Coleago Consulting - Spectrum Services Summary

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Coleago’s services portfolio in relation to spectrum auctions, refarming and spectrum licence renewal. Find out more at www.coleago.co.uk

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Coleago Consulting - Spectrum Services Summary

  1. 1. Spectrum Services Coleago’s service in relation to spectrum auctions, refarming and spectrum licence renewal Stefan Zehle, CEO Coleago Consulting January 2014
  2. 2. © copyright Coleago 2014 1 Coleago's Spectrum Services Stefan Zehle, MBA Tel: +44 7974 356 258 stefan.zehle@coleago.com CEO, Coleago Consulting Ltd Contact Graham Friend, MA, M.Phil. (Cantab), ACA Tel: +41 79 855 1354 graham.friend@coleago.com Managing Director, Coleago Consulting Ltd Further information: www.coleago.com Scott McKenzie, BE, MBA Tel: +44 7825 294 576 scott.mckenzie@coleago.com Director, Coleago Consulting Ltd
  3. 3. © copyright Coleago 2014 2 Coleago's Spectrum Services Content 1 Introduction 2 Spectrum Consultation 3 Spectrum Valuation 4 Auction Strategy and Readiness 5 Live Auction Support 6 Coleago’s Project Team and Relevant Experience 7 About Coleago Consulting
  4. 4. © copyright Coleago 2014 Spectrum refarming, spectrum licence renewal and spectrum auctions Introduction 3 Coleago's Spectrum Services 1
  5. 5. © copyright Coleago 2014 Spectrum issues are moving centre stage Spectrum is moving centre stage Spectrum was always a key resource for mobile operators and a factor that explained differences in coverage, notably the ownership of lower band spectrum. Spectrum is now moving centre stage again driven by a number of factors:  New Mobile Spectrum: Spectrum is being freed for mobile services, notably in 2.5 / 2.6 GHz and the digital dividend spectrum in 700 / 800 MHz.  Mobile Broadband: The development in technology notably HSPA and LTE enabled the development of a mobile broadband market which drives spectrum needs.  Refarming: In most countries GSM licences were not technology neutral, i.e. the licence only allowed operators to run GSM. GSM is now nearing the end of its life cycle. HSPA and LTE are being introduced in former GSM bands.  Licence Expiry: In many countries the 900 and 1800 MHz GSM licences are near to expiry and some 2.1 GHz licences are a few years away from expiry.  Complex Spectrum Auctions: The primary manner of allocating spectrum is no longer beauty contests but auctions. Some of these are highly complex auctions, including combinatorial auctions. Developing a spectrum strategy is not the only challenge The spectrum related evolution is challenging in its own right, but other factors contribute to the complexity of the business decisions with regards to the acquisition, renewal and redeployment of spectrum:  Mature Markets: Many mobile markets are no longer experiencing revenue growth as mobile broadband revenues simply offset declining voice revenues.  Large Investment Decisions: The acquisition of new spectrum and subsequent technology deployment results in significant capex. Corporate governance demands high standards of due diligence with regard to investment appraisal of this magnitude.  Demand Uncertainty: There is uncertainty with regards to iPhone-like device penetration, tablet penetration, traffic volumes.  Technology Uncertainty: The evolution of the technology eco- system, e.g. the number of bands and technologies that will be incorporated in devices, LTE band aggregation path, future spectrum availability, software defined radio, and other technology factors is uncertain.  Operational Complexity: The multiplication of bands and technologies within these bands, as well as rolling off GSM results in operational challenges.  Traffic Offload: The degree to which traffic offload is possible via WiFi or femto cells may mitigate mobile network demand. 4 Coleago's Spectrum Services Introduction Events require operators to make complex decisions which require expertise to ensure that shareholder value is not destroyed Licence Expiry and Renewal Spectrum Reframing Auctions for New Spectrum Major Investment Appraisal Decisions Spectrum Strategy Decisions Technology Strategy Decisions Regulatory Consultation & Lobbying Spectrum Valuation Auction Strategy & Auction Support Increase Shareholder Value Events DecisionsRequired RequiredExpertise
  6. 6. © copyright Coleago 2014 Coleago’s services in relation to spectrum auctions, licence renewal and refarming What is the issue at hand? Coleago worked with operators who faced different issues, namely spectrum auctions, licence renewal, and refarming. In some cases these three issues are addressed by the regulator as part of a single process. In each case spectrum strategy and valuations are likely to be key components in successfully addressing the issue at hand. Allocation of New Spectrum Obtaining new spectrum often consists of bidding for it in an auction. For operators facing a spectrum auction, Coleago offers a well defined service set at the different stages in the run up to the spectrum auction as set out in the table on the right. Licence Renewal Coleago can help you to negotiate with the regulator to retain spectrum without going to auction, e.g. by arguing the case for an Administered Incentive Pricing (AIP) process looking at the Optimum Deprival Value (ODV) and Best Alternative Use (BAU) based renewal fees. Good regulatory advocacy can save millions of dollars in auction spend. Refarming Coleago can help to argue your case with regards to refarming. Often this is associated with renewal or redistribution of lower band spectrum. Coleago AIP pricing methodologies and spectrum auction valuation techniques are an important part of this service. 5 Coleago's Spectrum Services Introduction Coleago’s spectrum related services are structured into four blocks, supporting you when facing licence renewal, refarming or allocation of new spectrum by means of an auction or an administered process Coleago’s Spectrum Auction Related Services Spectrum Strategy & Consultation The objective is to influence the process of allocating spectrum in a favourable manner consistent with your spectrum needs. Questions that need to be answered include:  What spectrum blocks do we need in which bands?  What auction format should be argued for?  Should there be restrictions, e.g. caps?  In the case of renewal, can an auction be avoided?  In the case of Administered Incentive Pricing, what should the spectrum renewal fee be; should we argue for ODV, BAU or benchmarking?  What arguments can be presented consistent with regulatory policy objectives, economic rationale and international best practice? Spectrum Valuation The objective of any investment decision is to increase or at least maintain shareholder value. Prior to bidding in an auction you need to answer the question how much is each block or combinations of blocks worth to us? This allows you to set bid limits. Coleago’s structured spectrum valuation process would give your board confidence in making the investment decision associated with acquiring the spectrum and subsequent technology roll-out. Auction Strategy Depending on the auction format there may be dominant bid strategies or ways to avoid negative outcomes in cases where there is aggregation risk. This can be explored at theoretical level, through simulations and mock auctions. Live Auction Support In theory a bidder enters the auction well prepared and the auction itself is a mechanical exercise. However, as the auction unfolds there will invariably be some learning which needs to be processed at the end of each day in order to be prepared for the next day’s bidding.
