International Journal of Scientific Engineering and Technology

Volume No.5 Issue No.1, pp: 81-84

ISSN:2277-1581
01 Jan.2016

Mobile Spectrum Value and Reserve Price by using Benchmarking

Approaches
Settapong Malisuwan
Wassana Kaewphanuekrungsi and Dithdanai Milindavanij
Corresponding Email : puiwassana@gmail.com
Abstract: Mobile communications spectrum is a scare and
essential resource as it is required to satisfy customer demand
for telecommunications. It has one of the countrys highest
economic
values.
Therefore
it
is
critical
that
telecommunications regulatory commissions find choose a
suitable approach to estimate the value of available spectra.
Spectrum value estimation models range from simple to
complex and some of these estimation approaches may require
an extended period of time. This paper aims to analyze and
review mobile spectrum value and reserve price by
benchmarking approaches. A case study on 1800 MHz
benchmarks of absolute value approach in Asia Pacific in
discussed in this paper. Moreover the relative value ratios of
frequency bands are explained.
Keywords: Mobile, Spectrum value, Reserve price,
Benchmarking.
I. Introduction
In some countries, spectrum is not a private tradable good and
so there is no spectrum market that can be referred to provide a
fair market price that could be used by government for pricing
spectrum licences. It is necessary therefore to derive estimates of
spectrum value from either modeling and/or previous auction
results. There is considerable uncertainty in deriving such
estimates. This uncertainty arises because licences have a long
duration (15 years or more in general), and so forecasts of the
future are required to derive estimates. Furthermore bidders
valuations are based on private information that only the bidders
themselves know [1].
Regulators in some countries have faced similar issues when
setting reserve prices. They have tended to set reserve prices
based on conservative estimates of spectrum value and used a
mix of approaches including benchmarking and/or bottom-up
modeling when deriving values, in order to provide a sense check
on any estimates.
In general, regulators start from the premise that rational
bidders should not pay more than the net present value of future
cashflows from use of the spectrum (full enterprise value). Also
rational bidders should be willing to pay more than the
infrastructure costs saved from having an incremental lot of
spectrum (cost reduction value).

II. Reserve Price

Reserve prices provide starting prices for different lots in an
auction and so they are not an estimate of the value that might be
achieved by an auction. There is an inherent degree of uncertainty
over the expected value of the spectrum because this is
determined by bidders expectations of markets and regulation
over the next 15-20 years. Reserve prices should therefore be set
below the expected value; otherwise potential bidders may be
deterred from entering the auction (and so reduce competition in
the auction) and there is a risk spectrum may be left unsold. If
spectrum is left unsold significant societal and consumer benefits
will be lost [6].
Normally, efficiency is the primary objective for a spectrum
auction. There are also secondary objectives of competition,
transparency and market development, and a tertiary objective of
raising revenue for government. The implications of each of these
objectives for the level of reserve prices is summarized in Table
1.
Table 1: Impact of auction objectives on level of reserve prices

Efficiency

Reserve price
up or down
Down

Competition

Down

Transparency

No impact

Full
enterprise

Market
development

Down

Value

Government
revenue

Up

International
auction
values
Reserve
price

An auction price would be expected to lie in the range

between the full enterprise value and the cost reduction value for
the marginal bidder. International auction values might fall
between these values but could be outside this range, depending
on whether the market situation in that country is comparable to
that elsewhere. The situation is illustrated in Figure 1 [2].
A judgment is then required about an appropriate range for
spectrum values and reserve prices taking account of the
proposed form of the auction.

Auction price

Cost
reduction

value

Figure 1: Ranges on spectrum value

doi : 10.17950/ijset/v5s1/117

Objective

Comments/qualifications
Set at a low but non-trivial level
to deter collusion and trivial bids,
but not so high as to deter bidders
or leave spectrum unsold.
Low
reserve
prices
can
encourage entry in the auction
Reserve price will be published
and this meets the transparency
objective.
Lower prices encourage entry
and help ensure all spectrum is
sold
Price should not be set too high
otherwise spectrum may be
unsold and revenues may be
reduced.

