Valuation of 3G spectrum license in India: A real option approach

India is about to enter a new technological phase as far as mobile technology is concerned. After almost a decade of existence, Third Generation (3G) mobile technology will be rolled out in India. The licenses for the same were auctioned in April – May 2010 and 3G licenses were allocated to the winners in September 2010. Nine private telecom operators entered the bidding for the license and eventually seven won the licenses. The bidding was intense and eventually the aggregate fees of the license as received by the government were almost twice the expected amount. In the backdrop of experience of 3G auction winners in UK and Germany who paid huge sums to acquire the 3G licenses and later lost their market capitalization as the markets perceived that the price paid for the license was more than the actual value of the license, analysts in India were concerned if the operators had paid too much for the licenses. In this report aggregate value of the 3G licenses is calculated using both traditional discounted cash flow approach and real options approach. We find that the rollout of 3G services gives an internal rate of return of 14.2%over the life of the license. If we assume an internal rate of return of 15% for the telecom operators then the aggregate license value comes out to be INR 594 Billion which is 12% lower than what the operators have paid to acquire the license. We also found out that the value of the license as calculated from the real options methodology is INR 798 Billion which is 17.8% higher than the aggregate value paid by the operators. Hence we see that DCF valuation suggests that the licenses were overvalued while Real Options methodology suggests that the licenses were undervalued. The report discusses the reasons for differences between real option valuation and DCF valuation of the license, the possible challenges that the 3Goperators might face in the short to long term and what are the key enablers for the growth of3G services if they want to extract the maximum mileage out of the 3G technology. The report recommends that in future while allocating telecom licenses or licenses in sectors where high and irreversible investment is required and there is a scope for the licensees to invest in phases or in modules, the government should consider real options methodology for setting the price of the license., or the base price of the licenses in case the government decides to follow an auction methodology3G spectrum, mobile technology, valuation, real options, DCF

Analysis of WIMAX/BWA Licensing in India: A real option approach

Indian Internet and broadband market has experienced very slow growth and limited penetration till now. The introduction of Broadband Wireless Access (BWA) is expected to aid in increasing the penetration of internet and broadband in India. The report sheds light on the guidelines and procedure used in 4G/BWA spectrum auction and presents comparative analysis of the competing technologies, providing the information about suitability of each technology available. Recently held 4G/ BWA spectrum auction saw enthusiastic participation by the industry and even saw some new entrants in Indian broadband market. Government benefited by Rs, 385bn that it earned as revenue from the auction of the spectrum and projected it as successful auction. However, the question remains if the auctions were efficient and whether they led to creation of value or will it prove to be burden to the telecom operators and will depress their balance sheet for years to come. The report uses both traditional valuation methods such as Discounted Cash Flow as well as Real Option approach to answer such questions. Using DCF analysis, the broadband subscribers have been forecasted to grow from present 13.77mn to 544mn by the end of 2025. The wireless subscribers are forecasted to be 70% of the total broadband subscribers after 5 years of roll out as it will be difficult to replace all wireline subscribers with wireless subscribers in India due to the high cost of wireless broadband and new technology. WiMAX is expected to increase its presence with time and reach 90mn subscribers from meager 0.35mn subscribers by 2025. Using industry wide cost of capital as 12.05%, the Net Present Value has been found Rs 221bn aggregate with an IRR of 17.1%. Using Real option approach, the value of license has been calculated as Rs 437bn which is 13.5% more than the spectrum fees paid by the operators. This mismatch, between the auction value and the correct value that should have been discovered by supply-demand dynamics, can be due to limited participants in BWA spectrum auctions and companies such as TATA and Reliance opting out of the auction process midway as well as uncertainty about acceptance of new technology with Indian subscribers.WiMAX, broadband, 3G spectrum, 4G,broadband wireless access, valuation, licensing, real option