  7. 7. © copyright Coleago 2014 How to approach a spectrum auction Key Questions in relation to a Spectrum Auction In respect of a spectrum auction an operator has to find an answer to four fundamental questions:  How much spectrum do we need in different bands? The question relates to an assessment of spectrum need in the context of the growth in demand, notably mobile broadband. This needs to take account of the overall strategy, for example traffic offload through WiFi or femto cells.  How much is each block worth, i.e. what is the most we should bid for it? This relates to valuing each spectrum block in order to set the bid limit for the auction. This is quite separate from auction strategy. Clearly, if there is not a bid limit, the auction will be simple because a bidder would simply pay whatever it takes to win the spectrum. However, such an approach is unlikely to add shareholder value and does not conform to standards of corporate governance and rigorous investment appraisal.  How do we obtain the spectrum as cheaply as possible? This relates to auction strategy. In any auction, the bid limits should be set before the start of auction. The role of bid strategy is to ensure the spectrum is obtained for less than the bid limit. Depending on the auction format there may be an opportunity to influence the outcome and avoid negative effects such as aggregation risk (e.g. be stranded with unwanted blocks). This is addressed by examining the auction rules and developing a bid strategy which will be tested through simulations and mock auctions.  How do we conduct the auction? This relates to executing the auction strategy during the auction. You enter the auction well prepared. However, as the auction unfolds there will invariably be some learning which must be processed at the end of each day so that you are well prepared for the next day’s bidding. You must ensure compliance with bid protocols and procedures and have an effective daily communications and review process. 6 Coleago's Spectrum Services Introduction Valuing the spectrum is the most critical and time consuming task in a spectrum auction process. Spectrum valuation is quite different from auction strategy. How many spectrum blocks do we need in each band? How much is each block worth to us (set the bid limit)? How can we obtain the optimum combination of blocks as cheaply as possible? Spectrum Need Technology assessment in relation to mobile broadband demand and corporate strategy Spectrum Valuation Valuation of each block and combinations of blocks Auction Strategy Examine auction rules, set bid limits, develop bid strategy, explore through simulations and mock auctions Question in Relation to Auction Requirement to Answer the Question How do we conduct a successful auction? Auction Execution Implement the bid strategy incorporating the use of the auction support tools
  8. 8. © copyright Coleago 2014 7 Coleago's Spectrum Services Valuing spectrum requires answers to difficult questions Project Challenges The valuation of spectrum will raise many questions and the valuation methodology and model will need to capture and reflect the answers to these key questions Market landscape  Will the mobile broadband landscape be more substitutional / complementary to fixed networks?  What will be the mobile broadband penetration for handsets, tablets and other devices in 10 years time?  How will customers value higher headline speeds, better average speeds, consistency of speed over the coverage area, more extensive geographic coverage, better in-building coverage? Data usage  How much will customers use in the future and how much will they be prepared to pay?  What services are driving forecast growth, what is likely usage by device type? Technical  What are likely uplifts from LTE advanced / MiMO, spectrum efficiency factors in terms of bits per Hertz?  Which band combination will be available in devices, what bands can be aggregated and when?  What are the limits to sit densification and small cells?  What are the incremental costs of equipment at different bands and when will it be available? Spectrum  How much spectrum is needed and what is the optimal combination of frequencies and block sizes?  How does Interference impact on specific blocks and how does it effect valuation?  What spectrum will become available in future? Data traffic profile  Will the data traffic profiles continue to follow voice profiles e.g. top X% sites carrying Y% of busy hour traffic?  Will this depend on the mix of complementary versus substitutional traffic? Impact of network congestion  Will network congestion lead to higher retail prices and/or lower SACs?  What implications does possible network congestion have on MNO’s MVNO strategies? Relationship with fixed broadband  Can the fixed network be part of a mitigating strategy if spectrum is not acquired?  Will mobile broadband and fixed broadband complement or compete?  How much traffic can be offloaded and can you serve other mobile operators? Mitigating strategies  The role of Wi-Fi and network consolidation with another operator  Manage demand – QoS pricing, enforce caps, service restrictions  Acquire spectrum at a later date through spectrum trading
  9. 9. © copyright Coleago 2014 Coleago’s expertise can help you to negotiate low spectrum renewal fees Licence Renewal and Refarming: Developing the right arguments Operators faced with the expiry of their licence and refarming usually go through a negotiation process. It is rare for regulators to re- auction spectrum. Therefore the development of suitable arguments for low spectrum licence renewal fees is the most important aspect. Based on our experience, Coleago will develop a coherent set of arguments for an appropriate form of renewal and technology neutrality at the lowest possible cost. Administered Incentive Pricing (AIP) Most regulators are obliged to agree a methodology for renewal that extracts a return for society and ensures that economic benefit is generated. Recognising that a simple re-auction may not be appropriate, many regulators have opted for negotiated renewal prices using different forms of AIP such as benchmarking, Optimum Deprival Value (ODV) or Best Alternative Use (BAU). Optimum Deprival Value (ODV) Deprival value is a cost-based valuation approach that answers the question “what is the least cost system or bundle of assets needed to provide customers with the existing level and quality of services, should a certain existing asset be removed?” This approach can be applied to valuing spectrum rights by addressing the following: “If an operator was deprived of incremental spectrum rights, what incremental costs would be incurred to replicate the existing level and quantity of services using the remaining spectrum rights?” These costs are “avoided” by owning the incremental spectrum rights and so, in this context, represent the value of those rights. That is, the rights holder should be prepared to pay up to the value of the incremental costs to avoid being deprived of its spectrum rights, so long as the incremental costs are less than the present value of the free cash flows generated from the spectrum services. Typically ODV is based on a calculation of the deprival value of an “average” operator. As a consequence, the value per MHz (applied to all operators) should lie between the highest and lowest private values of all the individual operators. ODV therefore stimulates efficient use of the resource by incentivising spectrum hoarders to release it or put it to more productive use. ODV (also known as the ‘Smith-NERA’ or ‘least cost alternative’ method) is the basis of the UK’s Administered Incentive Pricing (AIP). Best Alternative Use (BAU) In contrast to ODV, BAU considers the value placed on an additional amount of spectrum by alternative user(s). This could, in theory, include:  An alternative technological use  A new mobile entrant  Competitors ODV vs. BAU ODV represents an upper bound on what spectrum holders will be willing to pay. ODV has the potential to encourage reallocation to the most efficient mobile operator, but conservative (lower) valuations should be set, given the risk of substantial negative consequences if ODV is overestimated. The highest of these BAU values determines the corresponding fee. The calculation of the BAU requires modelling of the revenues and costs of alternate uses. Coleago’s experience in ODV and BAU modelling and argumentation can produce substantially lower renewal fees Coleago can help you to produce the most favourable (low) spectrum valuations based on ODV and BAU and, depending on the situation present well reasoned arguments for the suitability of the preferred methodology. 8 Coleago's Spectrum Services Introduction Operators who face licence expiry are usually better off with a negotiated settlement rather than a re-auction. This also appears to be the approach preferred by most regulators.
