International benchmarking of 900MHz and 1800MHz spectrum value Final Report for Ofcom September 2013 DotEcon Ltd 17 Welbeck Street London W1G 9XJ www.dotecon.com Content i Content 1 Introduction 1 2 Spectrum award benchmarks 3 2.1 Data used 3 2.2 Band specific benchmarks 13 2.3 CCA cross checks 35 2.4 Relative band value 41 3 Licence renewal fees 45 3.1 Approach to renewal fees 47 3.2 Renewal fees 50 4 Market value indications from spectrum trades 54 4.1 700MHz spectrum trades 54 4.2 2.1GHz spectrum trades 58 5 Conclusions 62 Annex A Auction benchmarks 64 Annex B Renewal fee case studies 71 Annex C Frequency band impact on spectrum value 84 Annex D Prices using alternative WACC 99 International benchmarking of 900MHz and 1800MHz spectrum value - September 2013 Tables & Figures ii Tables & Figures Table 1: Summary of results .................................................................................................................. vi Table 2: Economic, demographic and market data of large European countries and the US ......................................................................................................................................................... 10 Table 3: 1800MHz Sample Summary Statistics ............................................................................. 25 Table 4: 2.1GHz Sample Summary Statistics ................................................................................. 32 Table 5: Benchmark values .................................................................................................................. 34 Table 6: Package prices in the Swiss auction ................................................................................ 36 Table 7: Package prices in the Romanian auction ...................................................................... 37 Table 8: Package prices in the Irish auction .................................................................................. 38 Table 9: Package prices in the Dutch auction ............................................................................... 39 Table 10: Packages prices in the UK auction ................................................................................. 40 Table 11: Packages prices in the Australian auction .................................................................. 41 Table 12: Relative band values within auctions ........................................................................... 42 Table 13: Relative band values across auctions within the same country ......................... 43 Table 14: Licence renewal terms and charge structure ............................................................ 47 Table 15: Lower and upper bound of spectrum valuations from New Zealand, Australian and the Netherlands (price/MHz/pop for a 20 year term) ......................... 50 Table 16: Indicators of spectrum value ........................................................................................... 63 Table 17: 700MHz auctions .................................................................................................................. 64 Table 18: 800MHz auction .................................................................................................................... 64 Table 19: 800MHz awards ..................................................................................................................... 65 Table 20: 900MHz auctions .................................................................................................................. 65 Table 21: 1800MHz auctions ................................................................................................................ 66 Table 22: 2.1GHz auctions ..................................................................................................................... 68 Table 23: 2.6GHz auctions ..................................................................................................................... 69 Table 24: 2.6GHz awards ....................................................................................................................... 70 Table 25: Auctions in other bands used in benchmarking analysis ...................................... 70 Table 26: Normalised relative cell radii of different frequency bands ................................. 88 Table 27: Normalised relative cell area of different frequency bands ................................. 89 Table 28: Relative network deployment cost between frequency bands ......................... 93 Table 29: 900MHz auctions ................................................................................................................. 99 Table 30: 800MHz auctions ............................................................................................................... 100 Table 31: 800MHz awards .................................................................................................................. 100 Table 32: 700MHz auctions ............................................................................................................... 101 International benchmarking of 900MHz and 1800MHz spectrum value - September 2013 Tables & Figures iii Table 33: Sample summary statistics using WACC of 4.10% ................................................. 101 Table 34: Sample summary statistics using WACC of 8.86% ................................................. 101 Table 35: 1800MHz auctions 2010 - 2012 .................................................................................... 101 Table 36: 1800MHz auctions 2006 – 2009 ................................................................................... 102 Table 37: 1800MHz auctions 2001 – 2005 .................................................................................... 102 Table 38: 1800MHz auctions 1995 – 2000 ................................................................................... 103 Table 39: 2.1GHz summary statistics using WACC of 4.10% ................................................. 104 Table 40: 2.1GHz summary statistics using WACC of 8.86% ................................................. 104 Table 41: 2.6GHz auctions ................................................................................................................. 104 Table 42: 2.6GHz awards .................................................................................................................... 105 Table 43: Switzerland .......................................................................................................................... 105 Table 44: Romania ................................................................................................................................ 105 Table 45: Ireland .................................................................................................................................... 106 Table 46: Netherlands ......................................................................................................................... 106 Table 47: United Kingdom ................................................................................................................. 107 Table 48: Australia ................................................................................................................................ 107 Table 49: Relativities implied within auctions ............................................................................ 108 Table 50: Relativities implied within countries .......................................................................... 108 Table 51: Renewal fees ........................................................................................................................ 108 Table 52: Spectrum trades ................................................................................................................. 109 Figure 1: Licence duration adjustment .............................................................................................. 6 Figure 2: A Box Plot ................................................................................................................................ 12 Figure 3: 900MHz auction average price ........................................................................................ 14 Figure 4: 800MHz auctions .................................................................................................................. 18 Figure 5: 700MHz Auctions ................................................................................................................. 22 Figure 6: 1800MHz Auctions ............................................................................................................... 24 Figure 7: 1800MHz Auctions 2010-2012 ........................................................................................ 25 Figure 8: 1800MHz Auctions 2006-2009 ........................................................................................ 28 Figure 9: 1800MHz Auctions 2001-2005 ........................................................................................ 29 Figure 10: 1800MHz Auctions 1995-2000 ...................................................................................... 30 Figure 11: 2.1GHz Auctions and Awards ........................................................................................ 31 Figure 12: 2.6GHz Auctions and Awards ........................................................................................ 33 Figure 13: Prices paid for 2G authorisation