Evolution of Spectrum Valuation for Mobile Services In Other Countries

Transcription

1 SCHEDULE C Evolution of Spectrum Valuation for Mobile Services In Other Countries By: Lemay-Yates Associates Inc. March 2003

2 Evolution of Spectrum Valuation for Mobile Services in Other Countries Report presented to Microcell Telecommunications Inc. March 2003

3 Table of Contents 1. EXECUTIVE SUMMARY INTRODUCTION ECONOMIC FACTORS IN SPECTRUM VALUATIONS THE EVOLUTION IN THE PRICE OF SPECTRUM FROM DIGITAL CELLULAR, PCS AND 3G US PCS AUCTIONS Evolution of total receipts Auction in % of high bids dismissed in Irrationality Incumbents protecting markets Longer term trend As more spectrum was awarded, the overall value declined THE EVOLUTION OF SPECTRUM VALUATION IN OTHER COUNTRIES G Auction results and overall trend Decline in the value of spectrum as more licenses are awarded Value of spectrum in different bands licensed simultaneously KEY FINDINGS THE VALUE OF SPECTRUM DECREASES WITH MORE LICENSES ARE AWARDED FUTURE SPECTRUM AWARD WILL FURTHER REDUCE VALUES List of Figures and Tables Figure 1 Price for spectrum ($ per pop per MHz) versus GDP per capita GSM Figure 2 US PCS auctions Total Receipts... 9 Figure 3 US PCS Auctions Price per MHz Figure 4 US PCS Auctions Evolving price per licensed MHz Figure 5 3G auctions Price per pop per MHz Figure 6 Evolution of the price of spectrum in Belgium- GSM 900, 1800 and 3G Figure 7 Evolution of the price of spectrum in Austria- GSM 1800 and 3G Table 1 A summary of the evolution of spectrum pricing in the US ( ) Table 2 - Australia 1998 values for 800 MHz versus 1.8 GHz licenses LYA Report Evolution of Spectrum Valuation in Other Countries March 2003 Page i

4 1. Executive Summary The purpose of this Report (prepared by Lemay-Yates Associates Inc. on behalf of Microcell Telecommunications Inc.) is to provide a discussion of the evolution of the value of spectrum licenses in the US and other countries. In many cases auction results have been skewed by irrational bidding. This was the case in 2000 in Europe with the extreme results of the UK and German auctions. It was also the case in the US in the 1996 and 2001 PCS auctions. In the 1996 case, this was due to entrepreneur credits and favourable financing terms conferred by the FCC. In the 2001 case, large incumbents (notably Verizon) were able to bid high prices to block entry (for spectrum re-auctioned from defaults in 1996) in their Incumbent Local Exchange Carrier (ILEC) territory. The US PCS experience though clearly shows the cumulative effect of issuing more licenses as the total value of auction receipts declined (per pop per MHz) net of the defaults and dismissals as more licenses were issued. The value of the auctioned licenses in total has declined by about 25% per year (considering total receipts over total licensed capacity). The experience in other countries also shows a trend of declining values as more licenses were issued and the different valuation for different bands. Prices for 3G spectrum were generally much lower than those paid for PCS (1.8 GHz), which in turn were lower than the 800/900 MHz GSM awards. This reflects the lower value of being the third, fourth, fifth, etc. player in the market, as well as deployment differences in the various bands. LYA Report Evolution of Spectrum Valuation in Other Countries March 2003 Page 1

5 Spectrum prices expressed in $ US per MHz per POP decreased by 70% to 80% in Belgium and Israel over a 3-7 year period from GSM 900 spectrum to 3G. In Austria, prices for 3G were 40% below those paid for PCS (GSM 1800), with approximately 2 years in between, while a price decrease in the range of 50% was recorded in the Netherlands within the same timeframe. In Australia, the auction of 800 MHz and 1.8 GHz spectrum held simultaneously for the same cities yielded a difference of 56% difference in the value of spectrum, reflecting the lower economical value attributed to the PCS band. In terms of going forward, in the US the FCC appears to have no intention of stopping the licensing of new spectrum and despite the debacle of 2001 has already scheduled the next auction. In April 2003, the FCC will auction 5 MHz of spectrum in the MHz band nation-wide. Originally the auction was to include an additional 10 MHz in other bands (1.4 GHz and 2.4 GHz), however the auctioning of those bands has been postponed. With the 2003 auction, and assuming the FCC proceeds to license the other bands originally identified, another 2 or more providers could be licensed in each market. This would bring the total per market to 8 or 9 (including the PCS licensees as well as Nextel, which competes using ESMR services). It is also important to note that the spectrum currently in the market only represents about 7% of the total available. The FCC has stated that the price of spectrum currently available for high value uses such as PCS, cellular and mobile data will fall as the supply of such spectrum increases. LYA Report Evolution of Spectrum Valuation in Other Countries March 2003 Page 2