European Law and Regulation of Mobile Net Neutrality

Mobile is a rapidly growing and potentially major element of the future Internet, and its environment cannot be sensibly considered in isolation from fixed networks [2]. A note on terminology: Europe uses the term Mobile Network Operators (MNOs) while the United States uses 'wireless' Internet Service Providers (ISPs) [3]. 'Wireless' is somewhat more open in the United States. In Europe, mobile has always made special pleading for forms of self-regulation, as we will see. The article introduces mobile broadband, then considers net neutrality in the fixed environment including the new laws passed in November 2009 in the European Parliament, before considering the mobile net neutrality debate, the degree of price control regulation exerted on European mobiles and the MNOs' vigorous rear-guard anti-regulation defence. Finally, I look at the effects of this regulatory asymmetry and whether MNO calls for mobile to be treated differently from other ISPs can be justified. I conclude by examining what the effect of price and content control on mobile is likely to be for incentives for fixed ISPs and produce a result that I describe as the 'fixed' strategy

Spectrum Allocation for 3G in Philippines: Implications for Policy Makers and Regulators

The commercial potential of wireless applications has brought spectrum policies to the forefront of regulatory arena. The visibility of the telecom sector and the prior experience of 3G licensing in Europe and UK have made several Asian regulators and policy makers wary of using auctions. This paper details out the beauty contest approach adopted by NTC to allocate 3G licenses and the issues that arose as a consequence and highlights the influence of global developments (European and UK 3G auctions) on domestic spectrum allocation processes. The adoption of the beauty contest approach and fixed license fee was justified by NTC on the grounds of ensuring lower prices to consumers but it led to criticism that it was a clear violation of law, as NTC was mandated to promote competition. In this context, auctions would have been a better and more economically efficient process. The case study highlights the importance of incorporating economic principles, design of a transparent evaluation criteria and communication of the same to the bidders prior to the event. Policy makers need to recognize that well designed auctions are transparent mechanism to allocate scarce resource to those entities who value it most. While beauty contests may appear to be simple mechanisms to administer, lack of clarity in design could lead to non transparency and subsequent possibility of litigation and delays. The study also brings out that although an open consultative approach in the early stages may appear to delay the process, in the long run, it leads to more transparent and robust solutions.

Spectrum Policy and Management

This project provides an examination of the FCC’s policies towards spectrum reallocation. The project examines the National Broadband Plan and how the FCC has approached the goals described within it. The demand for broadband communications has increased dramatically in recent years and has resulted in a predicted spectrum deficit in the near future. In addition to a number of spectrum auctions and their winners the project examines how the redistribution of spectrum impacts the broadband community. The project also provides an examination of spectrum reallocation and policy in other countries, to provide a broader view of spectrum policy. Finally the project examines new spectrum technologies and spectrum usage policies to further examine how the US’s spectrum policies should evolve

License auctions with exit (and entry) options: Alternative remedies for the exposure problem

Inspired by some spectrum auctions, we consider a stylized license auction with incumbents and one entrant. Whereas the entrant values only the bundle of several units (synergy), incumbents are subject to non-increasing demand. The seller proactively encourages entry and restricts incumbent bidders. In this framework, an English clock auction gives rise to an exposure problem that distorts efficiency and impairs revenue. We consider three remedies: a (constrained) Vickrey package auction, an English clock auction with exit option that allows the entrant to annul his bid, and an English clock auction with exit and entry option that lifts the bidding restriction if entry failed