  10. 10. © copyright Coleago 2014 Why choose Coleago Consulting? Differentiator Benefits for You Coleago's Spectrum Services Introduction The main benefits of using Coleago are: More accurate valuations Greater confidence in the valuation range Reduced project risk Lower demands on management time Greater consensus between group and the operating company  Quickly able to establish credibility and respect with senior management at the op co and group  Confidence to challenge established thinking  Project delivery is fast, efficient and accurate  Able to resist “going native” and remain objective  Able to identify the key challenges quickly  We already know how to tackle the challenges so more time can be spent on quality analysis  We can build consensus between operating companies and Group around the spectrum business plan  Time is not wasted working out how to do things  The use of existing tools reduces the need for modelling and so reduces risk  More time can be spent on strategy and developing and agreeing assumptions  The operating company takes ownership  The operating company becomes self reliant  Project team learn from Coleago  Better relationship between group and the op co Specialists in Spectrum Valuation Optimised Methodology and Tools Mature, Experienced Consultants Commitment to Knowledge Transfer  More accurate valuation range  Greater confidence in the valuation range  Lower project risk  Less time required from senior management  Better decisions  Management time not wasted arguing over assumptions between the group and op co  Greater likelihood that the business plan will be successfully implemented  Projects can be delivered at lower cost  Projects are lower risk  Greater confidence in the valuation range  Lower expenditure on future consulting fees  Group better able to influence future decisions  The human capital of the business expands Project Benefits 9
  11. 11. © copyright Coleago 2014 Coleago can help you to present the right arguments to regulators at the consultation stage. Good lobbying and well argued submissions can save large amounts of capital expenditure. Spectrum Consultation 10 Coleago's Spectrum Services 2
  12. 12. © copyright Coleago 2014 Typical spectrum allocation consultation process 11 Coleago's Spectrum Services Spectrum Consultation In the run-up to a spectrum allocation there is usually consultation with stakeholders. Depending on the jurisdiction this ranges from informal meetings to a well structured multi-step process in order to ensure that all views are heard. Consultation responses are not only received from operators but also from other interested parties, including associations of users and vendors. Stage Activity Operator’s Actions Policy Formulation The Government formulates policy for the allocation of spectrum. Government departments or ministries involved may include Telecoms, Development, Finance, Competition Commission, etc Lobby politicians PR campaign to influence the debate Notice of Consultation At this stage the process moves to the telecoms regulatory authority who issues a notice of consultation. This includes a description of the consultation process and timetable. There may also be a workshop to obtain inputs from stakeholders in an informal manner. Lobby politicians PR campaign to influence the debate Prepare workshop materials Meetings with regulatory agency 1st Round Consultation The regulator issues a formal consultation document which contains a list of decisions that need to be made in relation to the spectrum allocation, a discussion and analysis of the issues, perhaps a preliminary conclusion (“we are minded to....”), and an invitation to respond to questions relating to each decision that needs to made. Analyse consultation document Commission independent reports that support own view point Prepare & submit response to consultation PR campaign to influence the debate Cross Submission The regulator would normally publish the submissions received from different stakeholders and invite cross submissions. This gives stakeholders the opportunity to comment on points made by other stakeholders. Analyse other submissions quantitatively (how many agree with x) and qualitatively Prepare and file cross submission document PR campaign to influence the debate 2nd Round Consultation The regulator issues a second consultation document which draws on the submission received and presents its conclusion and a proposal ahead of the final determination. If an auction is proposed this would include a description of the auction format and rules. Analyse consultation document Submit response to consultation PR campaign to influence the debate Final Determination The regulator publishes the final determination, including the process, detailed procedures and rules. The regulator answers questions for clarification of the process, procedures and rules. Analyse determination document Questions for clarification Explore legal recourse if necessary
  13. 13. © copyright Coleago 2014 Specific auction issues should also be addressed during the consultation stage Understanding the objectives of the auctioneer A response to a spectrum consultation must take account of the legal framework and policy objectives:  Revenue generation: The auctioneer will quite often have this as an objective. From the bidders’ perspective an auction designed to generate economic efficiency and maximise revenue will minimise the profits from participation for the bidders who value the spectrum most highly.  Promoting participation and enhancing competition: For an auction to be competitive there needs to be excess demand for spectrum relative to the available supply. Greater participation can contribute towards a more efficient outcome and may lead to greater revenues. Amongst the measures used by auctioneers to increase participation are: – Setting low reserve prices – Selecting an auction mechanism that allows for the possibility of a weak bidder securing spectrum in the presence of a stronger bidder – Providing bidder credits (used in some US auctions) – Specifying differential activity rules which favour new entrants – Setting aside spectrum for new entrants (e.g. in Canada) – Careful spectrum packaging and the use of spectrum caps Spectrum packaging If there are significant differences and generic lots are used then bid strategy becomes more complicated as a second auction (known as an assignment round) is required to allocate the specific blocks. The packaging of blocks into lots may reduce aggregation risk and favour strong bidders. Spectrum caps and set-aside Spectrum caps and set-aside are tools used by auctioneers to promote competition or create a “level playing field”. Depending on how these are applied it can increases prices or depress prices. Sequential versus simultaneous auctions A bidder participating in a sequential series of auctions must guess what the future prices in later auctions will be when determining its bid in the current auction. Sequential auctions for spectrum lots where there are complementarities between lots in different auctions can lead to very profound exposure risk. Provision of information The more information that is made available the more efficient the outcome provided that collusion or forms of strategic bidding are not present. A key piece of information that may have a significant impact on bidding strategy is the number of bidders. If only the incumbents are bidding then demand is likely to match supply and there is a much greater chance that some spectrum lots will be sold at reserve. Reserve prices A high reserve price reduces the benefits of strategic demand reduction and also reduces the opportunities for price discovery. High reserve prices do discourage frivolous auction participation. If the price is not met, then lots will go unsold and the auction may be considered as a failure. Bid increments In multi-round auctions non-discretionary bid increments are increasingly standard as discretionary bid increments have been used to implement strategic bidding strategies such as signalling. Non-discretionary bid increments also reduce the scope for human error when submitting bids. Spectrum trading The assumption of spectrum trading suggests that any inefficiency in the auction outcome can possibly be rectified afterwards although in practice it cannot be relied on as transaction costs (e.g. capital gains taxes) are non-negligible and there may be anti-trust issues. There are few examples of spectrum trading and it is not obvious why a competitor will help a rival for less than the full economic benefit. 12 Spectrum Consultation Apart from the auction format, there are many aspects of an auction that should be carefully examined and addressed in the response during a spectrum consultation Coleago's Spectrum Services
  14. 14. © copyright Coleago 2014 Coleago's approach to spectrum consultations 13 Coleago's Spectrum Services Spectrum Consultation  Provide policy makers with evidence based information that is necessary to make an informed opinion and decisions that take into account your needs.  Provide the regulatory body with evidence based information in order to influence the contents of the formal consultation document.  Provide the regulator’s staff with documentation that is not just perceived as a lobbying document but actually furthers their understanding of the issues at hand. If the inputs are seen to be of value by the regulator this will maximise the lobbying impact.  Scope a PR campaign to reach a wider audience and capture the political debate. Objectives Coleago will provide a written report addressing the following:  The development of a clear statement of your desired outcome for internal purposes.  Analysis of the policy objectives, the regulator’s position and desired outcome.  Couching your desired outcome into language and arguments in line with the stated or unstated policy objectives.  Providing rational argumentation, including evidence from other markets, which support your arguments.  Advice and collateral with regards to the PR campaign. Key Outputs Successful lobbying is based on reconciling the optimum outcome for the bidder with the optimum outcome from the regulator's perspective. As a starting point we need to understand the current situation. Any argumentation submitted to the regulator must be evidence based, i.e. precedence from other markets in a similar situation as well as theoretical arguments. At best, your lobbying documents are perceived to be of value to the regulator’s staff because they provide good insight and evidence that will help them to successfully execute the allocation of the spectrum. Given most regulator's limited resources this point may be of particular importance. Approach Lobbying should take place prior to the issue of the formal consultation document in order to influence the policy that underpins the allocation, the shape of the consultation process and the contents of the consultation document. The audience extends beyond the regulatory agency and includes politicians, MPs, NGOs and other stakeholders. Situation Analysis Statement of Your Internal Position and Desired Outcome Statement of Policy Objectives and the Regulator’s Desired Outcome Information and Arguments Presented to the Regulator Evidence to Support the Argumentation