As can be seen, the overall message is to set reserve prices

above trivially low levels but not so high as to deter serious
bidders and potentially leave spectrum unsold. To avoid this
outcome it is necessary to understand the value of the spectrum to
potential bidders.
Page 81

International Journal of Scientific Engineering and Technology

Volume No.5 Issue No.1, pp: 81-84
Efficiency means that all the spectrum is sold and is assigned
to those operators that value it the most. The release of spectrum
has the potential to release large benefits to consumers and
society in general from the offer of new and better quality
services, sometimes at lower prices than would otherwise apply.
These benefits are typically very large as compared with
revenues raised from spectrum auctions [3].
The reserve price is the minimum amount at which the
government will sell the spectrum. Reserve prices play multiple
roles in auctions. They provide starting prices for different lots in
an auction and as such they are not an estimate of the value that
might be achieved by an auction. If set at a non-trivial level
reserve prices may deter collusion between bidders and thereby
promote competition in the auction. Reserve prices should be set
below the expected value of the spectrum to potential bidders,
otherwise they may deter bidders from entering the auction (and
so reduce competition in the auction) and/or reduce demand from
those that do participate in the auction. The higher the reserve
price, the greater the risk of spectrum being left unsold. Unsold
spectrum is an undesirable auction outcome because of the loss
of economic benefits from spectrum being left idle6. Hence
setting reserve prices involves a trade-off amongst different risks.
Reserve prices must also be set taking account of the overall
auction objectives, namely efficiency, competition, transparency,
market development and government revenues.
As can be seen, the overall message is to set reserve prices
above trivially low levels but not so high as to deter serious
bidders and potentially leave spectrum unsold. While the product
of the reserve price and the quantity of spectrum to be auctioned
may be thought of as giving minimum revenue that government
will raise this will only be the case if all the spectrum offered at
auction is sold. This does not always happen; for example in
recent auctions in Australia, India and Portugal reserve prices
were too high and spectrum was left unsold. To avoid this
outcome it is necessary to understand the value of the spectrum
to potential bidders. It is for this reason the telecom regulator
needs to examine international auction benchmarks (in this part).
In some countries spectrum is not a private tradable good and
so there is no spectrum market that can be referred to provide a
fair market price that could be used by government for pricing
spectrum licences. It is necessary therefore to derive estimates of
spectrum value from either modeling or previous auction results
(from other countries). There is considerable uncertainty in
deriving such estimates. This uncertainty arises because (a)
licences have a long duration (15 years or more) which means
forecasts of the future are required to derive estimates, and (b)
bidders valuations are based on private information that only the
bidders themselves know.
The future development of mobile communications is highly
uncertain particularly given the rapid pace of technology change
and the influence of policy decisions regarding future spectrum
release and sector regulation. Bidders may have different
expectations concerning these policy factors as well as different
business plans and expectations in respect of technology
development and market conditions, all of which will affect their
valuations. The expectations of the financial institutions that fund
the bids are also relevant in determining how much potential
bidders will pay for spectrum. The expectations of bidders and
funders are not known to third parties, such as ourselves or the
regulator.
The level of reserve price depends on the trade-offs between
different auction objectives as discussed above. The ratio of
reserve prices to auction outcomes also depends importantly on
doi : 10.17950/ijset/v5s1/117

