The future of spectrum pricing, May 2017

The future of pricing spectrum
Stefan Zehle
CEO, Coleago Consulting Ltd
+44 7974 356 258
stefan.zehle@coleago.com
www.coleago.com
3rd Annual Asia Pacific Spectrum Management
Conference, Bangkok 3rd of May 2017

There is little mobile service revenue growth and in many markets
industry revenue declines in nominal and real terms
© copyright Coleago 2017
The Future of Pricing Spectrum
1
Source: ML BoA Global Wireless Matrix Oct 2016

The growth in data traffic far outpaces growth in revenue; there is
little incremental revenue from data
 In mobile markets world-wide, mobile
data growth is exponential. This growth
is likely continue.
 However, revenue growth - if any - is
minimal compared to the growth in
data volume.
 The notion that investment in LTE
generates much additional revenue is
erroneous.
2
0
100
200
300
400
500
600
700
1 2 3 4 5 6 7
Revenue
Data traffic
Relationship between mobile revenue
and mobile data volume (illustrative)
Years
TrafficVolumeandRevenue

Mobile market revenue per MHz of spectrum used to produce the
revenue is declining, example Canada
3
81
55
53
50
36
0
10
20
30
40
50
60
70
80
90
2007 2008 2012 2014 2015
CN$millionperMHz
Revenue per MHz of spectrum deployed

Over time mobile operators will use even more spectrum to cope with
the increase in data traffic
4
220
340
525
615
715
755
1155
0
200
400
600
800
1000
1200
1999 2002 2010 2016 2018 2020 2022
MHz
Spectrum used by mobile in ITU Region 3
900 - B 8 1800 - B 3 2100 - B 1 2600 - B 7 2600 - B 38
700 - B 20 2300 - B 40 1500 - B 32 3500 - B 42 3700 - B 43
 Many Asian countries are
behind in assigning
spectrum to mobile
operators, but the trend is
clear.
 For example, bands 42
and 43 (3.5 / 3.7 GHz)
consist of a massive
400MHz (may not be
used in its entirety for
mobile).

525
915
9,590
-
2,000
4,000
6,000
8,000
10,000
12,000
Now By 2020 Beyond 2020
MHzofspectrum
Mobile spectrum - MHz
Now Up to 6GHz Above 6GHz
The amount spectrum used by mobile operators will almost double in
the near term and increase 10 times in the longer term
5
1.7 x
10 x
Over the next 5 years
we will witness an
order of magnitude
shift in the amount of
spectrum used for
mobile.

Risks are increasing because prices paid for spectrum has an ever
greater impact on investor returns
6
Revenue per MHz of
spectrum used has declined
and is set to decline further
Spectrum accounts for an
ever larger proportion of
operator costs
Spectrum prices have an
ever greater impact on
investor returns

Consumers will not pay materially more for 5G mobile broadband
7

The business case for IoT / M2M is highly uncertain
 Evidence from France shows that while M2M SIMs have increased to 14% of all
SIMs, revenue account for less than 1% of total revenue
8
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
%oftotal
M2M SIMs & revenue % of total
M2M SIMs M2M revenue

The business case for IoT / M2M is highly uncertain
 The same evidence from France also shows that while the number of M2M SIMs
is growing, M2M revenue growth has stalled
9
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
0.7%
0.8%
0
20
40
60
80
100
120
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
%oftotalrevenue
€million
M2M revenue
Revenue % of revenue

The risk of paying too much for spectrum is compounded by the
investment required for 5G and uncertain revenue growth
10
Spectrum accounts for an
ever larger proportion of
operator costs
New network investment is
required for 5G
The business case for IoT /
M2M is highly uncertain
Risks are increasing

Governments must reset their expectation of revenue from the sale of
spectrum licences: The price per MHz must decline substantially
11
0.000%
0.005%
0.010%
0.015%
0.020%
0.025%
0.030%
0.035%
0.040%
0.045%
0.050%
200 400 600 800 1000 1200
CostperMHzofspectrum%ofrevenue
MHz of spectrumused by mobile industry
Cost per MHz spectrum at 10% of revenue

The total annual equivalent cost of all spectrum should be below 10%
of industry revenue
 The annual equivalent cost of an up-
front spectrum fee can be calculated
using an annuity formula.
 To this annualised licence fee amount
ongoing annual spectrum fees and
other regulatory fees need to be
added.
 As a benchmark, between 1994-2014
the US mobile industry spend around
5.6% of revenue on spectrum.
12
The annuity calculation formula
Annualised cost = cost of capital / (1 - (1 / (1 + cost of capital)) ^ years of licence)
 The total annual equivalent
cost of all spectrum held by
the industry should be below
10% of industry revenue.
 Where policy makers value
other policy goals, such as
rural coverage, the annual
cost should be below 5%.

Coleago has carried out over 80 spectrum consultation, valuation,
auction and beauty contest licence projects
Completed in 2016-17
 Nepal – 700, 2600MHz
 Myanmar – 1800MHz
 Bangladesh – 700, 1800, 2100,
2600, 2600MHz
 Indonesia – 2100, 2300MHz
 Cambodia – 2600MHz
 South Africa – 800, 2600MHz
 Ghana – 800MHz
 Russia – 1800MHz
 UK - 3GHz
Completed in 2014-15
 Ukraine – 2100MHz
 Argentina – 900, 1800, 700MHz,
AWS
 Canada - AWS-3 and 2.5GHz
 Bangladesh – 700, 1800, 2100MHz
 Guatemala – 3.5GHz
 Canada – 700MHz
 Paraguay - multi-band
 Belgium - 800MHz
14© copyright Coleago 2017

Since 2001, Coleago has offered a wide range of advisory services to
the telecom industry
15© copyright Coleago 2017
Strategy & Business Planning
 Strategy Development, Marketing Strategy
 MVNO and Multi-Brand Wholesale Strategy
 Business Planning and Business Modelling
Telecoms Regulation & Interconnect
 Accounting Separation, Regulatory Price
Control
 Interconnect Cost Modelling, RIO
 Regulatory Consultations
Business Transformation & Cost
Reduction
 Cost Reduction
 Mobile Network Sharing
 Restructuring and Turnaround
Transaction Services
 Commercial Due Diligence
 Tower Due Diligence
 Preparation of Information Memorandum
Spectrum Valuations and Auctions
 Spectrum Strategy
 Spectrum Valuation for Auctions
 Spectrum Auction Bid Strategy and Execution
 Beauty Contest Bid Books
Mobile Network Sharing
 Mobile Network Sharing
 Managed Services and Outsourcing
 Tower Due Diligence
 Network Audit

The future of spectrum pricing, May 2017

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