Radio spectrum reforms and associated effects on market liberalisation

A thesis submitted in fulfilment of the requirements for the degree of Master of Arts, in ICT Policy and Regulation, University of the Witwatersrand, 2016There is a common opinion among researchers and experts that efficient management of radio spectrum plays a vital role in ensuring universal access to telecommunications services. The objective of this study was to identify radio spectrum reforms and their associated effects on market liberalisation. It was postulated that appropriate radio spectrum reforms would be catalysts for market liberalisation. The evolution of command-and-control approaches in relation to market-based approaches was assessed. The research involved literature critique, review of policies as that relates to history of radio spectrum management in South Africa and across the world, and radio spectrum regulations analysis in South Africa. Interviews of radio spectrum industry experts and documents study of the evolution of telecommunications regulatory environment with respect to radio spectrum management and market liberalisation were also used as main sources of research. The purpose of the literature critique, review of policies, regulations and documents was to identify hints of radio spectrum reforms and measure qualitatively the extent of market liberalisation. While interviews of radio spectrum industry experts were used to ascertain industry response to strides made as far as radio spectrum and market liberalisation in South Africa. It was observed that initially, in most parts of the world and in South Africa, market liberalisation progressed quickly despite appreciable correlation with radio spectrum reforms. Early radio spectrum reforms, such as the establishment of an independent regulator of the industry and radio spectrum, had contributed to some level of market liberalisation with creation of oligopolistic telecommunication market, and had increased to radio spectrum by Vodacom, MTN and Cell C having access to both 900 MHz and 1800 MHz bands. However, perpetual practise of command-and-control, an efficient radio spectrum management encouraged hoarding. The literature review and interview provided seven main contributions of reforms in the form of strides. These strides formed the basis for the research framework: 1) establishment of an independent regulator of the industry and radio spectrum, 2) increased access to radio spectrum, 3) service and technology neutrality on radio spectrum, 4) essential facilities to enable sharing, 5) market-based approaches radio spectrum pricing: AIP, 6) service-based competition versus infrastructure-based competition, and 7) non-rival, non-exclusive usage of radio spectrum. The conclusion is that increasing access to radio spectrum and the independent regulator were not primary determinants of market liberalisation. An analytic framework has been used to show that market liberalisation reached a plateau phase, with a few incumbents becoming dominant and creating an oligopolistic market structure. It is at this point that further market liberalisation could be stimulated by additional radio spectrum reforms. The command-and-control approach remains the main bottleneck source for access and efficiency in radio spectrum management, which encourages rival and exclusive use of radio spectrum. It has been observed that market-based radio spectrum reforms have also entrenched rivalry and exclusivity in the use of radio spectrum. Radio spectrum reforms that encourage non-rivalry and non-exclusivity, such as open-access to radio spectrum, are highly recommended in this research.GR201

Chinese Experience with Global G3 Standard-Setting

China’s growth strategy as set out in the 11th 5-year plan in 2005 called for upgrading of product quality, the development of an innovation society, and reduced reliance on foreign intellectual property with high license fees. Consistent with this policy, China has been involved in recent years with the development of a Chinese standard in third generation (3G) mobile phone technology, both in negotiating the standard and seeing it through to commercialization. This is the first case of a developing country both originating and successfully negotiating a telecommunications standard and this experience raises issues for China’s future development strategy based on product and process upgrading in manufacturing. We argue that while precedent setting from an international negotiating point of view, the experience has thus far is unproven commercially. But the lessons learned will benefit future related efforts in follow-on technologies if similar Chinese efforts are made.This paper documents Chinese standard-setting efforts from proposal submission to ITU to the current large-scale trial network deployment in China and overseas trial networks deployment. We discuss the underlying objectives for this initiative, evaluate its effectiveness, and assess its broader implications for Chinese development policy.

The regulation of national roaming

National roaming is a measure that can be agreed commercially between operators to extend coverage or can be imposed or facilitated by governments as a means to increase competition amongst networks. It has been used with varying degrees of success in a range of countries, notably in the European Union. It has generally faced resistance from established operators, reluctant to assist prospective competitors and reduce their shares of the market. In some countries implementation has been so poor as to fail in the objectives. The absence of agreed procedures and performance indicators may have contributed to some of those failures. The costs of deploying third generation networks are causing some operators to look at more extensive agreements, sharing radio access networks, rather than national roaming. A further factor has been the lack of prospective entrants in mature markets, making national roaming less important than had been expected. --