  15. 15. © copyright Coleago 2014 Coleago’s approach to a spectrum consultation is based on analysis and rational argumentation 14 Coleago's Spectrum Services Spectrum Consultation Lobbying should start in advance of the formal consultation process, however depending on the timing the pre-action lobbying step may have to be skipped Main Tasks Deliverables 1 The spectrum landscape Analyse the distribution of existing spectrum among operators and examine likely competing positions. Understand the future availability of spectrum, which blocks in which bands will become available at what dates  Clear view of present future distribution of spectrum and future availability 2 Analysis of own spectrum need Utilisation of existing spectrum, band plan, analysis of technology eco-system (band combinations in devices, spectrum aggregation), high level analysis of demand and future spectrum need for capacity and coverage  High level spectrum utilisation plan  Eco-system evolution (band combinations in devices, spectrum aggregation) 3 Analysis of competing bidders Identification of potential competing bidders and determine their likely auction objectives and position during consultation  Report about other bidders and their position and likely objectives 4 Statement of optimum outcome Together with your management team Coleago formalises a statement of optimal outcome from your perspective  Statement of your desired auction objective 5 Review regulatory policy objectives Analysis of the spectrum licensing policy objectives and understanding the criteria for selection of methods of spectrum allocation  Report with an understanding of spectrum allocation process 6 Lobbying prior to formal consultation Outline of lobbying and PR campaign and develop key messages and produce collateral  Document with lobbying messages 7 Response to consultation and cross submissions Review of the regulator’s proposed spectrum allocation auction format and rules Development of argumentation in favour of your position based on policy objectives, situation analysis, international comparisons;  Draft submissions (1 round) and draft cross submission  Coleago branded independent report 8 Questions on final determination Analyse final determination and identify points that require further clarification  List of questions for clarification
  16. 16. © copyright Coleago 2014 Indicative duration and resource requirement Indicative Manday Requirement In cases where Administered Incentive Pricing (AIP) models are not required, the mandays requirement is as follows:  Development of high level spectrum need and spectrum strategy would require technical and marketing consultants for 20 to 30 mandays in total over a three to four week period. It should be noted that this work might also feed into the valuation work, i.e. time may be saved later on depending on the requirements.  The support during the lobbying process, including the analysis and production of relevant documents depends entirely on the process and whether our work commences prior to the issue of the consultation document or afterwards and what type of independent public reports need to be generated. In our experience the process requires a significant number of meetings and iterations with senior management. In the range of 20 to 40 mandays may be required. The duration would be dictated by the consultation process.  In cases where AIP models (ODV and BAU) and benchmarking are required around 80 mandays would be needed to develop the models and extract and manipulate relevant benchmarks. Typically two full time and one part time consultant would work on this over an eight week period. 15 Coleago's Spectrum Services Spectrum Consultation The work involved depends largely on the scope and whether ODV and BAU spectrum pricing models need to be developed Week 1 Week 2 Week 3 Week 4 Week 5 Analysis of spectrum landscape Analysis of own spectrum need Analysis of competing bidders Statement of your optimal outcome Review regulatory policy objectives Lobbying and PR campaign outline and collateral Draft and submit response to 1st consultation Independent Coleago branded report
  17. 17. © copyright Coleago 2014 Coleago’s Approach, Methodology and Deliverables Spectrum Valuation 16 Coleago's Spectrum Services 3
  18. 18. © copyright Coleago 2014 Overview of the spectrum valuation process 17 Coleago's Spectrum Services Spectrum Valuation Coleago has developed a proven methodology for valuing spectrum which is summarised here Main Tasks Deliverables 1 Data collection Much of the necessary data is gathered prior to the arrival of the consulting teams through the use of templates. Once the team has arrived a series of kick-off meetings are held to review and understand the data and identify gaps.  Historic and current data to populate the valuation model  Spectrum landscape 2 Spectrum & eco-system review Coleago will analyse the current spectrum holdings and future options, not only in this auction but in the foreseeable future. We will overlay those with the evolution of the technology eco-system, notably LTE band combinations in devices and carrier aggregation, MiMo, etc.  Appreciation of spectrum options and understanding of the implications for each option 3 Valuation scenarios & business impact Workshops to determine your business’s strategy and key assumptions for the “with spectrum” and “without spectrum” business cases including deployment rules, agree sources of spectrum value and the rules for impact on the business, notably customers & revenue depending on the auction outcome.  Agreed valuation scenarios, assumption sets and rules for input into valuation model 4 Marketing modelling Coleago uses a proprietary approach to forecasting customers, revenues, and traffic that combines both top down and bottom up approaches. Our methodology allows for the efficient developments of business cases with the ability to quickly and easily examine a range of sensitivities and scenarios.  A range of demand forecasts for revenue and traffic for handset and large screen devices 5 Network modelling Our network planning model is integrated with our customer and revenue forecasting. The network model examines busy hour traffic and develops roll-out plans that combine both coverage and capacity driven network expansion.  A populated and integrated technical model 6 Financial model and valuation of different blocks Revenue forecasts and network capex and opex forecasts are combined in our financial modelling and valuation suite. The model develops the financial statements and KPIs which allow us to benchmark the reasonableness of forecasts against our database of KPIs. We value the business with and without the spectrum using Discounted Cash Flow. The valuations are benchmarked against our database of spectrum prices paid at previous auctions.  A populated and integrated 15 year financial model  A valuation of the blocks for the different spectrum bands  Supporting benchmarks 7 Risk analysis We run sensitivities and scenarios to identify the key levers of value creation and assess the business case for risk.  A report on the sensitivity of the valuation to assumptions
  19. 19. © copyright Coleago 2014 Indicative spectrum valuation project plan and milestones Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 Kick-off meetings and agreement of approach and valuation points Data collection and review Strategic and scenario planning Marketing modelling Technical modeling Financial forecasting / modelling and valuation Initial Valuation complete Competitor Valuations Valuation presentations, review, iteration, risk analysis Final valuation review and agreement Milestone Spectrum Valuation Key milestones include: Data collected Scenarios agreed Assumptions agreed Modelling completed Draft valuations Competitor valuations Final valuations 18 Data collected Demand scenarios agreed Modelling completed Initial valuations delivered Valuation presentation Valuations agreed Coleago's Spectrum Services Note: The project will be conducted in English and all deliverable will be in English. Competitor valuations complete
  20. 20. © copyright Coleago 2014 Resource requirement Overview of the Team For a spectrum valuation, Coleago are proposing a small, highly experienced team of consultants which will interface easily with your team. We propose 3 full time consultants and 2 part time consultants as well as a part time project director The team structure is as follows:  Client Relationship – responsible for managing the relationship with you, contractual matters and billing as well as providing a peer review of key results and advising on methodology and approach. This role is not full time.  Project Management – responsible for managing the Coleago team and interfacing with your project manager. This role also focuses on developing the valuation framework, scenarios and evolving the discussions around strategy as well as reporting and presenting. This is a full time role.  Marketing Modelling – responsible for generating the market demand forecast and marketing forecasts down to gross margin. This is carried out by the same person as the project management role.  Financial Modelling – responsible for taking the results of the market demand forecasting and technical modelling work streams and combining the results to develop full financial forecasts and valuations. This is a full time role. 19 Coleago's Spectrum Services Spectrum Valuation The project will be delivered by a team drawn from our highly experienced group of consultants. Financial Modeling and Valuation (Full Time) Technical Modeling (Full Time) Client Relationship (Part-time) Technical Strategy (Part Time) Project Management, Valuation Scenarios, Market Model  Technical Strategy – responsible for advising on the spectrum and technology strategy as well as debating and discussing key assumptions for radio and capacity planning purposes such as throughput and other elements of technology performance. This is not a full time role.  Technical Modelling – responsible for developing the technical model and working closely with you to understand the existing network and current network strategy and reflecting the assumptions from the technical strategy discussions in the model. This is a full time role. Manday Requirement For an indicative eight to ten week project and depending on the scope we would require around 90-100 man-days. On-Site Presence The valuation work requires considerable interaction with the client‘s team and hence almost all work would take place on-site.
