Spectrum Economy and Valuation based on a case study of Digital Dividends
Date: 2nd-13th December 2019
Venue: AFRALTI, Nairobi, Kenya
Radio Frequency (RF) spectrum as an “economic good” can be explained as follows:
- A scarce natural resource;
- An inexhaustible natural resource available in all countries around the world; and
- A national asset that can generate “cash flows” and contribute greatly to the economy of a country.
The generated cash flows can be used to estimate the maximum spectrum value, which is the full Enterprise Value (ENV) by using the Discounted Cash Flow (DCF) analysis valuation model. The DCF model estimates the Net Present Value (NPV), of the future generated cash flows over the duration of the spectrum licence discounted at a commercial discount rate. The NPV is the market value of the spectrum. The ENV gives the maximum amount an operator would be prepared to pay for the spectrum; that is, any higher payment means the operator would not make a reasonable return on its investment.
Contribution of the RF spectrum to the economy of the country can be explained based on information from some studies as follows:
- Analysys Mason conducted some studies in the United Kingdom (U.K), which showed that the use of the RF spectrum in the U.K generated revenue amounting to Great Britain Pound (GBP) Sterling 37.2 billion in 2005/6 and GBP 52.0 billion in 2011/12. This amount contributed 5.7% of the Gross Domestic Product (GDP) to the economy of the U.K. The studies also estimated that Net Present Value (NPV) of the future use of the RF spectrum in the U.K for the next 10 years (2012-2021) would be GBP Sterling 486 billion; that is, almost GBP Sterling a half trillion. Auctions of 3G and Digital Dividend RF spectrum which took place in Europe around 2000-2012 raised a huge amount of money. For example, in the U.K the prices per MHz went up to GBP Sterling 199 billion. Results of the spectrum auctions in Europe justified that the RF spectrum is an extremely valuable national asset and need to be studied it thoroughly. Therefore, this course aims at studying thoroughly the economics and market value of the RF spectrum, in particular, the Digital Dividend RF spectrum as a case study. The Digital Dividends are “sweet spot” RF spectrum referred to as a “pot of gold” RF spectrum, which is the most valuable RF spectrum under the present technological and economic conditions. The course is structured into five major parts as follows:
- Spectrum for Beginners;
- The RF Spectrum Economy;
- The RF Spectrum Valuation;
- Case Study of Digital Dividends; and
- Spectrum Auctions.
Details of the five major parts of the course are presented in the course contents below.
Communications Regulators, Mobile Networks Operators, Economists, Financial Analysts, Engineers and Government Policy Makers.
Basic knowledge of economics, finance, marketing, telecommunications engineering and regulations
Explosive growth in demand for the RF spectrum due to liberalized and competitive communications markets requires review of assignment of radio frequencies from a Traditional Spectrum Management method of a “First Come and First Served” to a Modern Spectrum Management method of a “Market based Approach” through spectrum valuation and subsequent auctioning. Unless National Regulatory Authorities (NRAs) reviews the assignment of the radio frequencies then the Digital Dividends and other competitive RF spectrum cannot be licensed at market value. Therefore, the course enables the NRAs to license the pending Digital Dividends at market value.
At the end of the course, participants will have deep understanding knowledge of the “Modern Spectrum Management”, which deals with the “Market Based Approach” of the assignment of the radio frequencies through the spectrum valuation methodology and subsequent auctioning. The Modern Spectrum Management unlike the traditional Engineering Based Spectrum Management is the only suitable method that can resolve problems/challenges of the explosive growth in demand for the radio frequencies in the liberalized and competitive communications markets.
- Understand well the economics of the RF spectrum as the national asset;
- Understand well different spectrum valuation techniques;
- Be able to estimate the market values for the Digital Dividend I (790-862MHz) and II (694-790MHz);
- Be able to design and conduct successfully the spectrum auction; and
- Be able to assign the pending Digital Dividends RF spectrum and others at Market Based Approach.
The workshop includes presentations by the facilitator, country presentations and interactive sessions.