INFRASTRUCTURE

Guidelines for the Review

OF SPECTRUM PRICING METHO-
DOLOGIES AND THE PREPARATION
OF SPECTRUM FEES SCHEDULES

Repor t

Te l e c o m m u n i c a t i o n D e v e l o p m e n t S e c t o r
 Guidelines for the review of
spectrum pricing methodologies
and the preparation of
spectrum fee schedules
These guidelines focus on the review of spectrum pricing methodologies and the preparation of spectrum
fee schedules. In addition, a brief overview of market-based and administrative methodologies is provided.
These guidelines also address the need for spectrum revenue and pricing policies and an understanding
of the future demand for spectrum. This report was prepared by ITU expert Adrian Foster, under the
supervision of the ITU Telecommunication Development Bureau (BDT) Spectrum Management and
Broadcasting Division and with the co-operation of the ITU Radiocommunication Bureau (BR).

ISBN:

978-92-61-19651-6 (paper version)

978-92-61-19661-5 (electronic version)

Please consider the environment before printing this report.

© ITU 2016

All rights reserved. No part of this publication may be reproduced, by any means whatsoever, without the prior written
permission of ITU.
 Table of Contents

1 Introduction 1

2 Spectrum price principles and objectives 2

3 Determining spectrum prices: Administrative and market-based mechanisms 3

4 Issues with setting spectrum fees 4

5 Closer look at spectrum price methodologies  9

6 Preparing administrative spectrum fee schedules 21

7 Examples of administered price method: Spectrum fee schedule 27

Abbreviations 32

Glossary 33

Annex 1 – ITU Guidelines for the establishment of a coherent system of radio-frequency usage
fees: ITU-D SG 35

iii
 List of tables, figures and boxes
Tables
Table 1: Main steps in calculating AIP using the cost reduction approach 17
Table 2: Advantages and disadvantages of various price methods 26
Table 3: Congestion factors by band 29
Table 4: Kp factors for various services 29

Figures
Figure 1: Spectrum price interlinkages 1
Figure 2: Spectrum management costs by service 6
Figure 3: Social value and the potential value to society of difference uses of spectrum 9
Figure 4: Two types of spectrum fees – management and usage fees 10
Figure 5: general formula for setting administrative spectrum fees 11
Figure 5: AIP decision steps 16
Figure 6: Hypothetical calculation of AIP for cellular spectrum 19
Figure 7: Spectrum policy/spectrum price toolbox 22
Figure 8: Developing a forecast of spectrum demand for cellular services 24
Figure 9: Example of a forecast of spectrum management costs 28
Figure 10: Calculations for the congestion factor over time 28

Boxes
Cost recovery leading practice: Authorisation Fees and the EU Authorisation Directive 12

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

1 Introduction
These guidelines provide regulators and radio spectrum users with a better understanding of the
purpose, objectives, principles, methods and strategies to determine spectrum prices and to prepare
spectrum fee schedules. These guidelines will also sets out the advantages and disadvantages of modern
spectrum price methods that achieve the primary goals of best practice spectrum management, which
will ensure that radio frequencies are used efficiently – both technically and economically.

From the outset, it is important to understand that the determination of spectrum prices and
establishment of spectrum fees are closely linked to economic and market conditions, technical
factors such as which technologies and services are being used or deployed, the efficiency and quality
of those technologies and services, and how spectrum is assigned to spectrum users.

Figure 1: Spectrum price interlinkages

As a result, spectrum pricing methods have evolved alongside more market-based methods for
assigning and authorizing spectrum use such as spectrum auctions and spectrum trading. However,
not all radio frequencies are suitable for applying spectrum auctions as the means for assigning and
establishing neither spectrum prices nor are the conditions always present to support the effective
use of auctions or other market-based methods such as administered incentive prices (AIP).

These guidelines begin by providing useful definitions and terms and by providing background on
common types of spectrum fees used in current practice by national regulatory authorities and spectrum
managers. The next sections of these guidelines will identify and describe the objectives, principles
and methods used to determine spectrum prices and set spectrum fees, and are organized as follows:

• Section 2 – Spectrum price principles and objectives

• Section 3 – Determining spectrum prices: Administrative and market-based mechanisms
• Section 4 – Issues with setting spectrum fees
• Section 5 – Closer look at spectrum price methodologies
• Section 6 – Preparing administrative spectrum fee schedules
• Section 7 – Examples of administered price method: Spectrum fee schedule
• Glossary

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

2 Spectrum price principles and objectives

Spectrum management includes activities such as planning spectrum use, allocating and assigning
spectrum licences, coordinating shared spectrum use, harmonizing regional and global spectrum
standards and monitoring and control its actual use. High-level economic, technical and social
objectives (mainly related to universal access/service) associated with spectrum use have evolved
with the spectrum management reform trend prevalent in the past ten years with less focus on the
traditional command and control approach and greater emphasis on market-based systems1. High-
level policy objectives require consistency in government approaches to matters such as access,
competition, non-discrimination, user protection, equity and fairness in the manner spectrum is
allocated and assigned to users

Spectrum price principles

Principles have emerged with the spectrum reform efforts of countries such as Australia, European
Union, New Zealand, Singapore United Kingdom, and United States of America, when modernizing
their approaches to spectrum management and are now reflected in key framework documents on
how to govern spectrum management in the future. These national spectrum management principles
reflect economic and behavioural aspects:23

• Spectrum should be allocated to the highest value use or uses to ensure maximum benefits to
society are realized.
• Mechanisms should be put in place to enable and encourage spectrum to move to its
highest value use.
• Greater access to spectrum will be facilitated when the least cost and least restrictive approach
is chosen in achieving spectrum management goals and objectives.
• To the extent possible, regulators and spectrum managers need to promote both regulatory
certainty and flexibility in how spectrum is used.
• Balance should be achieved between the cost of interference and the benefits obtainable from
greater spectrum utilization.
• Fairness and objectivity require that fees are based on objective factors and all licence holders
in a given frequency band should be treated on an equitable basis. This would preclude, for
example, different treatment of different users in a given frequency band.
• Transparency requires that the basis on which fees are calculated should be made clear in a
published document resulting from consultation with stakeholders and that all fees should be
set based on a published schedule.
• Administrative costs will be lower if the fee schedule is simple to administer. The simplest fee
schedule would be one involving a flat fee payment; however this may not promote efficient
spectrum use.
• Administrative simplicity needs to be balanced against the requirement to encourage efficiency
of spectrum use if fees are set taking account of parameters such as bandwidth, frequency band
or coverage.

1
As early as 2000, increased emphasis on economic aspects to govern spectrum management decisions was being
recommended, “As the frequency spectrum is a scarce resource, decisions concerning spectrum management should
also consider the economic point of view. Therefore, to improve national spectrum management all available means
including economic methods are needed" (ITU-SM 2012-4, revised 2014).
2
Australia Communications and Media Regulator: Principles for Spectrum Management, 2009
3
EU Authorization Directive 2002/20/EC and Framework Directive 2002/21/EC require the national regulatory authority
when allocating and assigning spectrum in setting administrative spectrum fees to ensure that practices are based on
criteria that are objective, transparent, non-discriminatory and proportionate to users.

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

In addition to the principles outlined in policy and directive documents, the following warrant
consideration as additional principles:

• Spectrum fees should be reviewed at suitable intervals in order to cater for changes in economic
KPIs (key performance indicators) or advancement in technologies resulting in increased demand
of a particular band.
• Mechanisms should be in place to avoid, detect and where necessary prevent spectrum hoarding,
which will deter competition.
• A balance should be established between financial approach and other key facets - regulatory
(competition), social (universal service).
Spectrum price objectives

There are broad spectrum management objectives associated with spectrum prices and spectrum fees4:

• Spectrum prices should promote efficient use of spectrum. As a vital natural resource, the price
of spectrum should be sufficient to ensure that it is valued and used wisely. Use of spectrum
provides considerable benefits to the economy and benefits from spectrum should be maximized.
• The costs associated with managing and regulating radio frequencies (including monitor and
control) should be recovered from those who benefit from spectrum management activities.
This should apply to all users of spectrum – both public and private.
• Important social and cultural objectives can be advanced by use of the spectrum and spectrum
pricing should facilitate the achievement of government social and cultural objectives.
Notwithstanding these objectives, the revenue goals and requirements of government influence the
setting of spectrum fees by the regulator. As best as possible these revenue targets should align with the
objectives of (i) optimal spectrum efficiency, (ii) achieving economic and social development goals, (iii)
spectrum users paying for spectrum resource usage, and (iv) recovering spectrum management costs.

3 Determining spectrum prices: Administrative and market-

based mechanisms
Spectrum prices for radio frequencies are established using either an administrative method, a market-
based method, or by using a combination of both administrative and market-based mechanisms.

• Administrative mechanisms include administrative incentive pricing (AIP) and spectrum fee
formulas that recover regulator costs of spectrum management.
• Market-based mechanisms for setting spectrum prices typically involve a market exchange such
as spectrum auctions and (in the secondary market) spectrum trading.
Administrative mechanisms: Cost based

The administrative assignment of spectrum usually includes the imposition of fees associated with the
frequency assignment process such as processing of applications for receipt and renewal of licences,
as well as charges imposed on spectrum users for spectrum use. These fees can take the form of
simple charges that are set at a level sufficient to recover the costs of spectrum management, and that
can guide users in making decisions to use spectrum more efficiently. They can also take the form of
more complex formulae such as the universal price performance model (described in section 5) that
combine components intended to recover spectrum management costs and incorporate spectrum
usage fees that reflect the amount of spectrum assigned and efficiently utilized.