  21. 21. © copyright Coleago 2014 Coleago helps you to develop your auction strategy to ensure that you obtain your preferred block as cheaply as possible Auction Strategy and Readiness 20 Coleago's Spectrum Services 4
  22. 22. © copyright Coleago 2014 A well defined auction strategy should take account of the key issues in an auction Economic efficiency Auctions are said to be economically efficient if they allocate spectrum to the bidder who places the highest private value on the spectrum. A well designed auction should seek to ensure the most economically efficient outcome subject to the attainment of other policy objectives such as maintaining or promoting competition or raising revenue. An economically efficient auction is best for a strong bidder, whereas a weak bidder may prefer formats that allow for unexpected outcomes. Exposure risk The existence of complementary lots generates exposure risk. Exposure risk is the risk that a bidder seeking to aggregate complementary lots bids for the lots on the basis of their synergistic valuation. The bidder is then outbid on one lot and is left with a stranded lot at a price which is greater than its stand alone valuation. For example high and low band spectrum are complementary in terms of capacity and coverage. Contiguous spectrum lots are also complementary. Exposure risk arises in the SMRA format and SMRA-AS, although the latter is designed to alleviate exposure risk. Substitution risk Two items are said to be substitutes if an increase in the price of one item leads to an increase in demand for the second item. For example 800 and 900 MHz spectrum are seen as potential substitutes. Substitution risk arises when bidders are unable to arbitrate between two substitutable spectrum lots in response to changes in price. Substitution risk is present in SMRA auctions. Threshold risk for new entrants A potential response to the issue of exposure risk is to allow bidders to make package bids for combinations of lots which together deliver synergies. Package bidding will favour bidders targeting large packages of spectrum lots. Auction designers can overcome this by setting aside spectrum for new entrants but this may drive up demand for the remaining lots. Transparency and certainty over outcomes Uncertainty over outcomes is particularly high in the CCA format which uses package bidding and prices are determined using a second price rule. When bidders place a specific bid in an auction there is a preference for certainty as to what will be the outcome of that bid in terms of which lots will be won and at what price. Pricing rules A lack of uniformity in prices is a particular issue in the CCA format where there is the potential for embarrassing outcomes. Operators generally have a preference for low prices for themselves and, possibly, higher prices for other bidders for similar spectrum lots. The worst outcome is usually regarded as paying a higher price relative to other bidders for similar lots. Activity rules Activity rules are a key element of all multi-round auctions and govern the behaviour of participants during each round. Generally they are used to promote honest or sincere bidding and to manage the speed of the auction but they can also be used to enable bidders to manage exposure or continuity risk. It may be possible to “park” eligibility points on spectrum blocks with (relative) impunity to prevent a rise in the price of desired blocks. Corporate governance issues A very significant challenge with combinatorial or package auctions (e.g. CCA) is that the set of required valuations can quickly become computationally burdensome or indeed infeasible. As the number of available lots increases, the number of possible combinations grows exponentially. Setting bid limits and approving bids are a corporate governance challenge in CCA auctions. 21 Auction Strategy and Readiness The issues surrounding a spectrum auction depend on the particular auction design Coleago's Spectrum Services
  23. 23. © copyright Coleago 2014 Different spectrum auction formats pose different challenges for operators Auction Formats and Rules The format and rules of spectrum auctions flows from policy objectives and regulatory intent. Depending on the spectrum on offer, the existing spectrum landscape , the expected level of competition in the auction, and the Client’s spectrum need particular auction formats may be preferred. Auction formats may have specific rules that may or may not serve the Client’s interests and these should be analysed carefully in order to influence these rules to support the Client’s objectives. The table below summarises key aspects associated with SMRA, SMRA-AS and CCA auction formats. 22 Coleago's Spectrum Services Auction Strategy and Readiness Auction design can have a significant impact on auction outcomes Design Principle SMRA SMRA-AS CCA Simultaneous award of spectrum PPP PPP PPP Flexibility over the use of specific or generic lots PP PP P Consistent with proposed spectrum packaging PPP PPP PPP Capable of implementation without package bidding PPP PPP O Transparency of bidders and bids PPP PPP PP Certainty over prices paid PPP PPP O Certainty over lots awarded PPP PPP O Certainty over total expenditure PPP PP P Simplicity and ease of presentation and transparency of results PPP PP O Aggregation risk PPP PPP O
  24. 24. © copyright Coleago 2014 Bidding strategy, bid limits, valuations and value creation 23 Coleago's Spectrum Services Auction Strategy and Readiness In developing a bidding strategy and potential bid limits the business must trade off value creation against the likelihood of acquiring the spectrum Theoretical maximum value of the spectrum Bid limit Amount actually paid Value created In an auction with a second price rule the amount actually paid is determined by the value the next highest bidder places on the spectrum To estimate the potential for value creation it is important to value the spectrum to other bidders The theoretical bid limit is calculated by comparing the business with the spectrum against the business without the spectrum – if you bid this much you would create zero value The operator’s board will determine the proportion of the maximum they are prepared to pay in the case of certain auctions such as a first price auction, in order to secure the spectrum – but they hope to pay less The value created by acquiring the spectrum is the difference between the theoretical maximum value of the spectrum and the amount paid to acquire that spectrum. Bid Limits and Value Creation Valuation, valuation, valuation Auction design has improved dramatically in recent years and within Europe the focus has been on economic efficiency – awarding spectrum to those operators who can generate the maximum value from its use (subject to considerations of competition). In order to achieve economic efficiency auction designers have sought to develop auctions where operators are encouraged to bid “honestly” or “sincerely” which means that they bid based on the value they place on the spectrum and only retire from the auction once auction prices have exceeded their valuation. If the auction designer has developed a good auction then bidding strategy should be relatively straightforward but valuation will remain critical. Most game theorists will stress to their clients that confidence in their valuations is paramount. Spectrum valuation however is not a simple task even in the most straightforward of auctions. Valuation presents very significant challenges when multiple bands are being auctioned simultaneously. In light of the fact that spectrum is both substitutable and complementary auction designers often adopt a combinatorial auction design and even when such a design is not chosen the bidders must adopt a combinatorial or package based approach to bidding. The result of this package or combinatorial approach is that bidding strategy may well require the operators (at least in theory) to value every conceivable combination of spectrum. Furthermore this task may well have to be repeated for competitors. The result is that valuation points can in theory multiply into the hundreds and even thousands.
