Calculating the opportunity costs of UHF spectrum in the UK

The problem

The UK regulator, Ofcom, was considering whether to apply charges to the spectrum used for terrestrial broadcasting. If it were to decide that charging broadcasters for their spectrum was appropriate, Ofcom would need to consider what prices it should set for the spectrum. Ofcom therefore commissioned Analysys Mason together with Aegis Systems to carry out a study into the opportunity cost of the spectrum used by digital terrestrial TV (DTT) and digital audio broadcasting (DAB).

The solution

We considered spectrum currently used for DTT, in the 470–550MHz and 614–790MHz bands, and for DAB, in the 211–230MHz band. For each band, we looked at the current usage and whether there was likely to be excess demand for the spectrum for that usage. We then considered whether there were potential uses of each spectrum band for other services, and whether providers of these services might therefore have demand for the broadcasting spectrum.

Having assessed the level of scarcity in each band, we then carried out a detailed modelling exercise for both current and potential alternative users of the spectrum.

For the current users of the spectrum, this modelling assessed the costs of mitigating a loss of some of their spectrum through a variety of approaches. These approaches included migrating to use other spectrum (for example, the 600MHz band for DTT), upgrading networks to use more-efficient technologies, such as DVB-T2 and DAB+, or in the case of DTT using a single frequency network (SFN) or using an alternative distribution platform, such as Freesat.

For the potential alternative users we modelled the cost savings that could be achieved in providing their services through having access to some of the broadcasting spectrum. This analysis focused mainly on the potential for mobile use of the 700MHz band (694–790MHz), which is currently used for DTT.

We tested a wide range of scenarios and sensitivities to generate the most robust estimates of opportunity costs possible for each of the spectrum bands under consideration.

The result

We were able to provide Ofcom with detailed opportunity cost calculations, which the regulator used to set out views on the potential level of administered incentive pricing (AIP) that may, in the future, apply to terrestrial broadcasting. The accuracy and attention to detail of our work was appreciated by Ofcom, which published our report.

The team

The team was able to use its extensive experience of broadcast network costing in order to provide a robust set of opportunity costs for current users to Ofcom. In addition, the team was able to use its extensive knowledge of 3G and 4G mobile market and spectrum valuation approaches to calculate the value of the spectrum for mobile services across a range of scenarios.

Ofcom relied on our report in its consultation on spectrum pricing for terrestrial broadcasting, and published our work alongside the regulator's consultation document on its website at http://stakeholders.ofcom.org.uk/consultations/aip13/.