4
ITU ICT Regulation Toolkit Module 5 Chapter 5 Spectrum Pricing

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

The activities of each licensee impose direct costs on the spectrum management organization. These
include the costs of issuing, maintaining data, spectrum monitoring and enforcing its individual licences.
Some costs are common to a band or to a radio service (such as band planning); whereas others are
common to a group of bands and some, such as management overheads, will straddle all licensees.

Regulators can tackle the issue of setting prices to recover costs in several ways:

• Some regulators create detailed costing models to establish licences that have imposed allocated
costs. There are few examples of operating systems like these. The principal reason is the complexity
involved in establishing and maintaining such ultimately arbitrary cost allocation systems.
• Most regulators establish rules that set charges on the basis of calculations based on the number
of devices or that charge a percentage of licensee turnover. In these circumstances, a simple
model of direct costs can be developed and related to revenues derived from fees. In addition,
some method of allocating indirect or common costs will be needed, for example, based on the
number of licensees in proportion to the direct costs that they impose. Or they can be allocated
in accordance with the amount of spectrum (e.g. in MHz) allocated to the various services.
Administratively calculated market values: Administered incentive pricing

Administered incentive pricing (AIP) refers to prices that are set by the regulator to reflect the
opportunity cost of spectrum while incorporating incentives. Prices are set at a level to encourage
efficient use and that reflect spectrum scarcity. Administrative incentive prices used to set spectrum
fees are intended to reflect the economic value calculated pursuant to an administrative method.
It will typically estimate the opportunity cost of spectrum in a particular use, but may also include
monopoly rents and options value. AIP is used extensively in the UK, where more than half of the
spectrum is priced by AIP methods, as well as various other jurisdictions.

The methods for applying AIP are discussed in more detail in section 5.

Market-based economic value

In the case of auctions and spectrum trading, participants in a competitive auction or engaged in a
spectrum trade will determine the price at which spectrum rights will be obtained by licence from
the regulator or transferred between parties:

• In an auction, the economic value is reflected in the price paid by the successful bidder, which
will meet or exceed the reserve price established for the auction. It will be composed of bidding
deposits paid at the outset and the applicable winning price (see section 5).
• In the case of spectrum trading, the economic value is reflected in spectrum trading prices and
the spectrum fee will include any transaction costs imposed on the participants in the trade.
• When spectrum prices are determined through market mechanisms, price levels at a given time
may be influenced by a number of factors such as geography, competition amongst potential
users, advances in technology, the present value of cash flows derived from a particular service
over time, the general economic climate, and particular conditions and obligations to licensees.

4 Issues with setting spectrum fees

The spectrum manager will need to review and consider various issues when deciding upon the
method, the financial basis, amounts and the timing for payment of fees in respect of a particular
spectrum band, type of use or type of user. The issues include:

• fiscal context;
• relevant principles and objectives for certain types of spectrum fees;

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

• funding regulator operations;

• demand and supply for spectrum;
• technological change;
• type and duration of the spectrum authorization and renewal options.
Fiscal context

The regulator should consider the impact that current and changing levels of fees will have on the
viability of particular segments of the radiocommunications sector. It is accepted that the mobile
telecommunication sector significantly contributes to GDP growth.5 Similarly there is wide consensus
on the importance of broadband development in regard to both the economic health and social
interaction of a country’s inhabitants. Access to rich and varied data content and services is now a
prerequisite for global trade and is becoming an essential component of the interaction between the
inhabitants of a country and between the people and their government. Consequently, broadband
has acquired a special status and is recognized by the United Nations as an essential convenience (or
even a new human right6), and has consequences for all aspects of the economy and development of
society and a large portion of these broadband accesses is provided through mobile networks (>80%
in developing countries).

Spectrum fees set too high combined with income taxes, VAT, excise, regulatory fees, and other
charges can negatively impact growth opportunities and attractiveness, sector valuations, investment
levels, and compliance with authorisations.

Particular objectives of the relevant spectrum fee

The regulator should take into account the intended purposes for applying spectrum fees, such as
collecting revenues to cover spectrum management and other regulatory costs, and in the case of
scarce spectrum, promoting economic and technical efficiency, extracting excess rents and reducing
windfall gains for licensees. Although both administrative and market-based methods can be used
to achieve the objectives of spectrum fees, the regulator should plan for the introduction of market-
based methods that better match the goals of economic and technical efficiency for those bands and
services to which the approach best fits.

However, there may be situations where an auction will not produce the result sought even though
spectrum scarcity exists in the band or bands. For instance, in some cases, if offering regional spectrum
licences in order to increase rural connectivity, an auction might not identify the applicant best
qualified and committed to serving the region in question. Where bids are expected to be very low,
the differences between bids may not provide meaningful information about the best applicant. Thus
in some situations, a price may be set administratively and selection made on the basis of comparative
review of applicant proposals.

Funding regulator operations

The regulator spectrum management activities depend upon a financially stable and sustainable
operating model where sufficient spectrum fees cover both direct and indirect costs. It will set fees
in a manner that ensures that its operations will be adequately funded.

Figure 2 below shows annual spectrum management costs by service as reported by the Office
of Communications (Ofcom) in the United Kingdom for 2014-2015. It also illustrates the Ofcom
transparent reporting of spectrum management costs by radio service.

5
Data covering 96 countries (2008-2011) found that for a given level of mobile penetration a 10 per cent increase in 3G
penetration resulted in an average annual increase in GDP of 0.15. The Economic Impact of Next Generation Mobile
Services, Chapter 1.6, World Economic Forum, 2013.
6
www.​broadbandcommission.​org/​Documents/​Broadband_​Challenge.​pdf

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

Figure 2: Spectrum management costs by service

Source: Ofcom

Scarcity of and demand for the spectrum

The regulator should consider the scarcity of spectrum - excess of demand over its supply - when
choosing a method appropriate for setting spectrum fees taking into account the level of existing
congestion under current use of the band, and likely congestion if artificial constraints such as licence
restrictions are removed, or if the spectrum were made available for an alternative use.

Two contrasting situations illustrate the different pricing approaches depending on whether there is
scarcity or no scarcity:

• Scarcity: For example, in the bands below 1 GHz where various technologies are available to
provide services for which there is high demand. Several methods may be appropriate for setting
spectrum fees:
– market-based pricing through auctions;
– AIP where, despite the excess demand, an auction is not feasible, combined with comparative
review of applicants; and
– comparative review of applicant qualifications (beauty contest), which might include
comparing financial offers for the spectrum or alternatively price the spectrum according
to administrative costs.
• Non-scarcity: Often where there are few users, services and data requirements are tolerant to
interference and lower power devices are commonly used in a non-interference/non-protection
basis. The services and applications associated with non-demand situations include industrial,
scientific and medical (ISM) applications, (see provision No. 1.15 of the ITU Radio Regulations)
and typically bands above 15 GHz.
In such cases (assuming the spectrum is not licence-exempt), the regulator should usually assign
the spectrum, setting prices administratively with a view to recovering administrative costs,
publish the prices in a fee schedule, and assign the spectrum on a first-come, first-served basis.
Ensuring the highest value use of spectrum

Where demand for radio spectrum in a given band exceeds the available supply, fees for the right to
use the band can be used to encourage the highest valued use of the band. Higher fees that weed
out the less valuable uses of spectrum will curtail demand to the point where it no longer exceeds

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

supply. The highest value use will create the highest consumer surplus and therefore result in the
licensee being willing to pay the most for a frequency licence. Thus, in theory, the best ideas for
how radio spectrum can be used should attract the highest amount of investment capital, and so
for example the winner of an auction will be the bidder that can convince the market that it has the
most profitable project.

Allocating spectrum fairly and transparently

Methods of charging fees for the right to use radio spectrum can also act as a transparent allocation
protocol where demand for spectrum in a given frequency band might otherwise exceed the available
supply. For example, auctioning spectrum can achieve the goal of ensuring a fair and transparent
allocation among rival bidders. Alternatively, if radio spectrum prices are set at or near the level of
economic rent, demand for the band may diminish to the point that supply exceeds demand so that
spectrum assignments can simply be made on a first-come, first-served basis. If prices are set too
low, demand may exceed supply, requiring regulators to select among competing applicants which
places responsibility on the regulator rather than market forces. One of the reasons for using spectrum
auctions is to avoid the risks associated with weak or corrupt assignment practices by following fair
and transparent assignment methods

Technologies, standards and market developments

Changing technologies, international and national decisions on spectrum allocations and harmonisation,
consumer demand, and the commercial availability and cost of radiocommunications equipment, all
affect the value of radio spectrum. These factors may greatly affect both demand and supply:

• Demand for radio spectrum may increase as consumer demand rises for the applications that
use it (e.g., social media). Technologies that shift demand to other bands, such as digitalisation
of television, may reduce demand for previously heavily utilized spectrum.
• Supply may increase as it becomes possible to use a technology platform on radio spectrum
previously used for less valuable means (e.g., digital switchover). Technologies, such as
multiplexing that increase the throughput over the same bandwidth, and technologies that
allow greater reuse of spectrum on a shared basis may also increase supply.
Technologies and standards may affect the mechanism for spectrum pricing. For instance, they may
influence the conditions of spectrum auctions (e.g. licence durations, block-size and channeling
arrangements of bands auctioned).