  25. 25. © copyright Coleago 2014 Auction strategy, an introduction Setting bid limits Valuation is the most important aspect of a spectrum auction and essential to bid limits. However, with multiple lots on offer setting bid limits becomes complex. A bidder’s board will delegate the task of bidding to a bid team and the board will provide the bid team with a bid limit which cannot be exceeded. From a corporate governance perspective it is essential for the bid team to have certainty that their total potential expenditure when they participate in an auction will not exceed their given budget limit. In an SMRA auction, the combination of lots awarded and prices paid together determine the total expenditure for an auction participant, while in a CCA auction, it will be determined by the most expensive package bid submitted in the supplementary or assignment rounds. Learning Bidders typically do not avail themselves of the information that is made available by multi-round auctions. The auction may reveal how other bidders value lots and what they want. A critical question for bidders is to what extent you regard your valuations as common and whether you would alter your valuation to reflect information revealed in an auction process. Bidding “sincerely” Auction design has improved dramatically and the focus has been on economic efficiency – awarding spectrum to those operators who can generate the maximum value from its use (subject to considerations of competition). In order to achieve economic efficiency auction designers have sought to develop auctions where operators are encouraged to bid “honestly” or “sincerely” which means that they bid based on the value they place on the spectrum and only retire from the auction once auction prices have exceeded their valuation. Pay- offs from strategic bidding may be low and unexpected consequences could be costly. However, most auctions have features which means operators have to develop an auction strategy. Considerations for strategic bidding Strategic bidding can arise in all auction formats. There are many different examples of strategic bidding and can generally be defined as seeking to “game” the auction to achieve a better result than sincere and straightforward bidding based on the value placed on the spectrum. Examples of strategic bidding are provided below. Collusion: A SMRA can be viewed as a negotiation between bidders as to how to allocate lots amongst themselves. Bidders have been observed to use signalling through coded bids to coordinate the division of licences. If tacit collusion can be coordinated quickly through signalling the auction will end quickly with low prices. Parking: Bidding on lots that are low priced but high in eligibility points which are not of interest to the bidder but are valuable for preserving eligibility. Parking strategies are used to avoid bidding on desired lots in order not to increase their price (demand reduction), whilst retaining the ability to increase demand on desired lots at a later stage. Parking can also be used for punishing. Predation: A strong bidder has an incentive to develop a reputation for aggressiveness in order to reinforce its advantage. If a bidder has a reputation for aggressiveness this will discourage others from participating in an auction or bid less aggressively. In CCA auctions, strong bidders can at almost no risk to themselves drive up the prices for weaker players by submitting bids for very large packages that they do not really want. Strategic demand reduction: In auctions for multiple lots where prices are uniform bidders have an incentive to shade their bids (reduce the bid limits below their valuations) for multiple lots. The reason for the differential in shading is due to the fact that demanding more lots will raise the price on all lots and so the more lots that are demanded the greater the incentive to shade bids to reduce demand. It is the differential in shading that generates the inefficiency . 24 Coleago's Spectrum Services Auction Strategy and Readiness In order to bid successfully in modern auctions a bidder must develop an auction strategy. This is a process quite distinct from spectrum valuation.
  26. 26. © copyright Coleago 2014 Develop bid strategy: an integrated approach  Formalise a bidding strategy covering all stages of the auction.  Understanding what combination of blocks the Client should bid for and at what thresholds bidding should switch between blocks.  Obtain the preferred combination of blocks at the lowest possible price and avoid being stranded with unwanted blocks.  Be prepared to participate effectively in the actual auction, i.e. to place bids round by round for different combinations of blocks. Objective Key Activities Auction Strategy and Readiness An integrated approach to bid strategy development is needed, covering auction analysis, simulation, and empirical validation of strategic hypotheses  Comprehensive analysis of auction format and rules, and report on opportunities, risks, and mitigating strategies  Testing and validation of strategic hypotheses  Formulate, agree and document definitive bid strategy Key Output 25 Coleago's Spectrum Services Auction Theory: We apply the principles of economic game theory analysis to identify a dominant bidding strategy. We test the hypothesised dominant strategy in mock auctions and through simulations. The iterative process is workshop and facilitation based, and ensures a robust strategy and a well prepared and trained bid team capable of executing the strategy effectively. These workshops create auction awareness among your management. Simulation & Testing War Gaming Auction Theory Bid Strategy Mock Auctions: These are the training ground for staff executing the auction and are required to test systems. In Coleago’s experience the participation in mock auctions is also an “eye opener” for senior management, helping them to understand the risk associated with an auction of either overpaying or not obtaining the desired combination of spectrum blocks. Auction Simulations: While a mock auction gives some strategic insight, running hundreds or even thousands of computer simulations produces a much better understanding of possible outcomes and thus gives better insight into the outcomes of different bid strategies. Auction Objectives Package Values & Bid Limits Competitor Intelligence Bid Play-Book Analysis of Life Auction Data Updated Forecast & Plan Inputs for strategy development Strategy design process Live auction execution
  27. 27. © copyright Coleago 2014 Overview of auction strategy development and auction readiness 26 Coleago's Spectrum Services Auction Strategy and Readiness Spectrum auctions present operators with considerable risk – the risk of not securing essential spectrum but also the risk of over paying, the so called “winners curse”. Objectives Deliverables 1 Auction objectives, valuations, bid limits Understand the work of the valuation team. To agree auction objectives. Set bid limits and explain rationale.  Senior management workshops and statement of the client’s primary and secondary auction objectives  Recommended bid limits. 2 Develop competitor intelligence Identify competing bidders and ascertain their auction objectives, auction strategies and bid limits relative to own valuation.  Report covering competitor objectives, bid limits and likely auction strategy. 3 Develop bid strategy Generate actionable insight into the auction format and rules, and into the underlying opportunities, risks, and mitigating strategies.  Report with analysis of auction rules & format.  Report on game theory aspects and combinatorial properties of the auction, opportunities, risks and mitigation and other theoretical aspects.  Senior management presentations and workshops. 4 Develop bid optimisation & support tools Create the tools that allow Coleago to validate bid strategy and support the implementation of the bid strategy in a live auction environment.  Excel bid-optimisation tool and Excel based auction tracking tool, with price-prediction capability (subject to auction format). 5 Bid strategy testing and refinement Validate strategic hypotheses through auction simulations and quantify risks and opportunities  Testing of alternative bid strategies.  Identification and quantification of risks and opportunities. Empirical validation of supplementary- bid optimisation and price prediction capabilities. 6 Mock auctions & auction readiness Test the bidding strategy and to train the auction team and to test auction support tools, bid room protocols, procedures and disaster recovery as well as providing insight to senior management .  Hold two mock auctions.  A tested final bid strategy and a trained bid team with tested auction support tools and procedures.  Audit of the organisation’s readiness for the impending auction. 7 Game plan To be able to execute the bid strategy in accordance with robust corporate governance.  The Auction Game Plan Report covering all aspects relevant to the successful execution of the auction.
