Analysis of spectrum auctions in India—An application of the opportunity cost approach to explain large variations in spectrum prices

The remarkable growth of mobile communication has reinforced the significance of the radio spectrum for mobile network operators. The availability of spectrum varies considerably between different countries due to national regulatory decisions. The focus in this paper is on India where operators have access to a limited amount of spectrum. This paper analyses the value of spectrum by estimating the opportunity cost, which is calculated by the savings that can be achieved by acquiring appropriate amount of spectrum rather than investing in additional base stations. The applied approach combines network deployment, user demand levels, cost, and capacity issues, which are integrated in the application in the opportunity cost approach for spectrum. The opportunity cost of spectrum is compared with prices paid at spectrum auctions. The analysis includes a discussion of drivers that determine the willingness to pay for spectrum. The results show that the opportunity cost of spectrum in relation to auction prices is lower than prices operators paid for 3G spectrum in the metro circles (service areas) while the value derived from the opportunity cost is higher than auction prices in the remaining circles.