Spectrum pricing and trading
25.04.2025Introduction
In an increasingly digital environment, adequate access to spectrum is key to expanding the deployment and coverage of telecommunications networks and addressing the ever-increasing demand for data services. These networks support a variety of online applications, extending the impact of spectrum management to several sectors of the economy by transforming the way people access resources for health, transportation, education, agriculture, government, and financial services. As a scarce resource, spectrum requires proper management from regulators to ensure equitable access and an interference-free environment among different users and services, as well as to support the introduction and proliferation of new technologies. A key aspect is the value charged for the use of spectrum, as well as the flexibility for licensees to utilize a secondary spectrum market, ensuring that it is put to its best use.
Source: GSMA 2024.
There are numerous factors that policymakers should consider when setting prices for spectrum. This article will explore various approaches to achieve the high-level goals listed in the graphic above, including approaches to setting fees, leveraging spectrum benchmark data, and reducing fees for operators through coverage obligations or other incentives.
ITU-R developed two reports with the intent to assist administrations in the development of strategies on economic approaches to national spectrum management and their financing. The proposed approaches indicated in the reports not only promote economic efficiency but also address technical and administrative efficiency (ITU-R 2018 and ITU-R 2023).
Types of spectrum fees
Spectrum is a limited resource with many possible uses, making it a valuable asset for national governments. National regulatory authorities manage, license, and monitor spectrum under the mandate to promote its most efficient and effective use for the benefit of society. Recognizing that, regulators charge fees for the use of spectrum. These fees can be broadly grouped into two categories (ITU 2016):
Both types of fees may apply to a particular spectrum license. Regulators take a wide variety of approaches when setting spectrum fees, depending on the market characteristics, the health of the sector, the demand for the spectrum band, and the value of the proposed use of spectrum to the economy and society. These criteria also govern regulators’ decisions on which licensing mechanism to apply.
Setting fees: administrative approach
An administrative approach to setting fees is defined by the regulator setting the fees that licensees must pay for the right to use the spectrum. The level of the fees depends largely on the demand for the spectrum in the market compared to the available supply.
| When supply is greater than demand | When demand is greater than supply |
| Spectrum abundance | Spectrum scarcity |
| Regulators generally set fees to recoup the cost of managing and licensing spectrum through spectrum management fees (e.g., application, modification, renewal fees) | Regulators set fees at a premium above costs to reflect the greater economic value of the spectrum through spectrum usage fees (e.g. initial and annual fees) |
| Spectrum usage fees may also apply but will be less than scarce spectrum | Fees may be set by consulting benchmarks, estimating the opportunity cost of spectrum (“administered incentive pricing”), and considering the market, characteristics of the band, and its equipment ecosystem |
| Low fees to promote spectrum access | Higher fees to ensure effective use of spectrum |
Administered incentive pricing
| One way regulators attempt to estimate a spectrum band economic value is by evaluating the opportunity cost of spectrum, considering the next-best alternative way to offer service if that spectrum band were not available. This is referred to as administered incentive pricing (AIP). The UK and Australia have used this AIP approach for some license types, such as the UK’s recent decision to apply AIP to spectrum license fees in the 412 MHz band However, between 2020 and 2021 Australia launched two consultations to consider possible revisions to its spectrum pricing approach. The consultations responded to criticism that its formulas failed to adapt to technological and market developments, which has resulted in an inefficient use of spectrum, and lead to changes on various regulations on licenses taxes. This highlights the difficulty in estimating spectrum’s value outside of market-based processes and the need to revisit approaches as the market and technology evolve. |
Source: ITU 2016; UK, Ofcom 2010; UK, Ofcom 2021; Australia, ACMA 2021.
While commonly associated with auctions, regulators also apply reserve prices in some direct assignment procedures for scarce spectrum, as in Singapore’s 5G beauty contest award procedure for 5G spectrum. Singapore’s Infocomm Media Development Authority (IMDA) notes it set its reserve price after considering “the intrinsic value of the 3.5 GHz band, international and local benchmarks, and IMDA’s econometric assessment of Singapore’s mobile market.” Notably, while IMDA set a reserve price for the 3.5 GHz band, no initial fee was applied to the mmWave band that was also on offer, citing the ample spectrum available in the upper bands and demonstrating how demand for different bands plays into the valuation of fees (Singapore, IMDA 2019).
Setting fees: market-based approaches
Market-based approaches to assigning spectrum are, de facto, used in cases of spectrum scarcity when demand for spectrum exceeds supply. Similar to the scarce spectrum assigned by direct assignment procedures described above, fees for the use of spectrum do not follow a cost-based approach but rather charge a premium to account for the economic value of the spectrum. Unlike administratively set fees, auctions provide a very useful perspective of the market’s demand for and valuation of a spectrum band. Another way to value spectrum is through spectrum trading and leasing on the secondary market. In both cases, the market gives an approximation of the economic value of a particular spectrum band by showing what price others will pay to obtain it.
