The administrative assignment of spectrum (also discussed in Section I – Spectrum Overview) is often supplemented by imposing charges for spectrum use. These charges can take the form of simply setting fees sufficient to recover the costs of spectrum management. Prices can also be used to guide users in making decisions to use spectrum more efficiently. One example, applicable within the framework of administrative assignment of spectrum, is to set a charge for spectrum equal to an estimate of what the spectrum might be worth in a market context. This is sometimes called ‘administered incentive pricing’. Alternatively, prices can emerge through an authentic market transaction such as an auction or secondary trading.
This section on spectrum pricing explains these possibilities in greater detail. We start with a discussion of prices or charges set to recover the cost of running a spectrum regulatory agency.
Next we give an account of how the spectrum regulator can try to proxy the prices which might emerge in a market context, and then set charges which licence holders have to pay. This is sometimes called ‘administered incentive pricing’: ‘administered’ because they are set by the regulator with potential ‘incentive’ properties Administered prices are intended to be set at a level which reflects the scarcity of spectrum and encourages economy in its use.
Alternatively, charges can be set not on a ‘flat-rate’ basis (so much per year for access to a licence, but on a percentage of or ‘royalty’ on revenues gained or profit earned by the licensee. This arrangement will influence the licensee’s behaviour.
We then consider in some detail how prices for spectrum licences can emerge through an auction process, reviewing different types of auction and their likely outcome. Auctions are a well-know means of using market-generated prices to assign spectrum at the time of its first issue by the spectrum regulator. Where subsequent or secondary trading of licences is allowed, procedures will emerge which set the prices for such trades, and these may also include auctions. We review the conditions for such trading successfully to emerge.
Finally, spectrum can be assigned by means of a lottery: a winning ticket chosen at random will carry with it a spectrum award. This is a ‘non-pricing’ method of assignment. However we note it here (and advise against it,) as the lottery winner will often wish to turn the licence into cash (if is he or she is allowed to do so) by trading it on a market.