Spectrum Economics

Spectrum Pricing

The modern capitalist economics argument is that he who most values the spectrum is likely to be the one who is prepared to pay the most for its use. Conversely, by charging a fair price in a competitive market, the regulator can implement various strategies which encourage efficient allocation. An example is in charging more for fixed links in the upper UHF region. In this case, only those who really need the greater propagation distance offered by UHF will apply for licences there. Others will be happy to use SHF.

Many argue that spectrum should be auctioned. Where the number of allocations (or allotments) is small and where the price is unknown, auctions are effective and the design of auctions is a science in itself. Sometimes also, local laws preclude such free-market approaches. Spectrum used in a competitive market can be priced using the principles of opportunity cost. The law of demand applies and price and quantity are inversely related.

For any communications network, an increment of spectrum can be withdrawn from use and the effect of this modelled. Generally the response is to add infrastructure to the network. This costs money and hence that spectrum increment is worth that incremental cost increase and multiplying up gives a price per MHz.

Some spectrum uses disobey the law of demand. The demand is fixed regardless of any price the regulator fixes. Examples are in ships and aeroplanes where international law dictates spectrum use. In this case, the price charged is usually the cost needed to

InterConnect Communications has aided many regulators in understanding spectrum economics and in subsequently setting spectrum fees charged for public mobile networks, fixed links and all the other spectrum services.