6 And also that holders of such spectrum will incur a loss due to the reduced market value of their spectrum assets. The history of the PCS and 3G auctions, combined with the FCC s intended policies for future licensing indicates clearly that as more spectrum is licensed, the less overall that it is worth. This has serious implications for Industry Canada when considering implementing a licensing regime with increasing fees at this point in time. LYA Report Evolution of Spectrum Valuation in Other Countries March 2003 Page 3

7 2. Introduction The objective of the paper is to investigate trends in the valuation of spectrum for mobile applications in a number of countries other than Canada starting with digital cellular, PCS and 3G spectrum. Note This LYA Report was developed independently for Microcell Telecommunications Inc. by Lemay-Yates Associates Inc. (LYA) as part of Microcell s comments in the consultation process initiated by Industry Canada in December 2002 Consultation on a New Fee and Licensing Regime for Cellular and Incumbent Personal Communications Services (PCS) Licensees. The LYA Report is based on industry analysis and research conducted independently by LYA. Prices paid on the basis of $ US per MHz or per POP as well as per MHz per POP have been included in this review. Prices paid vary quite significantly between countries. The relative wealth of a country, expressed as GDP per capita, is a factor in predicting spectrum valuation. However, significant differences do exist between prices paid for spectrum for countries of similar wealth. Other factors, such as the timing of the award of spectrum, the number of incumbent operators, the achieved penetration by traditional wireline telephone operators, the terms and conditions associated with each license and the market penetration already achieved by mobile prior to the award of new spectrum also play a significant role in the valuation of spectrum on a case by case basis. Therefore, this Paper focuses on discussing the underlying trends in spectrum valuation while recognising that absolute price of spectrum paid for specific licenses exhibit significant variations and need to be assessed on a case by case basis. LYA Report Evolution of Spectrum Valuation in Other Countries March 2003 Page 4

8 Spectrum for mobile applications became the centre of substantial speculation in the late 90s and the first part of 2000, starting with the PCS auctions in the US and culminating with the 3G auctions in the United Kingdom and in Germany. However, our research has also considered spectrum award in a number of countries as well as the award of 3G spectrum before and after the speculative bubble to provide a broader and longer term perspective on the value of spectrum. A key underlying trend emerges from this research. The value of spectrum has been decreasing steadily, as more spectrum and more operators are licensed in each country. This means that spectrum for a third or fourth licensee is less valuable than spectrum paid for the first two. By the same token, spectrum for fifth or sixth license (such as 3G) has, in general, been also valued lower than spectrum for the PCS licenses, as are 1.8 GHz licenses relative to 800 MHz licenses. LYA Report Evolution of Spectrum Valuation in Other Countries March 2003 Page 5

9 3. Economic factors in spectrum valuations The following figures highlight prices paid for spectrum in various countries. Figure 1 highlights prices paid for GSM 900 MHz spectrum during the years 1993 to As is shown in the figure, there appears to be a loose relationship between the price per pop per MHz paid for a GSM 900 license and the wealth of a country expressed in gross domestic product (GDP) per capita. For example, GSM 900 spectrum was valued more in Belgium than in Greece, consistent with their difference in GDP per capita. On the other hand, the GSM900 spectrum initially awarded in the Czech Republic was valued much higher than in Spain or Italy, countries significantly more wealthy. Figure 1 Price for spectrum ($ per pop per MHz) versus GDP per capita GSM 900 $25,000 $3.00 $20,000 $2.50 $2.00 GDP/capita ($US) $15,000 $10,000 $1.50 Price/Pop/Mhz ($US) GDP Per Capita Price/POP/Mhz ($US) $1.00 $5,000 $0.50 $- Belgium Greece Poland Romania Czech Republic Spain Italy $- Lemay-Yates Associates Inc., 2003 LYA Report Evolution of Spectrum Valuation in Other Countries March 2003 Page 6