  28. 28. © copyright Coleago 2014 Deliverables and resource requirement Deliverables Coleago will deliver the following:  Conduct workshops with senior management to understand valuation creation in the context of the spectrum valuation and auction, to set bid limits, explain the implications of the auction format, and recommended bid strategy.  Recommended initial bid strategy hypothesis  Simulation software and auction support tools to test the bid strategy hypothesis  Bid team training, including mock auctions  The Auction Game Plan Document: – Statement of hierarchy of primary auction objectives – Secondary auction objectives – Valuation matrix and bid limit matrix – Identification and description of auction trigger points for switching auction objectives and / or bidding strategies – e.g. bid limits approached, risk of eligibility being compromised, signs of strategic bidding – Description of bidding patterns or behaviour to look out for which might indicate forms of strategic behaviour from other bidders – Contingency plans in response to strategic bidding or irrational bidding – Competitor bid limits and triggers for re-assessment of competitor valuations – Triggers for bid limit escalation procedures – Bid team roles and responsibilities – Bidding protocols and procedures – Disaster recovery – Post auction press releases prepared for win / lose outcomes 27 Coleago's Spectrum Services Auction Strategy and Readiness Around 50 to 90 man days are required for auction strategy Client Resource Requirement The work requires considerable interaction with the Client’s team and hence most of the work would take place on-site. Because considerable interaction is required, the Client must ensure that relevant project team members are available for the project in a timely manner. This includes senior management with regards to making decisions notably agreeing the auction objectives and setting bid limits. The auction participants must be available for the mock auctions. The Client must make available a secure environment to discuss the auction details and also a facility to hold the mock auctions. Typically we expect to have two to four people per team with a minimum of three bidding teams per mock auction. Manday Requirement Typically the work would be carried out during a six to eight week period, depending on the auction format, required speed and availability of client staff to take place in the mock auctions. Coleago’s project team would include:  Academic auction panel members  Senior consultants  Director review and oversight Depending on the exact requirements in total we would require from 50 to 90 mandays for this work stream. On-Site Presence The work requires considerable interaction with the client ‘s team and hence most of the work would take place on-site.
  29. 29. © copyright Coleago 2014 Indicative auction strategy and readiness project plan and milestones Auction Strategy and Readiness We recommend running three mock auctions including one with the government auctioneer. The mock auctions also provide a chance to test protocols and disaster recovery. 28 Coleago's Spectrum Services Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Auction objectives, valuations, bid limits Develop competitor intelligence Develop bid strategy: analyse auction format and rules Develop bid optimisation & support tools Bid strategy testing and refinement Run three mock auctions (incl. one with government) plus check auction readiness Write and present game plan Auction objectives agreed Auction support tools complete Mock auctions complete Game Plan delivered Bid strategy agreed
  30. 30. © copyright Coleago 2014 Coleago provides you with support during the auction so you are prepared for the next day’s bidding Live Auction Support 29 Coleago's Spectrum Services 5
  31. 31. © copyright Coleago 2014 Supporting the client during the auction on a round by round basis 30 Coleago's Spectrum Services Live Auction Support Coleago will support the Client during the auction with on site presence and additional access to the wider Coleago team. The Benefit of Auction Support In theory the client enters the auction well prepared and the auction itself is a mechanical exercise. However, as the auction unfolds there will invariably be some learning which must be processed at the end of each day so that the client enters each auction day well prepared for the next day’s bidding. A senior Coleago consultant would be part of the auction team. This team member would support the bid team by:  Ensuring compliance with bid protocols and procedures  Selection of optimal bid  Providing support should the unexpected happen  Input on daily communications  Input in the daily strategy review Unexpected Events During the auction the client needs to be able to manage unexpected events which may arise within or outside of the auction process and review the results of each round as they conclude. Ideally the client will have a clear bid strategy and well trained team and no unanticipated events occur. However, Coleago will participate as a full time member of the bid team to advise on round-by-round tactical bid decisions as well as how to respond to external and internal events which may alter the view of valuation and therefore bid limits. Daily Bid Strategy Review Meeting Coleago will moderate daily bid strategy review meetings which will provide the client with an “insurance policy” if the auction does not proceed as anticipated. We propose to hold the review meetings at the end of each day, so that additional experts from Coleago’s team can dial in as and when needed. This gives the client the benefit of access to a wider team without having the costly on-site expense. Daily Reporting and Strategy Review At the end of each day the client will need to analyse the days bidding and review its strategy going forward. The client can access a broader Coleago team if required to provide inputs to the daily strategy review. Communications At the end of each days bidding the auction team will need to inform senior management on the days activity and provide insights on the likely auction outcomes. The client will need to develop an internal communication strategy which covers:  Recipients  Timings  Format and medium  Content In addition to internal communications the client should prepare its external communications prior to auction should the client acquire/not acquire spectrum.
  32. 32. © copyright Coleago 2014 Deliverables and resource requirement Deliverables Coleago will deliver the following:  On-site presence of one Coleago expert for the duration of the auction - the consultant will have been part of the team working on the previous phases.  Moderate daily bid strategy review meetings.  Access to the wider Coleago team for end-of day reviews via telephone. Manday Requirement The man-days required for this phase depend on the length of the auction. We would expect one consultant to be present on-site throughout the auction and further consultants, directors and academic auction panel members to be on call for the end-of-day review session as needed. Fees will be charged on a time basis for each category of consulting staff and expenses at cost. 31 Coleago's Spectrum Services Live Auction Support Example, on-site auction support in India A Coleago consultant was on-site with the client for the duration of the BWA auction. The Coleago consultant organised daily review meetings at the end of each auction day. The purpose of the review meetings was:  to update auction tools,  analyse and review the results,  make decisions for next day’s bidding. It is important to bear in mind that the purpose of the review meeting was not to review bid limits; these had been previously set. In addition, Coleago conducted two sessions via video links with Coleago’s UK based auction expert. The main purpose of these meetings was to review bid strategy and issues such as complementarity and scale with the view to avoid being stranded with unwanted blocks.