Type and duration of the spectrum licence

Numerous different types of spectrum licence are available or in force in every country. For example,
some allow private companies to operate national networks to provide telecommunications services
to the public, some allow public bodies to provide public services, some permit amateur spectrum
use. Some spectrum use is exempt from licence requirements, although regulations and standards
may govern the types of devices, use and power levels that are permitted.

Where spectrum is to be licensed, the licences have different durations, with some being renewed
annually and others having terms of 10 years, 15 years or another lengthy duration. The regulator
should typically set fees for one-year spectrum licences administratively with a view to recovering
costs, and will not charge separate application and renewal fees. No fees will apply in respect of
licence-exempt spectrum.

Where a lengthy licence for scarce spectrum expires, the regulator may auction the spectrum or
renew the licence for an administratively calculated fee. Where it does the latter, it will typically seek
to price the spectrum to economic value using AIP based on opportunity cost or, to avoid windfalls to
licensees, priced at a full market value taking into account business modelling and/or benchmarking.

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

Considering social values

The primary economic objective (and many will argue the primary social objective) is to maximize the
net benefits generated from the resource, enabling an efficient distribution with maximum benefits
to society. While the importance of social values is widely accepted, few attempts have been made
at actually measuring social value in connection with spectrum use. Ofcom in 2007 developed its
framework in connection with the digital dividend to understand better how the different uses might
generate broader social values and hence make better-informed decisions concerning allocations and
spectrum valuation. The following elements of social value were identified:

• access and inclusion (e.g. value derived from universal access and facilitating access to
public services);
• quality of life (e.g. value derived from providing access to services that improve quality of life
by promoting work/life balance or family life);
• belonging to a community (e.g. value derived from allowing people with similar interests to
communicate and/or participate in the local community);
• educated citizens (e.g. value derived from services with educational content or child
oriented services);
• cultural understanding (strengthened cultural identities or promote diversity and understanding
of other cultures);
• better informed democracy (e.g. value derived from services that provide information facilitating
democratic debate).
• negative value derived from any of the elements above.
Figure 3 illustrates how to consider the potential value to society of different uses of the spectrum.
While the framework is a useful conceptual model, measuring the dollars and cents of social value is
subject to a degree of subjectivity and considerable disagreement. Most NRAs recognize the need to
take social value into account although little effort is expended on measurement.

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

Figure 3: Social value and the potential value to society of difference uses of spectrum

Source: Ofcom Digital Dividend Review7

5 Closer look at spectrum price methodologies

Regulators worldwide predominantly use administrative methods for establishing spectrum fees for
most bands and services with cellular, fixed and satellite-based telecom services being the exception.
As spectrum management best practices migrate towards more liberalized market-based methods,
spectrum auctions are becoming more commonplace. Spectrum auctions for cellular spectrum
and some fixed and satellite-based telecom services spectrum have been held worldwide although
concentrated in Western Europe, the Americas, and South East Asia. Over 70 have taken place in the
United States of America. Developing countries in Africa, the Caribbean and Eastern Europe, have
been less inclined to use auctions to assign cellular spectrum and determine spectrum prices. The
reasons include lack of scarcity and capacity within regulators.

More detailed descriptions for establishing spectrum fees using administrative and market-based
methods such as auctions and AIP is given in this section.

Administrative methods

The administrative assignment of spectrum usually includes the imposition of spectrum management
fees and spectrum usage fees. These fees can take the form of simple charges or more complex
formulae. The two types of fees are described below and further illustrated with Figure 4:

• Spectrum management fees: These are funds that are collected from spectrum users on annual
bases that are generally geared to recover direct and indirect costs of spectrum management
activities of the national spectrum regulatory authority. Spectrum management fees are set,
exclusively using administrative means.

7
http://​stakeholders.​ofcom.​org.​uk/​binaries/​consultations/​ddr/​statement/​statement.​pdf

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

• Spectrum usage fees: These fees are charged to recover a spectrum resource rent for the
government and to ensure that users of spectrum utilize the resource on an efficient basis. Under
a spectrum usage pricing framework users should move to a state where only assigned and
utilized spectrum is paid for and unutilized spectrum is returned for reuse. How spectrum is used
does vary considerably across regions due to economic, demographic, and technical realities.
There is an argument for making spectrum usage charges consistent across a region to avoid
investment disincentives. However, in looking at regional best practice several important factors
including scarcity, quality, congestion and value in use need to be taken into account. Spectrum
usage fees can be set either administratively, by market-based methods such as auctions, or by
administrative means intended to reflect opportunity costs, a proxy for market prices.

Figure 4: Two types of spectrum fees – management and usage fees

Where more than one type of authorization fee is charged, it is good practice to unbundle them,
i.e. to calculate them separately. This improves transparency and makes it easier to determine
that administrative charges related to cost recovery are indeed cost-based. Separating spectrum
management fees related to spectrum management costs from other spectrum usage fees improves
transparency and accountability. Equally important is the improvement in overall effectiveness of the
fees. Efficient use of spectrum can only be achieved when spectrum users are able to respond to the
incentive factors incorporated in spectrum usage fees (e.g. band and bandwidth, geography, time,
coverage density, etc.).

Relevant costs

The activities of each authorized spectrum use impose direct costs on the spectrum management
organization including the costs of issuing authorization, maintaining data, spectrum monitoring and
enforcing licences. Some costs are common to a band or to a radio service (such as band planning),
whereas others are common to a group of bands and some, such as management overheads, will
straddle all.

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

With spectrum management fees related to specific administrative activities and processes, the
regulator introduces fees with a view to aligning them the objective of cost recovery of associated
spectrum management expenditures. These direct and indirect costs include:

• salaries for skilled professional (including monitoring and enforcement) and administrative
spectrum management staff;
• investments in ICT’s and databases including: spectrum management tools, national frequency
allocation tables, spectrum users databases and monitoring system and equipment such as fixed
and mobile monitoring stations and their upgrades/calibrations;
• Capex and Opex for automated spectrum management functions and their upgrades;
• office space and services for utilities;
• research activities and costs associated with consultations and publications;
• interference coordination/mitigation activities;
• participation in ITU and other international meetings;
• management overheads;
• legal fees of enforcement actions;
• refarming.
Some costs will be common to a band or to a radio service of a particular band planning (such as
700 MHz band plan). Others will be common to a group of bands and some, such as management
overheads, will straddle all services and authorisations. A study conducted by the Australian
Communications Media Regulator (ACMA) suggests that indirect costs predominate. Fees are usually
imposed by the regulator when administratively assigning spectrum and processing applications. The
types of fees include:

• application fees;
• type approval fees;
• radio operator examination fees;
• fees for radio operator certificates;
• interference complaint investigation fees.
The simplest general formula for setting administrative spectrum fees to recover costs using a simple
model of direct and indirect costs is shown in Figure 5.

Figure 5: general formula for setting administrative spectrum fees

Spectrum Management Costs (Direct and Indirect)

Spectrum Fee =
Amount of Spectrum Assigned to the User

Source: ACMA

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

Spectrum fees can also reflect the demand and supply conditions for spectrum use, and the degree to
which spectrum use is liberalized. The regulator or ministry will choose from three levels of spectrum
management cost recovery:

• partial costs recovery resulting in the regulator requiring revenue from government general revenues;
• full cost recovery that may mean the regulator is financially self-sufficient; or
• fee revenues exceed spectrum management costs and the surplus is contributed to other
regulatory programmes or government general revenues.

Cost recovery leading practice: Authorisation Fees and the EU Authorisation Directive

The EU Authorisation Directive (Authorisation Directive) includes provisions related to

levying fees on undertakings that provide electronic communications services or that
operate electronic communications networks. The provisions of the Directive that relate
to licensing fees are paragraphs 30 to 32 of the introductory section of the Directive and
Article 12 of the Directive.

Pursuant to the provisions of the Directive, national regulatory authorities (NRAs) are
permitted to impose administrative charges on undertakings for the sole purpose of
recouping the cost of managing, controlling and enforcing the general authorisation regime
and the costs associated with granting rights of use. Administrative charges that are imposed
on undertakings must be limited to the actual administrative costs involved with these
regulatory functions.

NRAs that opt to impose administrative charges are required to publish an annual report
that sets out the total sum of charges collected and the total administrative expenditures
incurred. NRAs are further required to make appropriate adjustments if there is a difference
between the total sum of charges collected and the total amount of expenditures incurred.

The Authorisation Directive distinguishes between administrative charges and usage fees
for radio frequencies and numbering resources. The Directive permits the levying of usage
fees for scarce resources such as radio frequency and numbers as a means of promoting
the optimal use of such resources. Usage fees must not, however, hinder the development
of innovative services or act as a barrier to competition. The Directive also states that it
is “without prejudice to the purpose for which fees for rights of use are employed.” Thus,
NRAs are free to determine the use to which these fees will be put.

NOTE – http://​eur-​lex.​europa.​eu/​legal-​content/​EN/​TXT/?​uri=​URISERV%3​Al24164

Universal system performance pricing model8

A spectrum price can be formulated from a number of separate elements based on any or all of
various criteria such as the amount of spectrum used, number of channels or links used degree of
congestion, efficiency of radio equipment, transmitter power/coverage area, geographical location
and so forth. The basic principle for this approach is to identify various technical parameters in order
to measure the spectrum volume used or define the ‘pollution area’ of a radio system as a common
basis for establishing spectrum fees.

