Practice Note and Guidelines: 1. Principles for Economic Analysis of Spectrum Management Projects Spectrum management agencies are frequently confronted with opportunities to undertake investments (ie expenditure now) which will generate benefits, and maybe further costs, over a more extended period. These opportunities are akin to those appraised by private firms, although in the case of spectrum management, the benefits accrue to spectrum users and to the economy and not to the firm’s investors. The essence of public sector investment appraisal is to compare two ‘states of the world’, in one of which the investment (in, for example, monitoring equipment) takes place, while in the other it does not. It is then possible to identify the expected differences between the two states, some of which will be financially negative- i.e. costs- (eg. expenditure on equipment) and others of which will be financially positive- i.e. benefits- (e.g. providing more valuable communications services to end users by using the monitoring equipment to put a stop to illegal interference). Because the costs and benefits are incurred at different times, it is necessary to make them commensurate by applying a so-called ‘rate of discount’. This takes account of the fact that benefits which arrive later in time are worth less (by, say, 10% per year of delay) than those which come up sooner. Many governments have adopted a public sector discount rate to be used across the board for all public sector projects. The main difficulty in undertaking an analysis of public sector investment in spectrum management comes not on the cost side but on the benefit side. In the case of spectrum management investment projects, the principle argument justifying an investment is the improvement in regulatory certainty achieved through better management of the spectrum resource. Growth in investment in wireless infrastructure by the private sector is dependent upon transparent access and licensing processes resulting in frequency assignments free from harmful interference and where compliance is enforced. Broadly stated the goals are as follows: - Spectrum to be employed by both private and public sector organisations in ways which meet the countries economic growth and other objectives.
- Maximum utilisation of the resource, avoiding, for example, both interference and unnecessarily large gaps (‘guard bands’) between adjoining users.
A full discussion of economic and technical efficiency objectives appears in Section 1.2 of the Spectrum Management Module. There are several consequences of well planned and effective spectrum management projects which support the goals of economic and technical efficiency in fully utilizing the nation’s spectrum resource: i) The perceived level of risk to private investors in wireless communications and broadcast services is lessoned through better planning and management of the spectrum resource, encouraging further investment in services. ii) Public safety and security frequencies assignments are adequately protected from harmful interference thereby improving the efficiency to the public for fire and civilian security forces. iii) Shortages in spectrum are reduced through various means such as reduced interference, improved technical efficiency in assignments and ability to use more modern radio equipment. Demand Analysis is one means of establishing the benefits which public investment in spectrum management projects may release, because it captures the willingness to pay of spectrum users for the outputs of an investment project. [Market research on spectrum management projects is difficult due to the limited amount of data concerning equipment and transaction costs.] In the absence of quantitative data, user surveys and questionnaires can be used to improve the reliability of estimates and in assessing the user’s response to service changes. In the chart which follows, several examples of user responses are given and interpreted. | SURVEY AREA AND RESPONSE | 1. | Business Process Change and Automation: Typically, radio frequency licenses are issued on a site by site or station basis. A network-wide license with appropriate frequency assignments would be preferable administratively and technically. This would be a feature only large sophisticated network operators would be interested in using. | 2. | Spectrum Analytical Tools: Access to and use of approved EMC analytical tools and utilities which can accommodate a large amount of data will improve accuracy of assignment planning. Again, this would be a feature only large sophisticated network operators would be interested in using. It may also suggest there is a willingness to partner on the operations and maintenance of sophisticated equipment and computing resources. | 3. | Fixed versus mobile monitoring sites: A spectrum survey and audit of utilization reveals that there are incidences of interference in certain bands used by public and private mobile radio users (i.e. Taxi cabs, construction companies). This detail suggests monitoring equipment needs to focus on the lower bands in VHF/UHF using mobile equipment doing periodic checks for occupancy and interference. The need for large fixed sites and higher bands can be discounted. |
- Comparing the Costs of Projects with Equivalent Benefits.
In some cases the problem of estimating benefits can be finalized by considering two different ways of achieving the same (or equivalent) benefits. Assuming the scale of benefits justifies the project, then the problem is to find the approach with the lowest costs. Least-cost Analysis helps to determine the most cost-effective way of implementing the project. Least-cost analysis will lead to answer to the following important questions: What is the best alternative? - This question concerns the examination of alternatives which could involve different technical specifications for automated systems and/or monitoring equipment, different locations for monitoring sites, and different operating arrangements such as leased or outsourced facilities. Examples of best alternatives leading to a determination of Least-cost alternatives are outlined below: i) Are there alternative technical specifications - Detailed technical specifications for alternative systems should be obtained from at least a planning standpoint. Typically, system, c |