  33. 33. © copyright Coleago 2014 Coleago has conducted spectrum consultations, valuations and auctions world-wide. Our experience includes projects as recent as this year thus ensuring that we are familiar with latest developments. Coleago’s Relevant Experience 32 Coleago's Spectrum Services 6
  34. 34. © copyright Coleago 2014 A powerful combination of skills and experience A powerful combination Ensuring success in the forthcoming consultation and auction will require an effective partnership between the Client and Coleago . Coleago delivers a rare combination of the skills and experience described below. In this section we seek to demonstrate that Coleago is uniquely placed to offer this combination. Business planning expertise Developing spectrum valuations involves developing a supporting business plan. Coleago’s consulting team has been developing telecoms business plans since 1994 and the lead project Director, Graham Friend, along with Coleago co-founder Stefan Zehle are the co-authors of the award winning “The Economist’s Guide to Business Planning.” The proposed consulting team all have extensive business planning expertise. Business modelling expertise To support a business planning project and to develop spectrum valuations Excel business modelling skills are required. Given the likely large number of valuation points, the need to value spectrum to all likely auction participants and the need to develop a range of alternative scenarios to deal with uncertainty over issues such as demand and technology the consulting team must have exceptional modelling skills. Coleago’s Excel modelling credentials are unrivalled. The firm develops best practice Excel business models based on the methodologies and approaches which are described in “The Economist’s Guide to Business Modelling”. Coleago’s models are based on the Coleago MAPPED Modelling Methodology which delivers user friendly, modular and therefore, flexible models which are fit for purpose. Coleago also provides training to telecoms companies such as France Telecom, Telefonica and Vodafone. Telecoms experience Our business planning and modelling expertise has been developed exclusively within the telecoms sector. We are not just experts in business planning and modelling but experts in deploying these skills in the context of the telecoms sector. Furthermore, our consultants are drawn exclusively from the telecoms industry itself. Spectrum related experience Coleago consultants have been focusing their telecoms business planning and modelling expertise on spectrum related projects for 17 years. Our experience encompasses some of the most challenging spectrum valuation projects that have taken place which have combined not only combinations of different spectrum bands but regional and temporal combinations as well adding additional layers of complexity. We are sought out by industry publications for our insight on spectrum auctions and for access to our spectrum auction database. Recent press comment and white papers include:  “Making sense of recent European spectrum auctions”  “German spectrum auction prices – demand is the key driver”  “Spectrum auctions and shareholder value”  “Digital Dividend 2013 timeline”  “Austrian 2.6GHz spectrum auction”  “A fundamental flaw in the Indian 3G spectrum auction”  “3G spectrum prices in India” Spectrum consultation related reports  Coleago produced a report for the World Bank on “Best Practice in Spectrum Renewal and Pricing” (2011).  “A Critical Assessment of Alternative Auction Formats”, on behalf on a mobile operator in Australia (2011).  “ComReg Auction Design Analysis - A review of the proposed ComReg auction and commentary on the suitability of the design” on behalf of a mobile operator in Ireland (2010) 33 Coleago's Spectrum Services Coleago’s experience Coleago combines expertise in business planning and modelling with extensive experience in telecoms and spectrum valuation Guide to Business Planning named Outstanding Academic Title 2009 The Guide to Business Planning, which recently appeared in its 2nd edition was named as one of the "Outstanding Academic Titles, 2009 (Business and Economics)" by Choice, the US academic review journal. Source: Choice, 5th of January 2010
  35. 35. © copyright Coleago 2014 About Coleago Consulting 34 Coleago's Spectrum Services 7
  36. 36. © copyright Coleago 2014 A leading boutique telecoms consulting and training firm Operators and regulators Telecoms operators around the world trust Coleago to provide insight and advice on key strategic and commercial issues through our broad range of consulting and training services. Experience based consulting approach We do not use inexperienced associates or analysts – all our consultants have a minimum of 10 years experience and most have over 15 years, often at board level in operational businesses. Our insight and advice is therefore based on practical experience and proven processes and methodologies developed over many years. Clients can be confident that their project will be delivered by Partner and Senior Manager level consultants from start to finish and our solutions and recommendations will be credible, relevant, realistic and practical. Developed and developing market experience Coleago has worked with clients in developed markets and also in some of the most challenging emerging markets including the Yemen and the Sudan and we have launched and operated GSM businesses in countries such as Algeria. Small, effective teams Our consultants are highly experienced, multi-skilled and have extensive project management experience. This allows Coleago to deploy smaller teams as we do not require the hierarchy of traditional consultancies to manage large teams of juniors. Clients find our small teams easier to work with and integrate into their own project teams. Exceptional value By eliminating many of the overheads of traditional firms we are able to offer end-to-end partner level consulting at fee rates that provide exceptional value. 35 Coleago's Spectrum Services Coleago Consulting Based in the UK Coleago provides consulting and training services to global and regional telecoms, media and technology players Advice covering a broad range of technologies We have advised clients on wireless, fixed, cable, satellite and fibre based technologies. We have specialist expertise in spectrum valuations and spectrum auctions have participated in more than 50 awards since 1994. Media and technology experience We have developed strategies and business plans for media companies, TV channels and web based businesses as well as technology companies. Innovative training services Coleago has developed a range of training and management development programmes, including a War Game (business simulation) Junior Consultant Senior Consultant Manager Senior Managers Partner Analyst Traditional Consulting Firm Model
  37. 37. © copyright Coleago 2014 We provide a broad range of consulting services 36 Coleago's Spectrum Services Coleago Consulting We specialise in telecoms business analysis, planning and modelling to ensure that our advice and recommendations deliver increased shareholder value Strategy & Business Planning Marketing & Customer Management Regulation & Interconnect Business Transformation & Cost Reduction Due Diligence Improving Network Performance Spectrum and Licences Digital Content & Media Fund Raising Strategy Development, Marketing Strategy War Gaming Business Planning Business Modelling Spectrum Strategy Spectrum Valuation for Auctions Spectrum Auction Bid Strategy Licence Applications Market Forecasting & Market Planning Market Segmentation & Customer Insight Customer Life Time Management Improving Customer Care Commercial Due Diligence Technical Due Diligence Cost Reduction Restructuring Turnaround Network Audit Network Sharing Outsourcing Interconnect Cost Modelling Interconnect Agreements and RIO Regulatory Strategy Accounting Separation TV Business Planning Digital Media Strategy Digital Content Monetisation Information Memorandum Equity Fund Raising Debt Fund Raising
  38. 38. © copyright Coleago 2014 We offer an innovative suite of training, development and coaching services Specialist Telecoms Trainers Our trainers are first and foremost telecoms industry experts who are able to gain the respect of programme participants. They are also outstanding trainers with a passion for their subjects. Telecoms Focus Our programmes are developed exclusively for the telecoms sector and use real life telecoms case studies, examples and benchmarks throughout. Bespoke Solutions We develop bespoke solutions for clients often utilising information about their specific markets to illustrate key points. Tailored Deliver We provide pre-course questionnaires and hold telephone interviews with every participant to ensure that each and every delivery contains the right content delivered at the appropriate level. Innovative Programmes We use simulation tools, role plays and challenging case studies to provide an entertaining and rewarding learning experience. War Gaming Our War Game process is the most realistic simulation of a telecoms market currently being offered and is the closest thing to running a telecoms business after actually running a telecoms business! 37 Coleago's Spectrum Services Coleago Consulting Our telecoms War Game is a unique and exceptional management development platform and our Dragons’ Apprentice offers a new approach to team building The Telecoms Mini- MBA War Gaming & The Dragons‘ Apprentice & Coaching Finance for Non- Financial Managers Technology Investment Appraisal & Excel Modelling
  39. 39. © copyright Coleago 2014 Coleago has delivered assignments for global operators and smaller players 38 Coleago's Spectrum Services Coleago Consulting Our clients include fixed and mobile operators, MVNOs, equipment vendors, regulators and content providers P4 Poland Gibraltar Regulatory Authority VIP-Net GSM d.o.o Croatia Kuwait Sudan Saudi Arabia
  40. 40. © copyright Coleago 2014 Coleago’s consultants lead and shape the industry 39 Coleago's Spectrum Services Coleago Consulting Coleago is regularly asked to speak at key telecoms conferences around the world as well as sitting on governmental working groups and industry bodies that shape the future of the industry Business texts written by the founders of Coleago Guide to Business Planning named Outstanding Academic Title 2009 The Guide to Business Planning, a book authored by Graham Friend and Stefan Zehle the Directors of Coleago, which recently appeared in its 2nd edition was named as one of the "Outstanding Academic Titles, 2009 (Business and Economics)" by Choice, the US academic review journal. Source: Choice, 5th of January 2010 www.lib.uwo.ca/news/business/2009/12/23/outstandingacademictit les2009businesseconomics.html Participating in shaping the telecoms industry  Coleago’s consultants are actively involved in telecoms industry events. For example, Stefan Zehle, Coleago CEO, spoke at over 20 conferences and forums, and most recently at the GSMA Spectrum Workshop in London (June 2010).  Coleago consultants are cited in the press world-wide including Total Telecom, Wall Street Journal, Wall Street Journal Asia, Deutsche Welle, Business & Economy India, Financial Times, New York Times, BBC News.

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