IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Valuation of 2G spectrum in India- A real option approach

Listed author(s):
  • Sinha, Pankaj
  • Sathiyanarayanan, Nataraj

The phenomenal growth of telecommunication sector in India has largely been possible due to the contributory factors such as the efforts made by private and public telecom service providers to make services affordable to the mass market, reduction in entry barrier due to drastically lowered entry level price for devices, changing demographic profile and the increasing per-capita income. However, it the issue of spectrum pricing that has captured the centre stage with the high prices realized from the 3G and BWA spectrum auction and the outburst of the 2G Spectrum scam in India. In this paper, we use both the traditional valuation method-Discounted Cash Flow as well as the Real Option approach that takes into consideration managerial flexibility and strategic decision making aspects. The analyses have been done individually as the factors determining revenues and thereby the spectrum values are expected to be different. By dividing the DCF or ROV value thus arrived by the total spectrum allotted so far in the service areas, we obtain the price of 1 MHz of spectrum. A sensitivity analysis has also been done to check the variations arising in the value due to changes in parameters like ARPU and subscriber count. Ignoring the economies of scale arising from usage of a larger block of spectrum, this value gives a reasonable estimate of the price of the spectrum that can be used by both companies and the government. The above analyses have been done to arrive at the price of 1 Mhz of spectrum in each of the 22 telecom circles and also on a pan India level. The spectrum price range for a pan India 1 Mhz of spectrum is Rs.1535 crores to Rs.1876 crores. This is definitely higher than the price discovered in 2001 – Rs.1658 crores for 6.2 Mhz of spectrum. Finally, we also provide a comparison with the prices suggested by TRAI in its consulting paper.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
File Function: original version
Download Restriction: no

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 40470.

in new window

Date of creation: 21 May 2012
Handle: RePEc:pra:mprapa:40470
Contact details of provider: Postal:
Ludwigstraße 33, D-80539 Munich, Germany

Phone: +49-(0)89-2180-2459
Fax: +49-(0)89-2180-992459
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

in new window

  1. Aswath Damodaran, 2000. "The Promise Of Real Options," Journal of Applied Corporate Finance, Morgan Stanley, vol. 13(2), pages 29-44.
  2. Sinha, Pankaj & Mudgal, Hemant, 2011. "Valuation of 3G spectrum license in India: A real option approach," MPRA Paper 31281, University Library of Munich, Germany.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:40470. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.