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With a number of 5G spectrum awards on the horizon, it seems like the right time to reflect on the way in which it is awarded. Auctions are favoured in most markets around the world, as it’s generally accepted that these allow assignment to be guided to the user with the highest value service or application. This in turn relies on the mechanisms for valuation to reliably reflect the value of spectrum to businesses or society.
It's clear that the services and business models enabled by 5G will be very different to those enabled by 2G, 3G and 4G technologies. There is still much uncertainty over how 5G will be defined and deployed - this will inevitably make valuation more complex for anyone involved in assignment or auctions.
Traditionally, approaches to spectrum valuation would consider three sources of value:
- Technical: the network costs saved by virtue of having access to new spectrum (e.g. fewer new sites might be required to meet capacity or coverage needs)
- Commercial: the additional revenues that could be raised by providing better coverage, higher speeds or some other network improvement enabled by a spectrum acquisition
- Strategic: this is perhaps the hardest to calculate. The value captured by preventing a competitor from acquiring spectrum and improving their service (e.g. resulting in increased market share due to dissatisfaction on the part of a competitor’s subscribers)
In the past, these sources of value would ultimately be driven by a forecast of network traffic and revenues. More recently, as voice and SMS have faded into insignificance in traffic and revenue terms, the focus has moved on to data.
However, in an application driven 5G world, data traffic may no longer be the right metric. A single MB of a cat video is almost certainly less valuable than a single MB of video streamed to a surgeon performing life-saving remote surgery. A payload of crash data triggered by a car’s eCall system is also likely to be deemed much more valuable than a 15 minute interval meter reading from a residential smart meter. The latter is much less time sensitive (in current grids) and a missed message would not result in the same impact as the former. Other factors, such as latency and packet loss, are of critical importance to some applications.
Even the emerging Internet of Things, or the previous success of SMS (with charges far outweighing calls when considering network resources consumed), demonstrate that revenues can be decoupled from data or network cost.
According to Cisco’s VNI forecast, WiFi offload accounted for 60% of mobile data traffic in 2016. Unlicensed spectrum therefore accounts for more mobile data consumption than the licensed spectrum used by mobile operators, yet it is assigned by regulators at no charge to users. Mobile operators, and ultimately subscribers, pay for mobile spectrum because there is more value placed on the mobility, security and other advantages that a cellular network provides compared to simple shared throughput in a single location as provided by WiFi. It therefore follows that as connectivity enabled applications become even more significant, then a more holistic view of data and revenues will be required.
Value is ultimately derived from the end application that connectivity enables. As a result, we expect operator revenues to be increasingly driven by service-delivery rather than data throughput. In the past we paid for the ability to speak to each other remotely. In the not too distant future we’ll be paying for the ability for our autonomous vehicles, smart homes and digital assistants to operate seamlessly. In the interim, we have been paying per MB or GB because it is a convenient proxy for value.
Future approaches to spectrum valuation will need to be able to capture this notion that value is driven by services.