10 Given the variation in values of spectrum relative to GDP in a country, it can be problematic to compare absolute values in one country relative to another. The analysis in the following sections should be considered for its discussion of relative valuations e.g. to illustrate the relative value of a third licensee to a second, the relative value of 1.8 GHz versus 800 MHz spectrum, etc. The absolute figures are not transportable to the Canadian context. LYA Report Evolution of Spectrum Valuation in Other Countries March 2003 Page 7

11 4. The evolution in the price of spectrum from digital cellular, PCS and 3G This section addresses the evolution of the value associated with mobile spectrum since the mid s. We first look at the value of mobile spectrum in the US since This is followed by an analysis of prices paid for GSM 900, PCS and 3G spectrum and the evolution in spectrum value experienced among other countries, with a strong focus on European countries. 4.1 US PCS Auctions The FCC auctioned spectrum in the PCS bands (2 GHz) from 1995 to The cumulative amount collected for approximately 2,500 licenses was about US$16 billion. The initial auction of the large A and B Band (30 MHz) licenses was done on a major trading area (MTA) basis. MTA s are very large areas surrounding principle markets. There were 102 MTA licenses issued. Subsequent auctions were done on the basis of basic trading areas (BTAs). BTA s in total also cover the US. There were 493 BTA licenses issued for the C Band. Bands D, E and F were also auctioned on the basis of BTAs Evolution of total receipts The progression of the total receipts from the US PCS auctions is shown in the following figure. LYA Report Evolution of Spectrum Valuation in Other Countries March 2003 Page 8

12 Figure 2 US PCS auctions Total Receipts Total auction receipts (US$ M) $18,000 $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $ MTA 1996 BTA 1997 BTA 1999 BTA 2001 BTA after dismissals Amount received in individual auctions (US$M) Cumulative total (US$M) Cumulative licenses awarded 3,000 2,500 2,000 1,500 1, Number of licenses issued Lemay-Yates Associates Inc., 2003 The 1995 MTA and 1996 BTA figures shown are for the A/B and C Band auctions, respectively. Particularly for the C Band auction, there was clearly a high value placed on being next in as a third competitor in the PCS market. 1 The 1996 C Band auction by itself represents 30% of the total receipts from the US PCS Auctions. 2 Subsequently, the amounts collected in auctions were significantly lower Auction in % of high bids dismissed in 2002 The 2001 BTA auction for C and F block spectrum across the US garnered bids totalling US$16.8 billion. However, many of the bidders through a controversial set of lawsuits and proceedings had their bids dismissed. 1 The 1996 C Band auction was designed to accommodate entrepreneurs and included bidding credits, an instalment payment plan, and favourable financing terms for small business and minority or women-owned businesses. Factoring these considerations into bids also contributed to increased bid prices. 2 Net of defaults and the NextWave licenses, the total of which was over US$5 billion. LYA Report Evolution of Spectrum Valuation in Other Countries March 2003 Page 9

13 In other words they were relieved of the obligation to take up the license and hence pay the high fee that had been bid. 3 After the dismissals, the 2001 auction only netted $650 million only 4% of what had been bid. Notable amongst the withdrawals was Verizon the largest US ILEC who s dismissed bids account for about 50% of the total bids in the auction, or US$8.7 billion Irrationality Incumbents protecting markets The results of auctions can also be highly skewed, as illustrated by the dismissals resulting from bids in the 2001 auction. In 2001, Verizon in particular had bid and won many of the markets in which it is the incumbent provider and original Bell licensee dating from the first awards of analogue cellular spectrum. Verizon bid in a number of the very large and attractive markets where it operates as the incumbent local exchange carrier (ILEC). This included New York, Boston, Philadelphia, Pittsburgh, Washington DC, New London, Atlantic City and others. 4 The high value to an incumbent of protecting its core markets clearly played out. 3 The 2001 auction effectively continued from the 1996 C Band auction. The FCC re-auctioned the licenses won by NextWave (for which they had not paid). The Supreme Court then overturned the auction ruling that the FCC could not revoke the licenses for non-payment (ruling based on provisions of the Bankruptcy Act). The status of the NextWave licenses and the re-auction in 2001 is still pending. However, the FCC took action to recognise that a concurrence of a unique situation existed wherein capital and spectrum were tied up for more than two years by litigation, and the worsening economic conditions in the wireless industry have had a substantial adverse effect on consumers. This being said, the FCC ruled that winners of licenses that had been previously awarded to NextWave could petition to obtain relief and hence obtain refunds of the amounts paid. See Order and Order on Reconsideration, FCC , WT Docket No In the Matter of Disposition of Down Payment and Pending Applications by Certain Winning Bidders in Auction No. 35 and Requests for Refunds of Down Payments Made in Auction No. 35, Released November 14, 2002 and subsequent FCC Public Notices granting dismissal for specific bidders. 4 See Attachment A to FCC Public Notice DA released December 9, 2002 LYA Report Evolution of Spectrum Valuation in Other Countries March 2003 Page 10