8
ITU Resolution 9, Guidelines for the establishment of a coherent system of radio-frequency usage fees: ITU-D SG 2,
provides further guidance and examples of how this model is applied.

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

When it comes to using administrative formulae for calculating spectrum usage fees several models
have been developed. A universal model for spectrum price determination based on system
performance has been developed and is described in more detail below9.

V K f KS
P= × × CS × K P
M Km

Where:

P = the spectrum price

V = volume of space or geometric area occupied

M = useable results obtained from the radio equipment considered, for example the number of
channels to be provided or users to be served

Kf = coefficient reflecting specific characteristics of range used

Ks = coefficient taking into account the region/location of the radio station installation

Km = coefficient reflecting the social benefit of radio system

Cs = annual spectrum management costs

Kp = coefficient reflecting the level of spectrum access demand in the band in question

On one hand, the application of this method is intended to stimulate more efficient use of spectrum,
and on the other hand various problems with the practical use of formulae such as this arise. The
main difficulty with this technique is in choosing factors that may vary in effectiveness on a case by
case basis while taking into account the specific features of a service, the demand for spectrum,
revenues potential from the service, etc.

Market based methods

Market-based methods include auctions, administered incentive prices, and spectrum trading and leasing.

Auctions

Spectrum auctions are used around the world and are an important method for awarding licences
and assigning spectrum authorizations for mobile services. The amount of revenues collected from
spectrum auctions can be significant. Auctions best support the main regulatory objectives of technical
and economic efficiency where market conditions permit competitive bidding. The typical indicators
of auction success include some measure of participation (more is better), an absence of collusive
bidding behaviour, and winning prices that reflect, more or less, the ‘true’ value of the spectrum to
winning bidders. Auctions are particularly well suited for assigning high-value spectrum rights such
as cellular and fixed links for various reasons:

• sound economic principles related to consumer welfare and investments are applied when
spectrum is in the hands of those who value it most highly;
• prices set in spectrum auctions are comparatively free from political influence and collusion;
• auctions are a comparatively quick method of delivering a result;
• operators themselves rather than the regulator set the spectrum price (even if the regulator
can influence prices through selecting the auction method and setting reserve prices);

9
Spectrum Pricing, Vadim Nozdrin, delivered at the ITU Regional Radiocommunication Seminar, Lusaka, 2003.

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

• market prices can encourage rapid rollout of services by putting pressure on competing operators
to extend coverage quickly to generate cash-flow to cover the investment in the auction price.
In addition to meeting the main objective of achieving an efficient, timely and dispute-free assignment
of scarce spectrum when the demand for spectrum exceeds supply, spectrum auctions meet the
other important objective of supporting competition. Because spectrum is an essential element of
many high value commercial and public services for which there are not good wireline substitutes, the
operator controlling the necessary spectrum can also control (or heavily influence) the downstream
service sold to end-users. Hence, improving access to spectrum will reduce barriers to entry into
existing and new markets. Some useful background for analysis has been gained because of the
significant number of mobile licences granted by auction around the world. The most relevant and
key variables include:

• the number of licences on offer;

• whether their geographic coverage is national or regional;
• the extent of coverage and roll-out obligations;
• the size of spectrum lots, including combinations of different bands;
• payment obligations such as licence fees and royalties;
• access to additional spectrum and existence of overall caps;
• features that might encourage smaller operators and new entrants;
• restrictions on foreign ownership; and
• the tradability of authorizations.
The regulator should take the following key steps when considering the approach to a band or
bands available for assignment and then in implementing an auction. These keys steps usually
include the following:
Stage Activity
1 Consultation The regulator will generally seek to consult with stakeholders such as govern-
ment ministries and the likely users of spectrum as to the factors described
below, both before deciding to carry out an auction and while developing the
elements of the auction itself. The regulator seeks to ensure that any auction
is suited to the realities of demand in the market.

2 Assessing the The regulator will first review demand for and available supply of the rel-
appropriateness evant spectrum in order to determine whether it is subject to scarcity. It
of an auction will consider also whether the benefits of assignment through an auction
process outweigh the costs of such process as opposed to other assignment
processes. Where there are few users or high geographic frequency reuse is
possible or services and data requirements are tolerant to interference and
lower power devices are commonly used (non-interference/non protection
basis), an auction is unlikely to be appropriate. Also exclude radio services non
oriented to general public, e.g., aeronautical, maritime, radio navigation, radio
amateurs, etc.

3 Defining the The regulator will consider the object of the auction, including whether the
band or bands band should be auctioned in combination with another band. It may take into
to be auctioned account for example linkages between business cases for the bands, times-
cales in which bands will be available for use, spectrum caps to be applied and
timescales of availability of relevant equipment. When refarming is necessary,
how to do it, and finance.

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

Stage Activity
4 Selecting the The regulator will determine the method of auction to employ, such as for
auction method example simultaneous multiple-round ascending (SMRA) auctions, simple
clock auctions, combinatorial clock auctions (CCA) and sealed bid auction.

5 Benchmarking While no two auctions are alike benchmarking of similar auctions situations
(regions, economic status, bands and services) can provide valuable informa-
tion and lessons learned to help ensure auction success

6 Designing the The regulator will consider a number of issues in relation to auction design
auction depending on the circumstances. Among others, these may include:
• evaluate key end-state conditions and key performance indicators such as
coverage and roll-out, subscriber penetration, service prices and options,
and quality of service;
• addressing bidder pre-qualification and participation, licensing and operat-
ing conditions including entry fees, bid deposits, license payment terms;
• packaging the spectrum, including through setting the number of licences
on offer in the relevant bands and the size of spectrum lots;
• estimating spectrum values which will guide the determination of reserve
prices and the determination of bid increments and aid in optimising com-
petition through bidding rules;
• addressing market power concerns, such as through use of spectrum caps;
• promoting specific social goals, such as through coverage and roll-
out obligations;
• encouraging new entry and growth, such as through spectrum set asides;
• limiting risk of collusion through transparent communication, publicity,
activity rules, and severe penalties for collusive action by bidders and
related parties (*)
• sending appropriate price signals and securing a minimum economic rent
through reserve prices;
• Increasing the option value of the spectrum through the subsequent trad-
ability of licences and clarity regarding renewal;

7 Conducting the The regulator will tend, particularly in its early years, to engage specialist spec-
auction trum auction advisers to assist with preparation of the Auction Information
Memorandum for and conduct of an auction.

8 Reviewing the The regulator will review auction results in order to draw lessons, including
results in particular to the degree to which and manner in which the auction was
competitive.

*– www.​globalmobileawards.​com/​awards-​history/​winners-​2015/​

No two auctions are alike and as a result a generalization about the valuation of radio spectrum
becomes too complex for numerous technical, market and other interrelated reasons.

Deciding to auction spectrum, or to authorize a tender process, is not a simple process. Market
value for spectrum can fluctuate tremendously, and key decisions about timing, auction processes,
regulatory rules, bidding thresholds and market structure can mean the difference between very low
bids and irrational overbidding.

The key differences between auctions and comparative hearings or administrative decisions are that:

• An auction assigns the licence to the firm which bids the most, and that may in certain conditions
be the most efficient firm;

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

• A competitive auction, if it operates properly, will direct any expected excess profits from
providing the service to go to the government, rather than the operator as would be the case
if the operator were chosen via a competitive hearing. 10
Administered incentive prices

Setting an administrative price for spectrum equal to its opportunity cost is predominantly used in
the United Kingdom by Ofcom and by ACMA in Australia. A price is calculated by estimating what
additional costs are incurred by a firm to produce the same services using incrementally less spectrum
in a particular band or by having to utilize spectrum in the next cheapest band, or with a non-spectrum
input (such as a fibre optic cable). Those extra costs measure the loss of opportunity to use the
spectrum in question.

Figure 5 summarizes the decision steps applicable to AIP the method, while Table 1 summarizes the
main steps in calculating AIPs using the cost-reduction approach.

Figure 5: AIP decision steps

10
ITU report Exploring the Value and Economic Valuation of Spectrum www.​itu.​int/​pub/​D-​PREF-​BB.​RPT3-​2012

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

Table 1: Main steps in calculating AIP using the cost reduction approach

Step Action Comments

Step 1: Determine network and Make assumptions concerning future Transitions between technol-
technology situation to be modelled network coverage and technology ogies must be considered in a
practical manner

Step 2: Determine ‘typical operator Make assumptions concerning Traffic should be split between
characteristics’ forecast traffic, number of base urban, suburban rural and
stations (actual or modelled based remote areas and each of these
on link budget and propagation locations separately modelled.
assumptions), and base line spec- This is crucial to ensure that
trum assignment the impact of spectrum
supply on capacity con-
strained areas is isolated.

Step 3: Determine the spectrum Make assumptions about amount Typically this could be the spec-
increment or decrement of spectrum to add/take away from trum associated with removing
base line allocation. This is the a carrier from each sector. It
minimum amount that can tech- depends on the carrier size and
nically can be used to enhance/ frequency re-use pattern
reduce capacity

Step 4: Determine the number of Either model network or use data Increases in base station num-
base station sites and amount of from operators to identify initial bers will typically be required
network equipment to deliver traffic number of base stations affected in urban areas, though some
that are capacity constrained ini- suburban areas may also expe-
tially. Model impact of traffic growth rience capacity constraints
on network quantities in future.