ISSN:2277-1581
01 Jan.2016

the extent of competition for licences as well as the level of the

reserve price itself.
The ratio of reserve price to auction price possibly varies
greatly across different auctions in the historical database - from
less than 0.1 to 1. It is possible that more than half the data points
in the benchmark dataset have ratios of above 0.9 [1]. In some
countries, governments seeking to raise revenues have set high
reserve prices which resulted in spectrum being sold at or close to
the reserve price or even spectrum left unsold. Examples include
Australia (700 MHz), India (850MHz, 1800 MHz) and Portugal
(1800 MHz) [2]. A Lack of demand or competition in the auction
is other factors which can lead to high reserve-auction price
ratios.
On the other hand, regulators seeking to encourage market
entry and more participation in the auction typically opt for lower
reserve prices. A low reserve price does not necessarily mean
auction prices will be low. In the Swedish 1800 MHz auction in
October 2011, the auction prices were about 19 times the reserve
price.
In General, operators will have a different private value of
spectrum and the range of values could be large due to the
uncertainty around future market outcomes over the next 15-20
years when valuing the spectrum firms have to make 15-year+
projections for business plans, changes in technology and
regulatory environments, all of which are very uncertain. To
promote competition in the auction, the reserve price will need to
be below a marginal operators conservative estimate of the
spectrum value - otherwise they face a risk of making a loss on
their investment and will be deterred from participating in the
auction.
In many cases, regulators determine to multiply estimates of
spectrum value by 70%-80% to derive the reserve prices. This is
to attract the marginal operator (in order to promote competition)
as well as to ensure that all lots are sold. The inclusion of the
marginal operator has a crucial role in the achievement of the
policy objective of market efficiency. Having the marginal
operator in the auction increases the chance that the outcome is
competitive.
III. Benchmarking Approaches
There are several approaches for using benchmarking data.
These include:
Absolute value approach most common method based
on simple average for a selected set of data points
Relative value approach using ratios of benchmark
prices for different mobile bands to derive values
Distance method using ratios of the difference/distance
between data points for difference frequency bands for a
particular country.
Econometrics using econometric models to explain and
estimate spectrum values
None of the above approaches is perfect and there are issues
with each one. For example, the absolute and relative value
approaches are easy to understand and apply, but do not take
account of differences between countries and outcomes can
depend heavily on the data points chosen. Econometrics seeks to
control for differences between countries but is not well
understood and reliable estimates can be difficult to obtain
because of large unexplained variability in the data.
Spectrum values in higher income countries would be
expected to be higher than those in lower income countries, all
Page 82

International Journal of Scientific Engineering and Technology

Volume No.5 Issue No.1, pp: 81-84
things being equal, because consumers in these countries would
have higher ability and willingness to pay for mobile services.
Also the higher the level of urbanization the lower the cost of
network provision and the greater the spectrum value, all else
being equal.
While we recognize that differences in income levels could
have an impact on operator profitability and so spectrum value,
the actual relationship between spectrum value and income is not
a simple linear one. For example, this can be seen in Figure 2
below where we plot value/MHz/pop against GDP/capita [2].
There are some very low values for high income countries and
vice versa, reflecting amongst other things different stages of
market development, and differences in regulation and
competition in markets. Furthermore some econometric studies
have found that effect of GDP per capita on spectrum value,
while positive, is very small [5]. Making a simple one to one
adjustment will result in very low estimates of spectrum value.

ISSN:2277-1581
01 Jan.2016

The average value for all 1800/1900 MHz data points is THB
10.51/MHz/pop (spot) and THB 7.25/MHz/pop (PPP). Like the
850/900MHz band, there is considerable variation in the data as
indicated by the standard deviation and the 95% confidence
intervals. Overall the 1800/1900 MHz bands are around 40-50%
lowers than the 850/900 MHz. Again, the Asia Pacific values are
higher as they mainly consist of awards for high income
countries. For lower income countries the average values are
much lower - around THB 6/MHz/pop.
Figure 3 shows the average values of the 1800/1900 MHz
awards for the different sub-sets of data points. The relative
values among the three groups are similar to the 850/900 MHz
benchmarks with Asia Pacific awards having the highest average
value compared to lower income groupings.

Figure 3: Average values of the 1800/1900 MHz awards [2]

Figure 2: value/MHz/pop against GDP/capita [2]

Therefore, in many cases, instead of using GDP/capita
adjustments, we can stick with the convention of normalizing by
population but examine the effect of income by looking at
subsets of the data points for lower income countries.
1. Absolute Value Approach: Thailands Case Study on
1800MHz Benchmarks
Table 2 describes the data for the 1800/1900 MHz awards for
all benchmark countries and for Asia Pacific countries. The
values reported are in real THB in 2013 prices.