14 Verizon overbid the other bidders to win markets in which it is the ILEC, and through a fortuitous series of events has subsequently seen its bids dismissed. Verizon initially eliminated the possibility of another bidder entering its core markets, and it has now been relieved of the cost of having done it. Since the auction process is one in which all lots are auctioned simultaneously, bidders in all areas could see the evolution in the values by bidders such as Verizon and others. This likely had an overall uplifting effect on prices paid, skewing the results of the auction for in the remaining license areas that did not see winning bids dismissed Longer term trend While there may be considerable irrationality in certain auction results, the longer-term trend is clearer when the aggregate and cumulative amounts of money collected are analysed. As shown below, the absolute amount collected during the FCC auctions decreased significantly as more spectrum was awarded. The spectrum price expressed per licensed pop per MHz provides the best comparable basis of comparison between the different auctions. It was US$0.32 per MHz per pop licensed on average in the D,E,F and C re-auctions between 1997 and 2001, down significantly (from 37% to a 69% decrease) from the prices paid in the A, B bands and original C band auctions. LYA Report Evolution of Spectrum Valuation in Other Countries March 2003 Page 11

15 Table 1 A summary of the evolution of spectrum pricing in the US ( ) Subsequent auctions Initial auction of A,B band Auction of C band in 1996 of D, E, F and some C in1995 (net of defaults) band Amounts received ($M) $ 7,721 $ 4,922 $ 3,580 License coverage 2x total US 62% of US after defaults Almost 4x total US Total population coverage 252,556, ,729, ,556,719 Price per pop $ $ $ Approximate price per pop per license $ $ $ 4.05 Per MHz per pop per license $ 0.51 $ 1.05 $ 0.32 Licensees per market post auction or more % of auction payments 48% 30% 22% Amounts received ($M) - for ABC bands are Auctions 4 & 5; for DEF(C) bands are Auctions 11, 22, 35 (net of dismissals) Population coverage - Entire US was auctioned for ABC, then for DEF (plus some added C band) Price per pop considers the entire US market Price per MHz per POP - ABC licenses are 30 MHz each, DEF are 10 MHz, but with added C band licenses, the average MHz per license for 1997 to 2001 was approximately 12.5 MHz Lemay-Yates Associates Inc., 2003 Auctions after the C band the remaining 22 % of receipts overall placed much lower value on the incremental spectrum awarded. The auctions represent values in the range of $30 per licensed head of population, whereas the aggregate of the 1997 to 2001 auctions represent value of $14 per pop As more spectrum was awarded, the overall value declined The value of auctioned spectrum (in $ per pop per MHz per license) declined by 48% per year from 1996 to 1999 i.e. from the 1996 BTA auction of C Band spectrum to the auction of the remaining D, E and F bands. This is shown below. LYA Report Evolution of Spectrum Valuation in Other Countries March 2003 Page 12

16 Figure 3 US PCS Auctions Price per MHz $ US $M per lic MHz or US$ per pop per MHz $2.5 $2.0 $1.5 $1.0 $0.5 $ MTA 1996 BTA 1997 BTA 1999 BTA 2001 BTA after dismissals Cumulative licenses (000) Price per licensed MHz ($M) Price per POP per MHz Cumulative licenses awarded (000) Lemay-Yates Associates Inc., 2003 The subsequent result for the 2001 re-auction showed a jump in the price per pop per MHz, however this is likely a result of the specifics of that particular auction. Given that 96% of the bids were dismissed, the validity of the values seen in the non-dismissed bids is highly suspect. A declining trend is clearer when considering the cumulative amount of money paid for spectrum per total licensed MHz. The 1995 auction yielded US$7.7 billion for 102 licenses. This is equivalent to US$75.5 million per license on average. After having issued 2,500 licenses and collecting US$16 billion, this average has declined to US$6.4 million per license. The licenses were a mix of 30 MHz and 10 MHz capacity. Some of the 30 MHz licenses (C Band) were divided into three licenses of 10 MHz, so on average the capacity per issued license by the end of 2001 was in the range of 16 MHz. Hence the average value of the licenses has declined from about US$2.5 million per licensed MHz in 1995 (i.e. US$75 million per 30 MHz license) to under US$400,000 per LYA Report Evolution of Spectrum Valuation in Other Countries March 2003 Page 13

