Spectrum Valuation and Pricing

Spectrum is a key asset in the mobile industry and its relative scarcity can result in high spectrum valuations and the willingness of mobile operators to pay potentially high prices to acquire or retain spectrum. Understanding the value of spectrum is therefore important for mobile operators in the context of the renewal of existing spectrum assets, the acquisition of new spectrum at auction or through administered processes as well as in the context of acquisitions and mergers and in relation to spectrum trades, spectrum swaps and spectrum leasing.

Telecom regulators are responsible for managing spectrum and often their statutory duties include ensuring that spectrum is assigned in a socio-economically efficient manner. The price charged for spectrum plays a critical role in determining how spectrum is assigned and so understanding the value of spectrum is also very important for regulators. An understanding of the value of spectrum supports regulatory decisions in relation setting annual spectrum usage fees, spectrum auction reserve prices, the prices charged in administrative procedures as well as for spectrum renewals.

Spectrum valuation is a challenging and complex process and more so for regulators as they face an asymmetry of information in relation to the values placed on spectrum by mobile operators.

The two most common approaches to spectrum valuation are spectrum auction benchmarking and detailed, bottom-up business modelling combined with discounted cash flow analysis.

Spectrum auction benchmarking

Coleago has been maintaining a proprietary spectrum auction database since spectrum auctions were first introduced into the industry. Our database contains the results of hundreds of spectrum auctions which can be used to infer the value of spectrum in other markets. Our spectrum auction benchmarking tools make relevant adjustments to the raw price information to increase their relevance for the target market. Spectrum auction benchmarking is a useful tool for operators and regulators to validate spectrum prices and values. Whilst the process is relatively quick to perform, it cannot fully take account of the unique circumstances in a particular market.

Detailed, bottom-up business modelling

A detailed, bottom-up business modelling based approach to spectrum valuation is the method used by nearly all operators when considering a significant investment in new or existing spectrum. A business modelling based approach can take full account of all the unique features of a specific market and a mobile operator’s network in order to produce ‘investment grade’ valuations in which senior executive management teams, investors and shareholders can have confidence.

Coleago has been at the forefront of spectrum valuation for 25 years and has been continually evolving and improving our methodology, approach and business modelling tools to ensure that we can provide the highest level of confidence in the values of spectrum we estimate. Our approach is based on developing long-term forecasts of 10 to 15 years or more in which we take account of all the key drivers of spectrum value. These drivers include device diffusion, customer traffic levels, technology evolution and capacity upgrade paths as well as spectrum re-farming, network and spectrum sharing and the valuations must also take account of the regulator’s future spectrum roadmap.