Step 5: Estimate number of base Model network with and without Where areas are capacity con-
stations required and network costs spectrum in areas that are capacity strained, fewer base station
to support traffic forecasts with and constrained. sites will be required with
without additional spectrum additional spectrum.

Step 6: Estimate network costs to Change in the number of base sta- The future deployment costs
support traffic forecasts with and tions will results in change in base are discounted back to a net
without additional spectrum station and backhaul costs. present value. Costs include
both capital and operating costs
such as site rental and mainte-
nance, which may vary by area.
With additional spectrum the
costs of adding carriers must
be taken into account.

Step 7: Estimate value of the spec- Calculate difference between

trum increment or decrement network costs with and with-
out spectrum.

The input variables for steps 1-5 of the approach are described below and grouped into six categories:

1. Economic and demographic: Input parameters that relate to population (current and future
projection), characterisation of area type by population density, and economic conditions/
assumptions with impact on costs and return on investments.
2. Market: Input parameters relating to operator market share, which determine the amount of
traffic expected for each operator for the modelling period.

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

3. Technical network and deployment: Input parameters defining the way the network carries
traffic, which, in turn, determines the overall capacity of each base station and hence the rate
at which new sites will be added.
4. Network costs: Input parameters that enable the translation of network elements into total
network costs, given the technical network and deployment assumptions.
5. Base station (BTS): Input variables that relate to the distribution of base stations by operator
across area types and the coverage limit of each individual base station for different area type
and radiofrequency band.
6. Radio spectrum: Input variables that relate to the amount of spectrum in different radiofrequency
bands that each operator expects to have access to during the modelling period.
While it is possible to model cellular spectrum values using AIP, it is also clear that adequate capture of
important spectrum value drivers, such as traffic, and maintaining data over time, will require developing
complex models with a large number of input assumptions that are not likely to be constant over a
large number of countries with differing economic conditions, service offerings, and usage patterns.

The example in Figure 6 depicts a hypothetical calculation of AIP for cellular spectrum using the cost
reduction methodology using GSM spectrum assignments and also illustrates some of the difficulties
associated with calculating AIPs.

Some assumptions can be made with reasonable confidence (e.g. unit equipment costs) while others
are more difficult to develop:

• Some assumptions are reliant on the current assets and operations of the specific mobile
network operator (MNO) such as the number of sites, subscribers and usage data for different
categories of subscribers. There is not a single set of typical assumptions that are representative
of all MNOs because of the variability in market share and the nature of their subscriber usage.
• Other assumptions require market forecasts for the mobile sector- ARPU (average revenue per
user/unit) growth and traffic growth. Forecasting mobile services over long-life network assets
is necessarily uncertain, and relative spectrum values will therefore depend upon the respective
aspirations and market confidence of individual operators.
Equipment costs are investment or capital costs of constructing the site and the costs of operating
the base stations for a network of specified capacity. In order to use these as a basis for spectrum
prices, a conversion to an annual cost per MHz is required. This is done by:

• assuming a base station life of 20 years;

• estimating the cost of installing and operating the network for the first half of this period as a
net present value in year one, using a real discount rate of 10 per cent.
The net present value is then re-expressed as a sequence of equal annual costs over the ten year
period, and divided by the number of MHz deployed to yield a price or value in USD million per MHz
per year. The residual values of any assets at the end of the ten year period count as a negative cost

The calculated opportunity cost of nearly USD 5 million per 1 MHz of GSM spectrum is very sensitive to
variations in key cost inputs such as the cost of land for situating cell sites, the cost of radio equipment,
and the discount rate. The example utilizes a very simplified traffic model which may not appropriate
today given the increasing dominance of data traffic and declining voice traffic.

The cost reduction scenario used in Figure 5 shows the calculation for the value of the cost savings
derived from deploying additional spectrum by an operator with existing spectrum assets. The
methodology relies heavily on the ability of future traffic growth to be accommodated within the
existing spectrum holdings (for a sensible without additional spectrum scenario). Another assumption
that may underpin the use of this model is that reduced costs from the use of incremental or even
alternative spectrum will not have a significant impact on the revenues.

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

Figure 6: Hypothetical calculation of AIP for cellular spectrum

Source: ITU

Spectrum trading and leasing

Secondary markets may introduce price signals that lead to more efficient spectrum use because a
spectrum licensee holding onto spectrum faces the opportunity cost of revenues foregone from not
disposing of it. Secondary markets also allow for the fact that spectrum valuations can change over
time as a result of changing technologies and patterns of demand.

Primary award mechanisms are never perfect. Secondary markets can help correct imperfections,
allowing particularly in the case of spectrum that has been administratively assigned for it to move
to those who value it more than those initially licensed. In the case of auctions, where the licensee
acquires the right to use spectrum through a market mechanism, the ability to trade or lease the
spectrum allows the licensee also to dispose of it through a market mechanism. Such possibilities of
exit will increase the option value of the spectrum.

For these reasons, the regulator should, on a step-by-step basis, allow increasing levels of secondary
markets through permitted spectrum trading and spectrum leasing by considering requests to trade
spectrum rights and lease spectrum, taking into account factors including:

• proposed change in use of the spectrum, including whether any proposed change of technology
may cause harmful interference;
• qualification requirements, including whether the transferee meets any qualification
requirements that applied to the transferor;
• licence obligations, including how obligations associated with the spectrum rights to be
transferred will be treated;
• the impact of the transfer on competition in the market;
• whether the transferor and transferee are in good standing under applicable laws and
regulations; and
• national security.
When the spectrum manager is satisfied that a proposed trade or lease is not likely to lead to more
harm than the benefit it should be allowed to proceed.

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

Other methods

Economic modelling and business based valuation provide useful information on sector performance
and the impact spectrum fees may have on income growth, investment in the radiocommunications
services and technology.

Economic modelling

The objective of economic modelling is to assess spectrum value from the perspective of its
contribution to the national economy. This is important because governments are interested in
increasing economic contributions from the telecommunications sector. Economic modelling also
allows the NRA to consider how changes in the raising or lowering of economic activity such as
economic downturns, changes in taxation, and new trade relationships will affect performance in
the sector and what adjustments, if any, to market structure and regulation are needed. Economic
valuation modelling does not easily translate into specific valuations for radio spectrum.

The basic model involves examining the economy at three levels of aggregation to get a picture of
the stimulus to the overall economy on the assumption there are meaningful connections between
individual, households and firms, industries and the macro-economy. Economic modelling gauges
the increments in economic output and its effect in terms of employment and GDP per head. The
essential steps in this modelling approach consist of:

• assessing demand using various take-up scenarios;

• constructing a quantitative model using regression analysis and carefully selecting parameters;
• applying historical data and projecting forward across the three levels of the economy.
The results can best be used to determine general trends and make several linkages between income
growth, productivity growth and the increasing use of spectrum in the overall economy. Determining a
quantified value of potential impact on the overall economy can only be determined after considerable
effort. Most studies employing economic modelling of the telecommunication sector often focus on
the impact that an investment in telecommunications network infrastructure will have on GDP. For
example, economic modelling is used to estimate the increase in GDP resulting from investment in
new services and infrastructure and repurposing of underutilized government allocated spectrum
to be applied and used in a national broadband network. There are a number of general studies and
country specific studies have been conducted in recent years with increasing emphasis on investment
in broad band infrastructure,11 12 and while it is safe to conclude the use of spectrum in cellular services
makes an important contribution to growing the economy, it is much more difficult to arrive at specific
valuations for specific bands.

Economic modelling can be used by the communications regulator to shed light on the important
issues of the economic contribution (or loss) of government spectrum holdings of commercial
spectrum and what adjustments are necessary when the contribution from spectrum in a particular
service begins to tail off.

Business based valuation

A business-based valuation model assesses the value of spectrum from a commercial user’s perspective.
The exercise will be highly relevant to operators. The objectives for both the regulator and operator
will converge at the point when spectrum values and resulting spectrum prices are optimal. The NRA
is interested in economic and technical efficiency whereas the operator is interested in exploiting
the profit potential of assigned frequencies. The principles of the business-based valuation approach

11
The Impact of Broadband on the Economy – Research to Date and Policy Issues, Dr. Raul Katz, Columbia University and
ITU, 2010
12
Socio-Economic Assessment of Broadband Development in Egypt, Dr. Matt Halfmann and Dr. William Lehr MIT, World
Bank ICT Unit, 2010.

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

involve estimating the value of profits over the model period by understanding how much profit the
spectrum in question will generate.

A base model case is needed where current and future aggregated growth in demand and revenues
for the sector are compared to the costs of providing and delivering the service (Capex and Opex). The
resulting discounted cash flows do not, at this point, reflect the value of spectrum to a business since
there are multiple factors affecting profitability, not just the contribution of spectrum. Measuring the
value of spectrum from the operator perspective also involves estimating the constraints on profit
such as competition and regulation. The number of licensees in the market and potentially entering
the market will potentially affect composite service demand model while the introduction of new
services and technologies (either complements, substitutes, or disruptive technologies such as OTT
(over-the-top)) have to be factored into measuring cash flows and the resulting value of spectrum
value to that user.

The aim of this type of modelling is to generate an upper bound estimate of the operator’s willingness
to pay for the spectrum. The discounted cash flow (DCF), the net present value of revenue less cost
over the licence term, which can be expected by an operator from the use of the spectrum to deliver
service to subscribers, represents the limit of what the operator will be willing to pay. If it has to pay
more than this limit, the operator will be better off not acquiring the spectrum, since the net benefit
of the spectrum use is negative. A proportion of the DCF value is attributed to each frequency band
– a simple way of doing this is to pro-rate the value by bandwidth.