17 licensed MHz in 2001 (i.e. US$6.4 million for an average license size of 16 MHz). This is illustrated below. Figure 4 US PCS Auctions Evolving price per licensed MHz $3,000,00 $2,500,00 $2,000,00 $1,500,00 $1,000,00 $500,00 $ Lemay-Yates Associates Inc., 2003 This shows a continuously declining trend consistent with intuitive reasoning. The more spectrum that is put on the market the less per unit it is worth. Essentially when the FCC licensed a third provider per market in 1996, there was an expectation created that the market would be split in three. Subsequently, it licensed on average three more providers per market and expectations appear to have halved from 1996 to 2001, reflecting six providers. LYA Report Evolution of Spectrum Valuation in Other Countries March 2003 Page 14

18 4.2 The Evolution of spectrum valuation in other countries This section highlights the evolution and trend in prices paid for spectrum in European countries and Australia for spectrum paid for GSM 900, GSM 1800 and 3G G Auction results and overall trend The 3G auction experience in Europe shows a rapid decline in value per license as more licenses were issued 5. The 2000 licensing represents 97% of the total of the bids in the 17 European 3G awards, introducing considerable irrationality into the spectrum pricing. The results were highly skewed by the extremely high values placed on bidding in the UK (April 2000) and in Germany (July 2000). As shown below, however, there is an apparent downward trend in the auction results expressed in US$ per pop per MHz. 5 The results of spectrum award via comparative analyses were not included in this analysis because many of these licenses include yearly fees, which are based on a firm s annual revenues and thus difficult to predict over the term of the license. LYA Report Evolution of Spectrum Valuation in Other Countries March 2003 Page 15

19 Figure 5 3G auctions Price per pop per MHz 3G Auctions - Price per pop per MHz $10.0 $9.0 $8.0 $7.0 $6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $- March 2000 April 2000 July 2000 July 2000 Oct 2000 Nov 2000 Dec 2000 Feb 2001 July 2001 Sept 2001 Dec 2001 Lemay-Yates Associates Inc., Decline in the value of spectrum as more licenses are awarded The same trend can be seen more clearly when considering cases of specific countries. The following two figures demonstrate the decline in the value of spectrum as more spectrum and more licenses are awarded in Belgium and in Austria. In the case of Belgium, GSM 1800 spectrum was awarded in 1998, 4 years after the initial award of GSM 900 spectrum and the 3G spectrum was awarded 3 years later in These were all national licenses. Spectrum for 3G was valued 67% below the GSM 900 spectrum, which was awarded in In Austria, spectrum for 3G was valued at approximately 40% of the value of the GSM 1800 spectrum, with approximately 2 years in between the two awards. LYA Report Evolution of Spectrum Valuation in Other Countries March 2003 Page 16

20 Figure 6 Evolution of the price of spectrum in Belgium- GSM 900, 1800 and 3G Belgium $ US Per POP per MHZ $1.50 $1.00 $0.50 $- GSM 900 ('94) GSM 1800 ('98) 3G ('01) Lemay-Yates Associates Inc., 2003 Figure 7 Evolution of the price of spectrum in Austria- GSM 1800 and 3G $1.00 Austria $ US per POP per Mhz $0.80 $0.60 $0.40 $0.20 $- GSM 1800 (99/00) 3G (2000/2001) Lemay-Yates Associates Inc., 2003 LYA Report Evolution of Spectrum Valuation in Other Countries March 2003 Page 17

