Government taxes on corporations leave a long-reached effect, especially on the end consumers. The same applies to the spectrum license price that the regulators apply on telecom companies so that they can provide their services to the masses.
The main aspect of discussion here is how this price has direct ramifications on the quality and affordability of mobile broadband services experienced by the users. Apart from pricing, other factors which affect the quality and affordability include government policies and management. All these factors together deem a causal relationship rather than a correlative one.
Unfortunately, not much study has been done on this causal relationship qualitatively and quantitatively, and some economists believe that license pricing does not affect service quality in any way. However, the GSMA study on the impact of pricing on the consumers is the first-of-its-kind study which uses an econometric model to prove otherwise.
The study concludes that high spectrum cost leads to negative consumer outcomes by hindering the financial ability for future network investments. It also showcases how high revenue generated from spectrum selling should not be considered a success.
In a long-term vision, the impedance in service quality outweighs the benefits of an initial gain (from the license revenue). However, governments of developing countries which may be under the stress of sovereign debt can make use of this huge chunk of money.
Furthermore, license auctions can, and do often, go wrong if poorly planned. However, if designed well, responsible sellers can generate good value from it. Spectrum should be granted as soon the operator is ready to start the business. This results in better consumer outcomes, which is crucial in places where good coverage and affordable prices are prioritized.
Also, artificial scarcity of spectrum results in loss of opportunity in a long-term sense. Full use of spectrum increases the quality of user experience. Regulators should collaborate with stakeholders on fairgrounds to enable time-efficient and effective spectrum licensing process. This coordinated approach results in digital inclusion and overall benefit of the society.
Spectrum Prices and How They Impact Consumer Benefit
Basically, there are two metrics used to analyze the effects of spectrum prices:
- The unit cost of spectrum per person: Indicates the spectrum cost to serve the potential customer base (given in $/MHZ/population/year). This cost has been high during the years 2011 to 2016 for both developed and developing countries.
- The unit cost of spectrum as a percentage of revenues: This indicates the total revenue made by operators over a period of time (Spectrum price/MHZ/revenues/year). It displays the profitability on spectrum costs as an investment. Higher the unit cost, lower the rate of return made on the spectrum license. The data analyzed in this situation showed that spectrum prices in developing countries were almost three times more costly than in developed ones in terms of return on investment.
What Drives Spectrum Prices?
In a sales point of view, generally, the prices should reflect the market value and expected revenues per user made by the operator.
However, high prices can also be a result of tough competition between different telcos in a country. But according to the GSMA study, the reality of high spectrum prices are also linked to management and policy decisions of the government and regulators.
This pricing can be assigned via non-auction methods, where the government decides the price itself, exploiting the case of being ‘the only seller’ of spectrum in the market. This mostly is the case in developing countries where the economic situation is in stress and the nation is under debt. So, the higher the debt, higher the selling price.
Another aspect which determines spectrum price is competition in the sector (using measures such as reserved spectrum for a new entrant or existing operator). Even though this is a legitimate objective, the effect of increased spectrum price will trickle down to the end consumer, causing a negative situation for them.
Impact of Spectrum Prices on Consumers
The telecom industry has a ‘spill-over’ effect which means that revenue/cost fluctuations will impact many other industries linked to it. Therefore, if the telecom operator is charged high for the spectrum allocation, an overall negative socioeconomic situation will be encountered, hampering progress and prosperity.
This is due to the fact that telecom operators will increase the tariffs to account for the higher payment. They will alter their planning and OPEX strategies and decrease investments for future improvements.
These changes will cause financial stress on citizens of the country, loss of opportunity and working standards for employees, and a delay in further modernization and digital inclusion.
Another factor which may affect the consumer is that investments made on old technologies may go to waste. Telecom companies can counter this by always integrating new technologies into their systems, but if spectrum prices are extremely high, the investment which was to be made on this new integration might be diverted towards buying the high-priced spectrum.
Again, this progression will hamper digital growth and delay in modernization, hence effecting the consumers substantially. High spectrum prices also reduce the attraction of local and international investors, as lucrative opportunities suffer and the end consumer will be denied of various benefits it brings.
- Network coverage: High spectrum prices negatively impact 4G coverage, as operators around the globe who had to pay very high spectrum prices have been unable to spread their 4G services to a larger area, effecting digital inclusion. Also, the telecom industry situation will suffer if the spectrum is not provided in a timely manner, and there will be a loss of revenue as well as technological advancements. Early spectrum allocation drives significant benefits for consumers. Operators who are able to get earlier access to the spectrum are able to spread their 4G network to more areas. Amount of spectrum allocation is also very important in terms of network coverage and download speeds as the network traffic is more efficiently handled.
- Network Quality: A fair license price would mean that the operator can buy more spectrum, which will result in better 3G and 4G speeds and latencies. But when the spectrum price is high, operators need to improvise by getting less spectrum which affects the quality of the network and the end-user experience.
- Consumer prices: In developing countries, higher license price means higher tariffs so that the operator can cover the large cost they paid to get the spectrum, while for developed countries, the results are inconclusive due to unavailability of solid data this study could procure.
Conclusively speaking, higher spectrum process means slowing down of rollout of new technologies and investments to make the system modernized. It affects the network quality to a significant level and the quality of service is greatly hampered.
To account for the high costs paid to the regulators, operators increase tariffs and the end sufferer are the consumers. This will make use of this beneficial technology a less attractive deal, meaningless digital inclusion of the public. Also, slow spectrum allocation procedure means lesser coverage and delayed services.
To counter all these losses of opportunities and negative circumstances, the regulators/government should plan and manage network allocation with the consent of all organizations so that middle ground is reached, creating a win-win situation for all. Also, the price of the license should be fair so that the general consumers are not burdened. Together we can make a difference!