Radio frequency spectrum pricing for 3G telecom licenses: a system dynamics modelling approach

Abstract

With the liberalization and opening of telecom market, telecom industry has been growing at a tremendous pace. This new telecom revolution is largely because of the innovations and development in wireless communications. The first and foremost requirement for wireless communication is the availability of radio frequency spectrum. Critical issue regarding the awarding of radio frequency has been the allocation mechanism and its pricing. Different countries have adopted different mechanisms for awarding spectrum, of which some have been successful and some have been failures. This study attempts at figuring out the factors influencing the pricing and allocation mechanism for 3G telecom licenses in India. Since the award of 3G telecom licenses have been already made in various countries long back, it becomes necessary for India to award 3G telecom licenses at the earliest and try to be competitive and provide better and additional services to the users. The potential role of the government and regulations, with significant uncertainties and complexity in the nature of the interaction of large number of interrelated players makes it difficult to determine the valuation of the spectrum. Since the policies cannot be static in nature, it is important that timely and prudent policy interventions are needed to increase and sustain the number of 3G users and hence the revenues from it. Since there is so much interrelation between the players, System Dynamics approach seems to be the best approach as it takes into account the feedback nature of various policies to draft a policy framework. System Dynamics based modelling approach is more suitable in dealing with the complex interrelatedness and to develop a policy model. In this study, it has been attempted to develop System Dynamics based simulation models based on various policy model, user perception and average revenue per user (ARPU). This model will help in determining the influence of various policies and help policy makers to influence those factors that can foster both technology, business in India for public good.