21 Other countries yield similar results. In the Netherlands, GSM 1800 spectrum was awarded in 1999 for US$1.93 per pop per MHz, which declined to US$0.88 for 3G in In Israel, GSM 900 spectrum was awarded in 1998 for US$2.67 per pop per MHz, which declined to US$0.58 for 3G spectrum in 2001, a 78% decline Value of spectrum in different bands licensed simultaneously The relative value of different spectrum bands can also be a factor in overall valuations. In Australia, 800 MHz and 1.8 GHz spectrum bands were licensed in the same auction in The results per pop per MHz for the five largest markets are shown below. Table 2 - Australia 1998 values for 800 MHz versus 1.8 GHz licenses US$/MHz/pop Pops (M) 800 MHz 1.8 GHz Sydney 3.5 $ 0.75 $ 0.27 Melbourne 3.4 $ 0.66 $ 0.24 Brisbane 1.9 $ 0.54 $ 0.14 Adelaide 1.0 $ 0.20 $ 0.07 Perth 1.0 $ 0.14 $ 0.07 Total 10.8 $ 0.58 $ 0.20 Per Australian Communications Authority, May Results of the 1998 Australian auction yielded values for 1.8 GHz licenses that were only 34% of the value of the 800 MHz licenses, or a 66% difference in value between spectrum at 800 MHz and spectrum at 1.8 GHz. LYA Report Evolution of Spectrum Valuation in Other Countries March 2003 Page 18

22 5. Key findings 5.1 The value of spectrum decreases with more licenses are awarded In many cases auction results have been skewed by irrational bidding. This was the case in 2000 in Europe with the extreme results of the UK and German auctions. It was also the case in the US in the 2001 PCS auction, where large incumbents (notably Verizon) bid high prices in their ILEC territory. The US PCS experience clearly shows the cumulative effect of issuing more licenses as the total value of auction receipts declined (per pop per MHz) as more licenses were issued. The experience in other countries also shows a trend of declining values as more licenses were issued. In addition to the question of the number of licenses, the type of license is also likely a factor. Licenses for 1.8 GHz spectrum appear to be valued lower than those in the 800/900 MHz bands. 5.2 Future spectrum award will further reduce values In the US the FCC appears to have no intention of stopping the licensing of new spectrum and despite the debacle of 2001 has already scheduled the next auction. In April 2003, the FCC will auction 5 MHz of spectrum in the MHz band nation-wide. Originally the auction was to include an additional 10 MHz in other bands (1.4 GHz and 2.4 GHz), however the auctioning of those bands has been postponed. With the 2003 auction, and assuming the FCC proceeds to license the other bands originally identified, another 2 or more providers could be licensed in each market. This LYA Report Evolution of Spectrum Valuation in Other Countries March 2003 Page 19

23 would bring the total per market to 8 or 9 (including the PCS licensees as well as Nextel, which competes using ESMR services). It is also important to note that the spectrum currently in the market only represents about 7% of the total available. A Proposal of the FCC envisions an additional 438 MHz of spectrum that could be licensed, in bands including 700 MHz (reallocation from UHF TV), 2.5 GHz (reallocation from MMDS), 2 GHz (reallocation from satellite) and the 1.7 GHz and 2.1 GHz 3G bands. 6 The six PCS bands already licensed represent 120 MHz of capacity (3 x 30 MHz plus 3 x 10 MHz). The existing cellular licensees represent 50 MHz of capacity (2 x 25 MHz). Thus licensing an additional 438 MHz represents an increase of 250% in the amount of licensed spectrum. This could mean up to 15 licensees per market, if the new spectrum is taken up by new providers. This continues a long-term trend of the FCC of issuing more and more licenses; as LYA observed in 1997 based on research conducted at that time: the US is likely to continue conducting auctions until such time as there is no interest from bidders. 7 The FCC recently stated that the price of spectrum currently available for high value uses such as PCS, cellular and mobile data will fall as the supply of such spectrum 6 A Proposal for a Rapid Transition to Market Allocation of Spectrum, Evan Kwerel and John Williams, Office of Plans and Policy OPP Working Paper No. 38, FCC, November 2002, page See Assessment of the Market Value of Cellular Telephony, Personal Communications Services (PCS), and Enhanced Specialised Mobile Radio (ESMR) Licenses, Report to Industry Canada by Lemay-Yates Associates Inc., January 21, 1997, Section 4.6. LYA Report Evolution of Spectrum Valuation in Other Countries March 2003 Page 20

24 increases. And also that holders of such spectrum will incur a loss due to the reduced market value of their spectrum assets. 8 The history of the PCS auctions, combined with the FCC s intended policies for future licensing indicates clearly that as more spectrum is licensed, the less overall that it is worth. The history also indicates the danger of irrationality in auctioning, particularly as large incumbents protect their territory. 8 A Proposal for a Rapid Transition to Market Allocation of Spectrum, Evan Kwerel and John Williams, Office of Plans and Policy OPP Working Paper No. 38, FCC, November 2002, page 39 LYA Report Evolution of Spectrum Valuation in Other Countries March 2003 Page 21