2. Relative Value Approach

The relative value approach to benchmarking is based on the
changing propagation characteristics of spectrum as frequencies
increase. In general, the lower the frequencies, the better the
propagation characteristics are higher building penetration and
larger outdoor coverage.
Sub-1 GHz frequency bands (Lower 1 GHz frequency bands)
are especially valuable for mobile operators to provide coverage
to remote, rural areas and inside buildings. They experience
lower attenuation and travel a longer distance than frequencies
above 1 GHz. This means that all else constant, fewer base
stations are required to cover an area using sub-1 GHz spectrum
compared to 1-3 GHz spectrum as illustrated in Figure 4. Sub-1
GHz spectrum also provides better in-building coverage which
enhances quality of service in high density urban areas.

Table 2: Value/MHz/pop for 1800/1900 MHz benchmarks (THB

2013) [2]

All countries
Average
Min
Max
Standard
deviation
95%
confidenc
e
intervals*
Data
points

Asia Pacific

GDPpc (PPP)
< US$30,000
Spot FX PPP
5.84
5.20
0.74
0.44
26.31
26.45

Spot FX
10.51
0.74
39.08

PPP
7.25
0.27
37.49

Spot FX
14.00
0.74
39.08

PPP
10.39
0.44
37.49

12.07

9.59

15.36

12.64

7.25

7.49

5.83
15.19

3.54
10.97

3.68
24.31

1.09
18.88

0.97
10.70

0.17
10.24

28

Note: * t-distribution

doi : 10.17950/ijset/v5s1/117

11

11

Figure 4 Coverage advantage of sub-1 GHz spectrum [2]

The comparative advantage of sub-1 GHz spectrum is often
reflected in the auction prices paid by mobile operators as shown
in Figure 5 although other factors (e.g. level of competition in
the auction) may also drive up prices. Based on our benchmark
dataset, the value of 850/900 MHz spectrum is about twice that of
the 1800/1900 MHz and AWS/2100 MHz bands. It can also be
Page 83

International Journal of Scientific Engineering and Technology

Volume No.5 Issue No.1, pp: 81-84

ISSN:2277-1581
01 Jan.2016

seen that the 1800MHz and 2100MHz bands have roughly the
benchmarking approached. Case studies on 1800 MHz
same average value.
benchmarks and relative value ratios of frequency bands are
discussed in this paper.
REFERENCES

Figure 5: The relative value ratios of frequency bands [2]

IV. Conclusion
Benchmark approach is an estimation which involves
comparison of auction price with that of other countries. This is
considered to be the most appropriate spectrum value assessment
method as it allows us to compare with international standard.
Reserve price in a spectrum auction is the minimum acceptable
payment the government should tax such that it reflects the
spectrum value. This research provides a basic principle of
calculation of mobile spectrum value and reserve price by

doi : 10.17950/ijset/v5s1/117

i. NBTC/ITU Report, 900MHz and 1800 MHz Spectrum

Valuation Report, April 28, 2014.
ii. NBTC, Spectrum Valuation Report 2015 (Internal report),
September 2015.
iii. Hazlett and Munoz (2010), What really matters in Spectrum
AllocationDesign,
http://scholarlycommons.law.northwestern.edu/cgi/viewcontent.cgi?artic
le=1159&context=njtip
iv. Hazlett and Munoz (2009) provide evidence showing these
losses can be very large compared with auction revenues. A welfare
analysis of spectrum allocation policies, T Hazlett and R Munoz, RAND
Journal of Economics, Vol 40, No 3, Autumn 2009.
v. Spectrum licensing for mobile phone service. June 2008;
Dotecon for ComReg. Award of 800 MHz, 900 MHz and 1800 MHz Fifth benchmarking report, March 2012
vi. Settapong Malisuwan, Noppadol Tiamnara, and Nattakit
Suriyakrai, "A Study of Spectrum Valuation Methods in
Telecommunication Services," International Journal of Trade,
Economics and Finance vol.6, no.4, pp. 241-246, 2015.

Page 84