Some of the important issues which will affect spectrum valuation utilizing a business-based model include:

• the level and growth in demand (subscribers and ARPU) given that certain regional markets may
be considered as mature or reaching maturity;
• the level of competition and respective market shares of operators and how spectrum valuations
will be affected;
• differences in the attractiveness of various IMT Bands such as 700- 900 MHz, 1700-2100 2300-
2500, 3400-3600 MHz bands for the introduction of new services and technology;
• strength of competition from other services including fixed line and new services such as VoIP
and broadband wireless system (BWA);
• assumptions about current and future costs of equipment and assumptions about operating
costs of all operators and the timing of investments;
• assumptions about the business finances and its weighted average cost of capital (WACC).
Again as with AIP, a service neutral model cannot be practically constructed because the value for
spectrum is a function of network structures and final communications markets, both of which are
service specific.

6 Preparing administrative spectrum fee schedules

In this section, general guidelines for establishing administrative spectrum fees for multiple services
such as broadcast, cellular, broadband, fixed and mobile services are provided.

Policy decisions

Spectrum management and spectrum fees policies, consisting of a preamble, spectrum policy and
spectrum fees objectives and a set of principles and regulations provides the framework for the
management of spectrum and establishing spectrum fees. The government stated spectrum policy
objectives provide the fundamental basis for the regulator spectrum management programme whilst

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

the principles provide guidance for achieving the objectives through management of the spectrum
resource. Regulations derived from and consistent with policy provide the rules to be followed by
those involved - the regulator and those authorized to use spectrum. Together, these framework
components provide the direction for radiocommunications, wireless applications, services and uses,
which range from national defence, security and public safety through to commercial, consumer,
scientific and private radio.

For most developing countries the regulator will typically begin with spectrum fees based on simple
administrative formulas to recover spectrum management costs and contribute to government
revenues and at a later stage once spectrum becomes scarcer should commence processes for
introducing spectrum prices reflecting economic value using methods such as AIP, spectrum auctions,
and spectrum trading. Figure 7 presents the spectrum policy/spectrum price toolbox.13

Figure 7: Spectrum policy/spectrum price toolbox

Source: SBR Juconomiy Consulting AC

Practical considerations

Spectrum fees should not be introduced in cases where potential users are hard to identify individually
(for example users of licence exempt spectrum), since the collection of spectrum fees would be
uncertain and probably very limited in terms of completeness.

When choosing the parameters to be used as the basis for the spectrum fee calculation, difficult or
impossible to verify values to be declared by the users in question (e.g. height of a station antenna
or number of mobile stations in a private network) should be avoided. Likewise the regulation should
be concerned with reducing the opportunities for data manipulation data in an attempt to reduce
the amount payable.

The establishment of a fee system should be based on consultation and where possible consensus
among all the players, since this makes for a healthy collection results.

Understanding the market sector: implications

As mentioned earlier, spectrum fees along with taxes, excise taxes and other payments to the regulator
and government can have a significant negative impact on sector growth, penetration and use, and

13
Spectrum Pricing – Theoretical Approaches and Practical Implementation, SBR Juoconomy Consulting AC, 2013

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

investment. The regulator should be wary of significant increasing spectrum fees where they will be
passed onto users since this will lower penetration and use. The regulator should develop economic
modelling techniques to estimate the impact on users of spectrum resulting in changes in economic
conditions, end user prices and spectrum fees.

Understanding the future demand for spectrum: implications

The demand for spectrum should be understood from the perspective of the demand for the service
for end users. For example, aeronautical navigation systems may become more intensive users of
spectrum, but if people stop flying the urgency of demand will change significantly. In the case of
mobile and broadband services, the focus should be on cellular operators who presumably have a keen
understanding of end-user demand and are intent on promoting demand for the services they offer.

Spectrum availability and spectrum fees do have a major impact on the demand for spectrum by
operators. When spectrum is scarce, alternatives to spectrum use such as fibre back bone and fixed
services will be sought after. If spectrum prices are high enough, operators can then make choices
involving trade-offs - less spectrum or more radios.

It shall consider also the international framework, in particular band allocations contained in ITU
Radio Regulations; they are revised every four years during the world radio conferences (WRCs) every
change in band allocation decided by a WRC has huge impact in affected sectors, as it could increase
or reduce total amount of available spectrum for a given service.

Specific forecast models are unique to each service taking into account differences in demand in urban
and rural areas. One implication of the difference is the possibility of making change to spectrum
authorizations and spectrum fees allowing for regional and national license variants. Estimates of
spectrum demand also take into account potential future improvements in the spectral efficiency
of the technologies supporting the delivery of individual services. Similarly, as technologies become
more efficient spectrum fees should allow for variants in price levels.

An operator cost model can be developed. When spectrum prices are high there is little encouragement
for intensifying network design and adding new cell sites and base stations. Even so, an operator
cost model will demonstrate how at a certain level of spectrum price the appropriate trade-off
in opportunity cost can be reached. This is the fundamental assumption underlying administered
incentive prices (AIP). Figure 8 illustrates a high level view of the steps taken in developing a forecast
model for cellular services.

A spectrum audit can be conducted to examining particular bands used by the public sector in order
to understand better the scale of current public sector use, potential alternative uses, the possibility
of refarming, and the implicit policy choice of maintaining the status quo. Developing a forecast of
cellular service spectrum demand will require a number of steps outlined in Figure 8.

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

Figure 8: Developing a forecast of spectrum demand for cellular services

Source: ITU

Collecting data and information: Assumptions and data requirements

Benchmarking

The regulator may also carry out benchmarking by drawing inferences from market prices in other
jurisdictions for similar spectrum bands. Such prices will usually have been derived from spectrum
auctions, but over time might potentially be derived from spectrum trading prices. Benchmarking
will typically involve taking into account:

• prices on a ‘per MHz per population’ basis, adjusted for differences per capita;
• the price relationships across different bands in countries where auctions in higher and lower
value bands have occurred;
• differences in licence durations;
• differences in timing of payments; and
• difference in coverage and other associated obligations.
Understanding spectrum management costs

A cost model should be developed and based on a defined structure, relevant business processes and
associated management accounting data within the regulator – for example the amount of time spent
issuing and enforcing particular authorisations. As well, a method of allocating indirect or common
costs will be needed – for example, based on licensees in proportion to the direct costs which they
impose. Or they can be allocated in accordance with the amount of spectrum (e.g., in MHz) with
which an authorization is associated. In some cases detailed costing models are developed to establish
which costs are to be imposed (operating expenses (Opex) and capital expenses (Capex)).

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

Direct and indirect costs are involved in the spectrum management functions, will likely include:

• Direct costs are likely to include the immediate and identifiable cost of specific regulatory
procedures and events, such as issuing licences pursuant to applications for specific frequencies.14
This would include the cost of staff time in the frequency assignment process, site clearance,
interference analysis required to clear the band, international and regional coordination specific
to a spectrum band among other costs. There may be particular monitoring costs associated
with a given band for particular reasons, such as legacy overhang from refarming or proliferation
of equipment in that band.
• Indirect costs are likely to include the overhead of operating the regulator spectrum management
responsibilities. These will involve costs that are not directly attributable to specific spectrum
licenses but are required for spectrum management. Examples of such costs include general
international and regional cooperation, spectrum planning, spectrum monitoring, research,
preparation of regulations and guidelines, interference investigations, as well as the cost of
support staff, equipment and premises.
Preparation of a cost recovery spectrum fees schedule will require the following:

1. Internal accounting: Internal accounting systems to enable it to estimate direct and indirect
costs attributable to spectrum management as opposed to its various other administrative
activities. Where possible, attribution of such estimated costs to categories of various spectrum
management activities. Such categories might include, for instance, spectrum licensing,
spectrum monitoring and enforcement, spectrum policy programmes and projects, international
coordination, ICT costs and common costs such as property, human resources and facilities.
2. Apportionment of costs: Apportioning estimated costs across the various types of spectrum
licence, taking into account the relative administrative burdens of effort for different spectrum
bands and spectrum uses.
2. Application to licence types: processes for introducing cost-based fees for spectrum to which
the regulator has determined cost-based fees should apply.
Deciding on a method

It is most likely that a regulator will chose from several methods to establish spectrum prices and
fees. Before doing so, the regulator should review legislation, policy, and regulation. The level
of competition, sector health and the demand and supply of spectrum are additional important
considerations. The availability of reliable data, systems, adequately experienced and proficient staff
will be necessary. Once the regulator has completed this assessment, the final decision rests with
what spectrum management and spectrum pricing objectives are to be met. Table 2 summarizes the
advantages and disadvantages of various spectrum price methods.

Preparation, review, consultation

Recalling the spectrum price principles discussed in section 3, the following principles apply to the
preparation of spectrum fee schedules and their review and consultation with stakeholders.

• Fairness and objectivity require that fees are based on objective factors and all licence holders
in a given frequency band should be treated on an equitable basis. This would preclude, for
example, different treatment of different users in a given frequency band.

14
The administration and management of radio spectrum incorporates four building blocks: allocation planning,
technical rules, authorization of spectrum, and interference avoidance. Similarly, ITU recognizes four main spectrum
management functions: Spectrum planning, authorization, engineering, and monitoring. See ITU Spectrum Manage-
ment Handbook, 2007 revised 2015.