Spectrum prices defined in auctions
While auctions are market-based, regulators still intervene to ensure the best outcomes for the economy and society, as well as any policy goals. One way they do this is by establishing a reserve price, or the lowest starting bid for a block of spectrum. Since auctions provide insight into other countries’ valuation of a spectrum band, regulators often compile a benchmark of the reserve and final prices of auctions conducted in other countries that have awarded the spectrum band in question, preferably in recent years. The reserve price acts as an effective minimum floor, ensuring that bids do not undervalue the spectrum. A reserve price discourages tacit or explicit collusion among possible bidders to keep prices artificially low and also deters operators from bidding on spectrum that they may not need or want at a low price in the hopes of getting a higher price in resale. There are many examples of reserve prices set in auction, such as Latvia’s 3 750-3 800 MHz auction in 2023 (Latvia, SPRK 2023) and Hong Kong, China’s 2024 auction of spectrum in the 850/900 MHz and 2.3 GHz bands (Hong Kong, China, OFCA 2024).
Spectrum Benchmarks
| Benchmarks provide a useful “sanity check” when regulators set fees to ensure that the rate set is not outside the normal range, especially when looking at countries that are similar in terms of market characteristics, geography, or stage of ICT development. Benchmarks can be useful when establishing reserve prices in auctions or beauty contests for scarce spectrum, as well as when setting fee schedules for licenses typically issued on a first-come, first-served basis.
Benchmark prices must be normalized to compare spectrum prices in countries with different currencies, size, and population. Benchmark prices also must consider differences in license terms and amounts of spectrum awarded in the different procedures. To do this, prices are converted to one currency and often shown in terms of price per megahertz (MHz) per population (price/MHz/pop). To account for differing license terms, prices are either normalized to common license term (e.g. 15 years) or shown in price/MHz/pop/year. When possible, benchmarks should look at assignments of the same spectrum band, or spectrum bands with similar characteristics and properties, in other countries to get a better approximation of its value. Spectrum bands vary widely in terms of their demand and usefulness, so the value of 800 MHz band spectrum may differ widely from the value of mmWave band spectrum, for instance. Spectrum that has been awarded through a beauty contest (e.g. direct assignment) may also be included in a benchmark to provide additional data points to inform the average valuation of a certain band. For an example of a spectrum benchmark, see DotEcon’s benchmarking of the 700 MHz, 2.1 GHz, 2.3 GHz and 2.6 GHz bands, which Ireland’s regulator considered in the context of organizing a multiband auction. |
Source: Ireland, ComReg and DotEcon 2021.
Regulators also consider other factors in addition to benchmarks when setting reserve prices. Other determinants include the domestic market, the desirability and demand for the spectrum, its propagation characteristics, and the possible usage scenarios.
Spectrum trading or leasing in secondary markets
The value of spectrum and the licensee’s spectrum needs may change over the course of a license. In these cases, having the ability to transfer or trade spectrum is an asset, if permitted in the license terms. A secondary market is more relevant in cases of spectrum with higher demand, which is usually characterized by long license terms and premiums for spectrum use (e.g. mobile spectrum). Establishing a secondary market for spectrum trading and allowing spectrum leasing provides many benefits:
Regulators can add certain safeguards to ensure that licensees do not buy spectrum expressly to resell it for a higher price. This could include adding terms to the license to prohibit spectrum trading or leasing for a period of time and requiring potential licensees to demonstrate their intention to put the spectrum to use (e.g., business and network plans as criteria to participate in an auction or direct assignment).
Spectrum valuations in mobile spectrum awards: promoting policy objectives
In both spectrum auctions and direct assignments, regulators are increasingly designing processes that consider other criteria, which in some cases may lower the fees required for spectrum usage. Some examples in different countries have discounted fees in exchange for coverage commitments to encourage the narrowing of the rural digital divide, such as:
| Colombia’s recent 5G auction allowed operators to substitute deployment of coverage or fiber connectivity to certain roads, educational institutions, and other locals for the payment of up to 90% of the license fees (MinTIC 2023). |
| Brazil’s 2021 auction of the 700 MHz, 2 300 MHz, and 3 500 MHz bands allowed operators to convert winning bids that exceeded the reserve prices for specific blocks into additional coverage obligations. (ANATEL 2021). |
| In Norway’s 2021 2 600 MHz and 3 600 MHz spectrum auction, the regulator implemented a system that allowed bidders to apply for discounted license fees by agreeing to provide wireless coverage of 100 Mbps downlink and 10 Mbps uplink to eligible buildings in rural areas (Nkom 2021). |
In addition, many regulators are actively encouraging 5G deployments and supporting the mobile industry via direct assignments. One way some regulators are lending this support is by discounting spectrum or offering it in exchange for network investment and deployment commitments. Network investment to deploy 5G is high, making additional high costs for spectrum potentially detrimental to deployment objectives.
The importance of setting the right level of fees
Setting the appropriate level of fees for spectrum use to support various applications is important. On the one hand, many regulators depend on the fees collected to sustain their annual budgets. However, on the other hand, overly high spectrum fees may discourage or exclude smaller players, new entrants, or individuals from accessing spectrum. This could especially hinder innovation and competition. Even operators of larger networks, such as mobile network operators, have limitations on the price to pay for spectrum, especially considering the substantial costs to maintain and expand the networks. For instance, if spectrum reserve prices are set too high, operators may decide not to participate in assignment procedures for new spectrum. Mexico’s planned 2025 5G auction has faced hurdles, as many operators have expressed that the proposed annual fees are prohibitive and would induce financial strain (GlobalData 2024).
Key findings
Spectrum pricing and trading
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References
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Last updated on: 28.04.2025