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Analysis of spectrum auctions in India—An application of the opportunity cost approach to explain large variations in spectrum prices

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  • Mölleryd, Bengt G.
  • Markendahl, Jan

Abstract

The remarkable growth of mobile communication has reinforced the significance of the radio spectrum for mobile network operators. The availability of spectrum varies considerably between different countries due to national regulatory decisions. The focus in this paper is on India where operators have access to a limited amount of spectrum. This paper analyses the value of spectrum by estimating the opportunity cost, which is calculated by the savings that can be achieved by acquiring appropriate amount of spectrum rather than investing in additional base stations. The applied approach combines network deployment, user demand levels, cost, and capacity issues, which are integrated in the application in the opportunity cost approach for spectrum. The opportunity cost of spectrum is compared with prices paid at spectrum auctions. The analysis includes a discussion of drivers that determine the willingness to pay for spectrum. The results show that the opportunity cost of spectrum in relation to auction prices is lower than prices operators paid for 3G spectrum in the metro circles (service areas) while the value derived from the opportunity cost is higher than auction prices in the remaining circles.

Suggested Citation

  • Mölleryd, Bengt G. & Markendahl, Jan, 2014. "Analysis of spectrum auctions in India—An application of the opportunity cost approach to explain large variations in spectrum prices," Telecommunications Policy, Elsevier, vol. 38(3), pages 236-247.
    • Handle: RePEc:eee:telpol:v:38:y:2014:i:3:p:236-247
    DOI: 10.1016/j.telpol.2014.01.002
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    References listed on IDEAS

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    1. Jeremy Bulow & Jonathan Levin & Paul Milgrom, 2009. "Winning Play in Spectrum Auctions," NBER Working Papers 14765, National Bureau of Economic Research, Inc.
    2. Markendahl, Jan & Mäkitalo, Östen & Mölleryd, Bengt G. & Werding, Jan, 2010. "Mobile Broadband Expansion Calls for More Spectrum or Base Stations - Analysis of the Value of Spectrum and the Role of Spectrum Aggregation," 21st European Regional ITS Conference, Copenhagen 2010: Telecommunications at new crossroads - Changing value configurations, user roles, and regulation 26, International Telecommunications Society (ITS).
    3. Mölleryd, Bengt G. & Markendahl, Jan, 2011. "Valuation of spectrum for mobile broadband services: Engineering value versus willingness to pay," 22nd European Regional ITS Conference, Budapest 2011: Innovative ICT Applications - Emerging Regulatory, Economic and Policy Issues 52146, International Telecommunications Society (ITS).
    4. Jan MARKENDAHL & Östen MÄKITALO & Jan WERDING & Bengt G. MÖLLERYD, 2009. "Business Innovation Strategies to Reduce the Revenue Gap for Wireless Broadband Services," Communications & Strategies, IDATE, Com&Strat dept., vol. 1(75), pages 35-56, 3rd quart.
    5. Sweet, R. & Viehoff, I. & Linardatos, D. & Kalouptsidis, N., 2002. "Marginal value-based pricing of additional spectrum assigned to cellular telephony operators," Information Economics and Policy, Elsevier, vol. 14(3), pages 371-384, September.
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    Cited by:

    1. Ashutosh Jha & Debashis Saha, 2022. "Mobile Broadband for Inclusive Connectivity: What Deters the High-Capacity Deployment of 4G-LTE Innovation in India?," Information Systems Frontiers, Springer, vol. 24(4), pages 1305-1329, August.
    2. Ashutosh Jha & Debashis Saha, 2019. "Examining categorization of Telecom Circles in India using unsupervised k-means clustering on techno-economic indicators," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 46(4), pages 365-383, December.
    3. Ashutosh Jha & Manisha Chakrabarty & Debashis Saha, 2023. "Network Investment as Drivers of Mobile Subscription – A Firm-level Analysis," Information Systems Frontiers, Springer, vol. 25(5), pages 1811-1828, October.
    4. Frias, Zoraida & González-Valderrama, Carlos & Pérez Martínez, Jorge, 2017. "Assessment of spectrum value: The case of a second digital dividend in Europe," Telecommunications Policy, Elsevier, vol. 41(5), pages 518-532.

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