25
26
Table 2: Advantages and disadvantages of various price methods

Methods Advantages Disadvantages

Simple fees Can be applied to all users of spectrum (public/private). The fee does not reflect the spectrum management costs of neither the
Can be implemented without establishing a fee calculation model and regulator nor the value the user places on the spectrum.
fixing the level of the various fees based on various radiocommunica- Applied alone it does not promote technical or economic efficiency in
tion application. spectrum utilization.
Easy to implement and recovers some or all of the cost of issuing a license.

Spectrum Management Spectrum users are assured that they pay only for the costs connected Applied alone it does not promote technical or economic efficiency in
Cost Recovery with the spectrum management authority. Taxes collected from the spectrum utilization.
general tax payers are not employed to finance activities of the adminis- It can become very complicated process to distribute direct and indirect
tration whose beneficiaries are clearly identifiable. costs of the spectrum management authority by mean of fee calcula-
tion models and tariffs.
Due to legal restrictions it may happen that not all activities of the spec-
trum management authority can be financed with cost recovery fees.

Incentive Factors Promotes efficient use of spectrum. Can require considerable effort to approximate market values.
Recovers some or all of the cost of issuing a license, although it is not the May not be suitable for all services.
objective of such a fee.

Fee based on Good approximation of the market value of spectrum. Requires a large amount of data and analysis.
opportunity cost Promotes efficient use of spectrum. Only applicable to limited part of spectrum (account is taken only of
users and uses competing for a given frequency band).

Fee based on users’ Links the cost of spectrum to the value of the commercial activi- Can only be applied to users whose revenues are directly linked to spec-
gross income ties that use it. trum utilization.
Simple to calculate. Does not promote spectral efficiency if revenues not proportional to
quantity of spectrum used.
Can be seen as an extra tax.
Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules
 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

• Transparency requires that the basis on which fees are calculated should be made clear in a
published document resulting from consultation with stakeholders and that all fees should be
set based on a published schedule.
• Administrative costs will be lower if the fee schedule is simple to administer. The simplest fee
schedule would be one involving a flat fee payment; however this may not promote efficient
spectrum use in many circumstances.
It is very important to ensure that the perspectives of those who use spectrum are taken into account
in setting spectrum prices, particularly where market-based methods may be adopted or prices are
to be set with a view to establishing incentives to use spectrum efficiently. Accordingly, the regulator
should plan to consult with stakeholders and spectrum users at various junctures in the spectrum
fee setting process.

7 Examples of administered price method: Spectrum fee schedule

In this section three examples of spectrum fees are described with the first two employing formulas
similar to the universal system performance model and the third example illustrating how one
regulator set new spectrum fees for spectrum licences now coming due for renewal and previously
awarded using administrative means:

1 Lebanon: Telecommunication Regulatory Authority (TRA) draft consultation paper - www.​tra.​

gov.​lb/​Spectrum-​Right-​To-​Use-​Fees – an advanced example of the system performance model
with forecasts of spectrum costs and congestion factors.
2 South Africa: Independent Communications Regulator of South Africa (ICASA) – recently revised
spectrum fee approach termed administered incentive pricing whereas Administered Prices
with Incentives may be a more accurate way to describe the adopted methodology. www.​
icasa.​org.​za/​LegislationRegulations/​EngineeringTechnology/​RadioFrequencySpectrumLicensing/​
SpectrumFees/​tabid/​357/​Default.​aspx
3 United Kingdom (Ofcom): Approach in dealing with the now frequent problem of setting new
spectrum fees for spectrum licences previously awarded using administrative means and now
coming due for renewal. www:​stakeholders.​ofcom.​org.​uk/​binaries/​consultations/​annual-​
licence-​fees-​further-​consultation/​statement/​statement.​pdf
Lebanon: Telecom Regulatory Authority (TRA)

The TRA completed a study of spectrum administrative charges (SAC) and in draft consultation paper
proposed changes in regulation to the Minister of Telecommunications. The purpose of this very
advanced approach and informative study was to review the spectrum charging regime and ensure
that it is non-discriminatory and transparent. SAC were to be applied to spectrum licensees and are
intended to recover TRA administrative costs for spectrum management, control, and enforcement.
One of the important goals was that fees should not in any way hinder the development of innovative
services and competition in the market.

SACs are based on values that are directly proportional to the allocated band, occupancy and congestion.
The cost of any band is derived by calculating the effective management and monitoring system cost
that is based on the functions and activities that will be performed on such band in order to:

• manage spectrum efficiently;

• optimize spectrum usage;
• protect licensed spectrum;
• avoid harmful interference; and

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

• detection and location of unauthorized users.

Other parameters were introduced when finalizing SAC charges for each service including: power
of transmission, number of sites and cells, and directivity. These variables have a direct impact on
the nature and extent of spectrum management and monitoring activities. Hence resources needed
to handle such activities and functions are determined accordingly. These factors are used in most
countries in different ways to calculate spectrum fees and different methods are applied without any
common base relation (different countries studies have different approaches). Furthermore, most of
the countries do not differentiate between the right-to-use (RTU) fees and administrative charges.

The fees in a given year and over forecast period are based on the capital and operating costs incurred
in managing spectrum. TRA developed a five-year forecast of these costs. Figure 9 illustrates the
forecast of spectrum management costs.

Figure 9: Example of a forecast of spectrum management costs

$4,075,898 $4,226,334 $4,308,167

$3,653,954
$3,351,739

Year 2009 Year 2010 Year 2011 Year 2012 Year 2013
Total Spectrum Management & Monitoring Costs

An additional interesting aspect of the work done by TRA is the development of a set of congestion
factors that are applied to different ranges of bands and change over time. The concept is straight
forward – over time as demand in certain bands increases, the effort and costs required to make new
non-interfering assignments increases. Figure 10 illustrates the congestion factor formula which is a
multiplier factor and ranges from 0.5 to 4.5 based on the following formula:

Congestion factor = 0.5*EXP^ (2.2*X)

Where x = occupancy of the given frequency band

Figure 10: Calculations for the congestion factor over time

5.00
4.50
4.00
3.50
Congestion Factor

3.00
2.50
2.00
1.50
1.00
0.50
0.00
0.0% 20.0% 40.0% 60.0% 80.0% 100.0%
X=Occupancy

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

Table 3 shows the derived congestion factors to be applied over time to various bands.

Table 3: Congestion factors by band

B1 B2 B3 B4
30 kHz-3 GHz 3 GHz-6 GHz 6 GHz-18 GHz 18 GHz-40 GHz

2009 2.19 1.27 3.82 0.61

2010 2.26 1.29 3.98 0.61

2011 2.33 1.32 4.15 0.61

2012 2.40 1.34 4.33 0.62

2013 2.48 1.37 4.51 0.62

By analysing and consolidating methods used in different countries and using the data available for
Lebanon, the general formula was deducted in such a way to serve the regulator approach to apply
the proper SAC for each service (such as PMR, PMP, P2P, analogue and digital broadcast) and to reflect
efforts required in managing and monitoring each service.

SAC(i)(n) = C(i)(n) × BW × Kp

Where SAC (i) (n) is the cost per band (i) in year (n), Band Width (BW) is the Occupied Bandwidth per
service; Kp is a factor or multiple of factors that depend on the requested service. A list of Kp factors
appear in Table 4.

Table 4: Kp factors for various services

Service Kp =
Mobile & DSP (PMP) Cell Factor ( FTX )

MVDS (digital transmission) Power Factor (Fp) x Site Factor (FSF)

Broadcast (TV& FM-analogue transmission ) Weight Factor (Wf) x Power Factor (FP)

MW Links (P2P) Service Factor (FS) x Direction Factor(FD)

PMR (n is the number of Fixed Stations, p is the

number of Mobile Stations; q is the number of
Portable Handheld Stations n p q
[∑ (nk)Fp + ∑ (pj) Fp +∑ (ql)Fp ]
k=0 j=0 l=0

South Africa: ICASA

ICASA proposed changes to its spectrum fee regulations in 2009 and conducted extensive consultations
seeking input from various users and stakeholders throughout 2010 and provided several training
sessions on the new fee schedule throughout 2012. The Radio Frequency Spectrum Licence Fee
Regulations came into force in 2010 and are described as administrative incentive pricing (AIP)
intended to provide for a new basis for calculating radio frequency spectrum licence fees in South
Africa. As described in the regulations, AIP involves the use of a specific formula for the calculation
of fees for four radiocommunication services:

• point-to-multipoint services;

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

• point-to-point services;
• satellite hub ground stations;
• satellite VSAT subordinate ground stations.
The policy rationale for these fees is that they should as a minimum serve to recover the administrative
cost to ICASA of spectrum regulation and serve to promote greater efficiency the use of spectrum in
South Africa. Although references are given to both Ofcom and AIP, upon examination both of the fee
formulae incorporated in the new regulations are extensions of the universal system performance model.

Annual spectrum fees are calculated using one of two formulae:

Point‐to‐point

Fee=(UNIT*BW*FREQ*CG*GEO*SHR*HOPMINI*UNIBI)

Point‐to‐multi-point

Fee=(UNIT*BW*FREQ*CG*GEO*SHR*ASTER*UNIBI)

Where the fee for point-to-multipoint services equals the spectrum price determined by multiplying
the unit price (UNIT) by the frequency factor (FREQ), the bandwidth in MHz, the congestion factor
(CG), the geographic factor (GEO), the sharing factor (SHR), the area sterilized factor (ASTER), and
the unidirectional factor.

