SpectrumInvest
Discounted cash flow and benchmarking models have lost precision, evidence of this has been the impact on spectrum actioned after pandemic crisis. SpectrumInvest define the radio-electric spectrum value according with investments to mobile network deployments during five (05) years considering: frequencies, coverage, access, backhaul and transport networks and terminal equipment. With a defined population coverage goal. Investment is prioritized according to defined components that have a direct impact on coverage, quality and availability of services.
Figure 1, show how is the relationship between investments and revenues.
However, exist a time difference between invest and obtain revenues. The MNO invest on deploy networks during 5 years and then they expect to gain while license lasts, 15, 20 or 30 years. Trying to know the MNO income over such a long period has a low probability of success. Including facts unlikely to consider as COVID 19. Normally, the MNO have to invest to network deploy and location coverage that they are interested because they expect to recovery their investments and obtain revenues.
Figure 2, show the investments considering with SpectrumInvest
Considering investments on access and transport network and terminal equipment. The terminal equipment is considered due the operators need invest and offers to their clients. In some cases, sales represent 30% or 40% of operator’s incomes. Additionally, coverage and frequency bands are considering too because investments can change depends of them. Coverages contemplated depend on current coverage of each operator's networks.
Figure 3, show the process to define the reference value.
The process to define spectrum value. Including maximum and minimum value. How duration time correspond to 5 years, we need to obtain Net Present Value of investments taking into account the WACC.
Figure 4, each operator has a difference invest on network deployment
Each operator has a specific investment capacity due to size on their operation. For that reason, maximum and minimum value considered take account investment capacity of smallest operator in market.
SpectrumInvest Procedure
We have designed a spectrum allocation process or auction, called SpectrumInvest Procedure. Based on two innovations, investment offers instead of price, and price inversely proportional to investment offers. The objective is to increase investments to deploy 5G and achieve to most population objective, during 5 years. And Invest-Drivers, with aim of reducing execution time.
Figure 1, the auction process and its stages
Spectrum auction starts with a main stage. Each bidder must submit their investment offer composed of Net Present Value (NVP) of their investment for 5 years. We use NPV to compare the investment presented between each bidder and qualify because two operators can present same mounts, but using NVP prioritizes the investment offered the first years of 5 years.
At the main stage, we present a maximum value that correspond to base bid. Additionally, minimum value is presented too. Following investment offers must be exceeding the base bid. Spectrum price will be decreasing to minimum value depends of investment offer presented by each bidder.
Investment offer corresponding to it will be executed if bidders obtains the bandwidth auctioned. Please note that it can be made up of different frequency bands (low, medium and high frequency bands).
About what happens if auction includes several bands. The process can include an auction where bidders can present an investment offer by portions of spectrum in all auctioned nfrequency bands. The relationship between quantity of spectrum and investments is due to the MNOs obtain more spectrum they can needs less invest.
Because the MNOs have two ways to improve quality and capacity networks. Increasing spectrum in same coverage area or installing more sites into same area. If the MNOs have more bandwidth, they can improve quality or capacity without invest more or without install more sites. And this requires less investments.
But if they want improve quality or capacity networks without bandwidth increase, they need to install more sites in the same area and they have to invest more to increase the site´s numbers. Additionally, with SpectrumInvest Procedure the bidders can present an investment offer by the spectrum selected by each frequency band auctioned specifying bandwidths in each frequency band.
Acceleration stage it to promote coverage. Network deploys in rural zones or with limited coverage. Normally, rural zones have a population high dispersion. For that reason, cover that zone imply an investment increase and it may not be recoverable by investors. The solution presented include spectrum and network sharing. (SpectrumInvest Shared) by mobile operators who wins the spectrum.
For that reason, we designed Invest-Drivers that it will help to invest recovery on rural zones. The regulatory policy and mobile market that has been investment-intensive have limited by profit margins. In some cases, the EBITDA in percentage terms has fallen by 10% or 20% in recent years. As well as the allocation processes and real objective of these allocations have evolved and understanding that market needs is a real boost so that investors can have clear incentives to carry out the 5G network deployments.
Figure 2, the auction process and its stages
In this graphic, we show an example how is relationship between investment offers and spectrum prices. Varies between maximum reference value and minimum reference value. Take account that the acceleration stage is a reference because we need to calculate investments necessary to rural zones and population covered.
SpectrumInvest Shared
Spectrum and network sharing to accelerate coverage in areas without access or limited access, allows to reduce deployment time and maintain competition between mobile network operators and even virtual mobile operators. Our model defines relationship between participants by defining a scheme adapted to CAPEX and OPEX. To achieve a return on investment and a reasonable profit margin.
The spectrum and networks sharing were stablished by 3GPP standards. The objective is aptly SpectrumInvest Shared to improve coverage in rural zones. Normally, regulators define coverage obligation to achieve it. However, we propose to change coverage obligation by promote coverage.
Invest-Drivers
We desiged Invest-Drivers that it will help to invest recovery on rural zones. Regulatory policy and mobile market that has been investment-intensive. And it has limited profit margins. In some cases, their EBITDA in percentage terms has fallen by 10% or 20% in recent years. As well as allocation processes and real objective of these allocations have evolved and understanding that market needs is a real boost so that investors can have clear incentives to carry out 5G network deployments.
Giving mobile operators benefits that imply making better investment use to be able to cover faster and increase offer from more than one operator in rural zones. Therefore, we believe that establishing a spectrum valuation based on operator’s investments, bring greater benefits to countries economy, since it has a positive impact on direct and indirect jobs and better services coverage.
In another point of view, if changes or fiscal incentives are established for operators due to investments increase, investments benefits are directly transferred to the country real economy. What brings greater benefits compared to increase in regulator and country budget. These are benefits that end up being more direct, creating jobs and improving coverage that directly impacts in digital economy.