Economic Analysis of the Radio Spectrum for Regulatory Purposes

The organisation of the radio spectrum and its value has turned out to be of vital importance in recent years due to the rapid development of mobile communications and the recent 3G auctions. The focal point of regulation of scarce resources has, due to liberalisation of the telecommunications sector, changed from a matter of pure co-ordination and planning to be an important tool in creation of a competitive environment for various telecommunication services. Regulation of the spectrum has to a certain extend been subject to the same development. Regulation of the spectrum scarcity is however not a purely technical matter. Economic considerations must be taken into account as well. A free market approach may be suitable for assigning frequency bands between operators within the same application, but is less suitable for allocation between various applications. Here regulatory intervention will be necessary to ensure efficient and harmonised patterns of usage across countries. In this respect an assessment of the economic value of various applications is an important input. This paper measures the economic value in terms of contribution to GDP. We use this approach, as it is very difficult to assess the user value as long as there is no market for trade in frequency licenses. The economic value of the radio spectrum has been calculated for six different service applications (fixed links, Maritime and aeronautic applications, broadcasting services, mobile services, private mobile radio network services and military services). For each application the economic value is calculated for both use of the application and production of equipments related to each application. The paper draws on an extensive study of the economic value of the Danish radio spectrum prepared for the Danish Telecom Agency (Danish Telecom Agency, 2000).