• UNIT= is the unit price for spectrum (currently set at R2000 for paired spectrum)
• BW = is the amount of bandwidth (MHZ) expressed for paired spectrum;
• FREQ = coefficient taking into account the coverage area in km2;
• CG= coefficient taking into account radiocommunication congestion;
• GEO= coefficient reflecting population density;
• SHR= coefficient taking into account exclusive or shared allocations and assignments;
• ASTER factor= coefficient taking into account the coverage area in km2;
• UNIBI= coefficient taking into unidirectional or bidirectional signal transmission.
Fees for multi-year authorization can be determined using factors established in regulation. For
example, a five year authorization is equal to 4.17 times the price of a one year authorization and a
ten year authorization is equal to 6.76 times the price of a one year authorization.

ICASA received documented comments from various groups and operators that expressed concerns
in two main areas: (i) lack of sufficient incentives and (ii) excluding certain services and users from
paying fees.

Examples of the comments received

Existing spectrum fee structures do not give sufficient incentives to encourage efficient use of
spectrum at a time when there is increasing pressure on limited spectrum resources. However, what
does come through in the newly proposed formulae is the application of penalties for inefficient use
more so than incentives for efficient use. Furthermore, there are no incentives given for employing
higher modulation orders, the use of statistical multiplexing, the use of high performance antennas
over standard performance antennas, the use of Automatic Transmit Power Control (ATPC), etc., all
of which are real costs incurred by some spectrum users in an attempt to increase the bits per MHz
and to enable earlier re-use of spectrum.

Under the new fee structure broadcasters continue to be exempt from paying for spectrum. However,
broadcasters are like any other licensees who use any part of the spectrum and they should pay for

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

their use of the broadcasting spectrum. In the converged environment, broadcasters will have the
opportunity to provide converged services that will compete with ECS licensees.

The view was expressed that an increase in spectrum fees should have a reasonable relationship with
the underlying regulatory cost of doing such regulatory work.

The trade-off between licence fees and other considerations must be analysed. All operator revenues
are capped by demand factors in the countries where they operate. These factors include demographics
such as the size of the potential customer base, per capita GDP and the price elasticity of demand. To
the extent that regulators charge high licence fees, this affects the viability of an operator’s business
case by increasing the costs of supply. If the costs of supply exceed revenues, the viability of an
operator business will be doubtful.15

United Kingdom: Ofcom

Ofcom notified licensees of 900 and 1800 MHz spectrum that license fees would be brought into
line with full-market value. Ofcom issued the policy statement in 2010. The term of licences when
issued and used for 2G services is “indefinite" with a five year notice period if revocation is to take
place. Vodafone UK, Telefónica UK, EE and 3 UK payed a combined total of GBP 24.8 million per year
for 900 MHz spectrum and GBP 39.7 million for 1800 MHz spectrum under their existing licences.
Extensive consultations began in 2013 in addition to a special project conducted by DotEcon focussing
on determining lump sum values akin to auction values. Recent 4G auctions of 900 and 1800 MHz
spectrum in other jurisdictions in Europe were brought into the mix along with other benchmarks.
Implementation was expected to take place immediately once the consultation period ended. The
consultation did however result in some important changes:

• UK regulator Ofcom scaled back plans to increase fees for 2G and 3G spectrum use, a move that
was previously described by analysts as a tax of GBP 4.5 billion (EUR 5.6 billion/USD 7.5 billion)
on the United Kingdom mobile industry over 20 years.
• The regulator revealed that it has revised its proposal to GBP 109.3 million per year for 900 MHz
spectrum and GBP 137.5 million for 1800 MHz spectrum. The previous proposal in January of
2015 had suggested GBP 138.5 million for 900 MHz spectrum and GBP 170.4 million for 1800
MHz spectrum.
Overall, the process was completed by September, 2015 nearly six years later with a proposal being
developed over two years by Ofcom and with extensive consultations over a three year period.

15
Licence Fee Practices: Historical Perspectives and New Trends, ITU Trends in Telecommunication Reform: 2004

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

Abbreviations
ACMA – Australia Communications and Media Authority

BWA – Broadband Wireless System

GDP – Gross Domestic Product

GHz – Gigahertz

GSM – Global System for Mobile (2G)

ICT – Information Communication Technology

MNO – Mobile Network Operator

NRA – National Regulatory Authority

Ofcom - The Office of Communications - UK

OTT – Over-the-Top (Technologies)

SOE – State owned enterprise

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

Glossary
Assignment: any authorization to use a frequency at a given site and under identified conditions.
Such a frequency is referred to as an assigned frequency.

Administered incentive prices (AIP): administered because they are set by the regulator with potential
incentive properties. AIP is used by some regulators such as the Office of Communications (Ofcom) in
the UK and Australian Communications Media Regulator (ACMA) in Australia to promote efficiency in
spectrum use within a framework of administrative spectrum management since AIP’s are intended
to be set at a level that reflects the scarcity of spectrum and encourages economy in its use.

Economic efficiency: relate to the way spectrum is used – employing an efficient allocation of
spectrum by both private and public sector organisations to meet the economic growth objectives
such as improving national income and the provision of government service.

Spectrum management fees: collected from spectrum users on annual bases that are geared to
recover the cost of spectrum management activities of regulator.

Spectrum prices: are representative of spectrum value and can be set through an administrative
process such as establishing a fee schedule where those willing to pay accept the price or, alternatively,
spectrum prices can be established by way of a market mechanism such as an auction or some form
of market-based method such as AIP.

Spectrum usage fees: collected from spectrum users as a resource rent and intended to encourage
efficient use of assigned frequencies.

Spectrum values: reflect the benefits to be gained by society from the best use for spectrum and at a
given point in time period can be influenced by a number of factors including: geography, competition
amongst potential users, advances in technology, the present value of cash flows derived from a
particular service over time, and the general economic climate.

Technical efficiency: relate to the specific goal of ensuring that frequencies are used efficiently allowing
for the maximum utilisation of spectrum by avoiding, for example, interference and unnecessarily
large gaps (‘guard bands’) between adjoining users and by encouraging the deployment and use of
more advanced technologies.

Broadband – Traditionally, broadband has often been defined in terms of data transmission speed
(i.e., the amount of data that can be transmitted across a network connection in a given period of
time, typically one second, also known as the data transfer rate or throughput). Defining broadband
in terms of speed has been an important element in understanding broadband, particularly since
the data transfer rate determines whether users are able to access basic or more advanced types of
content, services and applications over the Internet. Recommendation I.113 of the ITU Standardization
Sector, defines broadband as “transmission capacity that is faster than at 1.5 or 2.0” Mbit/s.

Internet of everything (IoT) – is the interconnection of uniquely identifiable embedded computing

devices within the existing Internet infrastructure16. Typically, IoT is expected to offer advanced
connectivity of devices, systems, and services that goes beyond machine-to-machine communications
(M2M) and covers a variety of protocols, domains, and applications. The interconnection of these
embedded devices (including smart objects), is expected to usher in automation in nearly all fields.
Estimates for the number of devices connected to Internet of Everything (Internet of Things) by 2020
range from 20 billion (Gartner) to 30 billion (ABI Research).

Machine-to-machine – The CTIA defines M2M as “applications or mobile units that use wireless
networks to communicate with other machines. These applications may include telemetry and

16
J. Höller, V. Tsiatsis, C. Mulligan, S. Karnouskos, S. Avesand, D. Boyle: From Machine-to-Machine to the Internet of
Things: Introduction to a New Age of Intelligence. Elsevier, 2014.

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

telematic devices, remote monitoring systems (e.g. smart grid, healthcare, transportation, etc.) and
other devices that provide status reports to businesses’ centers.

Wireless broadband – Similar to the ITU definition, the IEEE 802.16-2004 standard defines broadband
to mean instantaneous bandwidths greater than 1 MHz and supporting data rates greater than about
1.5 MBits/s. Wireless broadband involves radio access technologies to provide Broadband speed
Internet access or computer networking access over a wide area.

4G – short for fourth generation is the fourth generation of mobile telecommunications technology,
succeeding 3G and preceding 5G. A 4G system, in addition to the usual voice and other services of
3G, provides mobile broadband Internet access, for example to laptops with wireless modems, to
smartphones, and to other mobile devices. Potential and current applications include amended
mobile web access, IP telephony, gaming services, high-definition mobile TV, video conferencing, 3D
television, and cloud computing.

5G – 5th generation wireless systems denote the next major phase of mobile telecommunications
standards beyond the current 4G / IMT-Advanced standards. 5G does not describe any particular
specification in any official document published by any telecommunication standardization body.

The Next Generation Mobile Networks Alliance (NGMNA) has expressed the view that 5G should
begin rolling out by 2020 to meet business and consumer demands. In addition to providing simply
faster speeds, NGMNA predicts that 5G networks also will need to meet the needs of new use cases,
such as the IoT (network equipment in buildings or vehicles for web access) as well as broadcast-like
services and lifeline communication in times of natural disaster

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 Guidelines for the review of spectrum pricing methodologies and the preparation of spectrum fee schedules

Annex 1 – ITU Guidelines for the establishment of a coherent system of

radio-frequency usage fees: ITU-D SG
www.​itu.​int/​pub/​D-​STG-​SG02.​FEES-​1-​2010

35
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