumbent’s holding. In a competitive market, this aligns with the price that would emerge in an efficient and competitive auction.

This principle is the foundation of Administered Incentive Pricing (AIP) and is widely regarded as the most economically sound method for renewal valuation when the use of auctions is not appropriate or simply not possible.

However, opportunity‑cost pricing rests on several important assumptions:

  • there is credible competition in the market;
  • rival operators value marginal spectrum similarly;
  • spectrum holdings are not extremely imbalanced; and
  • markets allow trading or auctions that reveal information about relative valuations.

In markets with limited competition, highly asymmetric holdings or dominance by a single operator, the opportunity cost may be affected in ways that do not reflect true economic value. Any rigorous renewal framework must therefore explicitly consider market structure when interpreting opportunity cost results.

The Role of the Optimised Deprival Value (ODV) Methodology

Where markets lack sufficient competitive signals, governments often rely on economic modelling to estimate spectrum’s marginal value. The Optimised Deprival Value (ODV) method offers a useful and transparent framework.

The method compares two scenarios:

  • the operator retains its expected spectrum portfolio for the next licence term; and
  • the operator is deprived of a small block of spectrum.

By calculating the difference in discounted network costs, accounting for densification, refarming, technology upgrades and operational impacts, the model reveals how valuable each band is in practical terms.

This marginal approach reflects the propagation advantages offered by lower-frequency sub-1 GHz spectrum, the vital role that mid band (1 to 7 GHz) spectrum plays in providing urban network capacity, as well as the limited but sometimes significant part played by higher mmWave frequencies.

An ODV model however is only as credible as its assumptions. Results are highly sensitive to:

  • traffic forecasts and elasticity assumptions;
  • realistic, not theoretical, technical performance gains;
  • device ecosystem maturity and timing;
  • vendor and cost‑structure assumptions;
  • spectrum migration roadmaps; and
  • economic parameters such as discount rates.

A robust valuation framework must test the ODV model under different scenarios, publish assumptions transparently and allow for uncertainty ranges rather than relying on a single point estimate.

Acknowledging Political and Practical Realities

Although opportunity‑cost and ODV methods are economically rigorous, governments face wider institutional and political issues. These include:

  • Pressure to generate revenue during fiscal cycles
  • Concerns about leaving “money on the table”
  • Public visibility of licence‑renewal decisions
  • Historical reliance on spectrum fees as a non‑tax revenue source

A valuation framework that ignores these factors may not be adopted in practice. Instead, a balanced approach recognises revenue considerations while demonstrating, through evidence and modelling, that overpricing leads to reduced investment, slower coverage improvements and ultimately lower long‑term fiscal returns.

While high renewal fees often correlate with reduced investment, this relationship is not strictly linear. In some markets, strong competition or large addressable demand has sustained investment despite high spectrum prices. Conversely, in smaller or more fragile markets even moderate overpricing can undermine network development.

A credible renewal framework should therefore:

  • Consider the financial resilience of operators
  • Assess levels of competition and investment
  • Evaluate the Total Cost of Ownership (TCO) not just the renewal fee
  • Examine whether operators can absorb costs without compromising quality

By evaluating the likely investment impact, policymakers can identify spectrum price levels that risk undermining the health of the sector.

Total Cost of Ownership (TCO) is Often Overlooked

The renewal fee is only one part of the burden faced by operators. A full valuation must consider:

  • annual spectrum usage fees;
  • licence compliance and reporting obligations;
  • technology and coverage requirements;
  • rural‑coverage or social‑value obligations; and
  • regulatory requirements tied to national digital priorities.

If the effect of these obligations exceeds the productive economic value of spectrum, operators may defer network investment, delay technology adoption or reduce service quality. Policymakers should therefore calibrate renewal fees within the broader total cost of ownership.

Other Government Policy Objectives that Need to be Considered

Modern spectrum policy is increasingly tied to broader government goals. A credible renewal framework should explicitly account for:

  • rural broadband and universal‑service ambitions;
  • digital inclusion priorities and social tariffs;
  • industrial policy and innovation objectives; and
  • climate and energy‑efficiency targets.

These factors may justify renewal frameworks that:

  • offer reduced renewal fees in exchange for greater coverage;
  • extend licence terms to encourage long‑term investment;
  • provide flexibility regarding technology upgrades; and
  • allow spectrum trading and sharing to improve efficiency.

Understanding these objectives ensures spectrum valuation and pricing supports but does not conflict with national development goals.

The Importance of Licence Duration and Certainty

The value of spectrum, and hence the price that it should attract, also depends on:

  • the licence term;
  • renewal certainty and process transparency; and
  • flexibility to trade, lease or re-farm spectrum.

Long, predictable licence terms reduce investment risk and increase operators’ willingness to deploy capital. Conversely, uncertainty or short licence terms increase investment risk and raise the cost of capital. Some countries such as the USA, Canada and Finland have perpetual licences and the EU’s proposed Digital Network Act proposes perpetual licences by default, or at least 40 years where limited terms are used.

A regulator’s spectrum management policy should therefore include a clear, consistent and transparent renewal policy thereby reducing regulatory risk for operators and investors.

Conclusion: A Framework for Sustainable Spectrum Licence Renewal

Spectrum is the lifeblood of modern mobile connectivity. Its value is realised not in the renewal fee collected but, in the networks built, the innovation enabled and the societal benefits delivered over the licence term.

A credible renewal valuation framework combines:

  • economic discipline using opportunity cost and ODV to estimate the true marginal value;
  • real‑world considerations recognising market structure, political‑economy constraints and operator financial resilience;
  • policy alignment incorporating national digital goals, social objectives, licence certainty and total cost of ownership; and
  • transparency and predictability thereby reducing regulatory risk.

When these elements come together, spectrum renewal becomes an instrument for sustained investment, competitive markets and long‑term digital prosperity.

Summary: How to Value Spectrum at Renewal

A flexible but robust approach to spectrum valuation and pricing is essential.

  • estimate opportunity cost, recognising market‑structure limitations;
  • use ODV modelling to quantify marginal network impacts under transparent, stress‑tested assumptions;
  • consider total cost of ownership, not just the renewal fee;
  • incorporate broader policy objectives like coverage, inclusion and sustainability;
  • ensure licence terms, certainty and regulatory flexibility reflect the need for long‑term investment; and
  • balance economic efficiency with practical policy realities and spectrum revenue expectations.

This framework delivers prices that support efficient spectrum use, encourage investment and align with national policy goals.

Spectrum Licence Renewal Advisory Services

Coleago can support both regulators and operators through the challenges of navigating the renewals process. We can provide support in relation to policy, best practice, consultations and spectrum valuation and pricing.

About Coleago Consulting Ltd

Founded in 2001, Coleago is a specialist telecoms strategy consulting firm which advises regulators and operators on issues relating to spectrum, regulation and network strategy. Our project teams consist of partner-level consultants, each with at least 20 years’ sector experience.

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