The Impact of Spectrum Aggregation Technology and Allocated Spectrum on Valuations of Additional Spectrum Blocks and Spectrum Policies

Whenever a cellular carrier expands its spectrum holdings, it must determine which additional spectrum blocks would be most valuable to its portfolio. Regulators must also understand the relative value of different spectrum blocks when establishing spectrum caps. The value per MHz of a spectrum block depends on: the characteristics of the spectrum block -- including its bandwidth and frequency -- and the population covered. Holding population constant, spectrum blocks in lower frequency bands are more valued by cellular carriers than blocks in higher frequency bands, and blocks with wide bandwidth are valued per-MHz higher than narrower blocks. Moreover, cellular carriers differ in their valuation of the same blocks, depending on existing spectrum holdings, and what technology they have adopted to use combinations of spectrum blocks, e.g. spectrum aggregation (SA).This paper studies the value of a new block of spectrum to a given operator as a function of frequency and bandwidth, as well as the spectrum already held by the carrier, and whether the carrier uses SA. We developed a detailed engineering-economic model to estimate the cost of building and operating a greenfield nationwide wireless network using LTE technology. The value of a new block of spectrum to a given carrier is then the difference between the cost of building and operating the network using only the carrier’s initial spectrum holdings and the cost of that same network with the addition of the new block. The model takes, as an input, results from a technical model that simulates performance of a small-scale LTE network and estimates its capacity per cell. A nationwide area network covers many regions having different population densities and different environments. Thus, we make justified assumptions about area covered, population density, user demand and traffic and targeted market share in order to estimate the required number of cells for each network scenario, which allows us ultimately to estimate total deployment costs. We run this experiment many times while varying the following: - Frequency bands of the initial endowments of spectrum, and the additional blocks of spectrum- Total bandwidth of initial endowments of spectrum, and the additional blocks of spectrum- The contiguity (i.e. how fragmented is the spectrum) of the initial endowments of spectrum and the additional blocks of spectrum- Whether blocks operate as independent carriers or using spectrum aggregation technology.Results show that, absent SA, an operator would assign a wider block of spectrum a higher value per MHz-POP versus narrower fragments. However, when the operator implements SA, the difference in valuation between narrower and wider bands becomes less significant. This can be attributed to spectrum aggregation’s ability to fully utilize any fragment, pushing the valuations closer. Results show also that, contingent on existing holdings, if the additional block is in a low-frequency band, it will be more valuable than if it is in a higher-frequency band. Holders of low frequency spectrum value an additional low frequency block less than holders of high frequency spectrum. Finally, the combination of having access to multi-band spectrum and SA makes the operator's valuation of additional spectrum less dependent on the frequency and block size of the increment. Our findings allow us to comment on the impact of spectrum aggregation technology and spectrum allocation methodology (i.e. allocation of multiple fragmented blocks in multiple bands versus a single wide block in a single band) on policies for spectrum caps, band planning and size of blocks made available for auctions and assignment. We conclude that with SA, regulators should implement policies that give operators access to smaller blocks across multiple bands, which in turn leads to fairer access to spectrum among competitors.