In Business Model, Internet Access, Mobile, Spectrum

“The top priority for spectrum auctions should be to support affordable, high quality mobile services,” the GSMA, a major mobile industry trade group argues. While noting that auctions are not always the best way to commercialize spectrum, they have generally proven more effective than administrative awards and lotteries.

But some auction designs are more productive than others, GSMA argues. Failed policies in the past have included requirements for high reserve prices, artificial spectrum scarcity and auction rules which prevent price discovery or flexible bidding.

With the caveat that spectrum is a primary cost of doing business for any mobile operator, and therefore the industry would want the lowest-possible costs for this input, GSMA also argues that “actions designed to maximize state revenues risk serious harm to consumers.”

It does appear that spectrum prices are falling, for a number of reasons. Supply and demand does matter: increase supply and prices fall; decrease supply and prices climb. Huge amounts of new spectrum are being made available to support 5G. Also, new ways of sharing spectrum and aggregating spectrum are being commercialized, all of which effectively increase supply.

The same happens with demand. It does not matter whether the commodity is mobile spectrum or college tuition. The increase in ways to create capacity (network architecture such as small cells, aggregating Wi-Fi spectrum, sharing spectrum, using 4G and 5G simultaneously) also means mobile operator spectrum scarcity is less than it used to be.

Less scarcity means lower prices.

If ways to multiply the use of any discrete amount of spectrum multiply; if ways to use fair amounts of spectrum without a license become possible; if the physical supply of spectrum grows substantially and the cost of using small cell architectures grows, we should expect lower spectrum prices.

To make an analogy, spectrum is beachfront property, but we are making more beach. Over the past few years, some have worried about the cost of 5G spectrum, although spectrum prices are dropping, generally speaking, in part because there is a huge increase in supply, and because mobile operators must now more carefully weigh the cost of new spectrum against expected financial return.  

Also, firm strategies now vary. Some firms believe use of unlicensed spectrum will be more important. Others substitute small cells for additional spectrum. Some need additional spectrum more urgently than others, based on present holdings.


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