Spectrum allocation is the process of regulating the use of the electromagnetic spectrum and dividing it
among various and sometimes competing organizations and interests. This ensures that there is little
competition when using a specific frequency band, which can cause interference if the same frequency
band is used for different and unregulated purposes. This regulation is controlled by various
governmental and international organizations.
Spectrum allocation is also known as frequency allocation.
Spectrum allocation came to be because of the emerging and convergence of wireless
telecommunications technology which created huge demands on the radio frequency spectrum for
various services such as high-speed data transfer and communication. Therefore, the purpose of various
spectrum policies and laws is the regulation and management of the resource (the electromagnetic
spectrum) for the benefit of everyone using it. This basically means that spectrum allocation is done to
prevent major interference and chaos in the air waves, which would serve no one at all.
Imagine a four-lane road that is quite small for highway standards and that there is no regulation where
different vehicles are allowed to travel in. Now, consider that there is a fleet of large trucks moving
together and driving at a slower speed for safety. Without regulation on which lane they can drive in,
the various members of this fleet of trucks would use all four lanes, effectively blocking all other vehicles.
This causes all other vehicles behind to travel at speeds slower than or equal to those of the trucks since
there is no way for them to pass. This is the purpose of spectrum allocation, to simply put everything in
its place, in this case in a specific radio spectrum, to prevent interference and chaos.
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Spectrum Allocation
Definition - What does Spectrum Allocation mean?
Spectrum allocation is the process of regulating the use of the electromagnetic spectrum and dividing it
among various and sometimes competing organizations and interests. This ensures that there is little
competition when using a specific frequency band, which can cause interference if the same frequency
band is used for different and unregulated purposes. This regulation is controlled by various
governmental and international organizations.
Spectrum allocation is also known as frequency allocation.
Spectrum allocation came to be because of the emerging and convergence of wireless
telecommunications technology which created huge demands on the radio frequency spectrum for
various services such as high-speed data transfer and communication. Therefore, the purpose of various
spectrum policies and laws is the regulation and management of the resource (the electromagnetic
spectrum) for the benefit of everyone using it. This basically means that spectrum allocation is done to
prevent major interference and chaos in the air waves, which would serve no one at all.
Imagine a four-lane road that is quite small for highway standards and that there is no regulation where
different vehicles are allowed to travel in. Now, consider that there is a fleet of large trucks moving
together and driving at a slower speed for safety. Without regulation on which lane they can drive in,
the various members of this fleet of trucks would use all four lanes, effectively blocking all other vehicles.
This causes all other vehicles behind to travel at speeds slower than or equal to those of the trucks since
there is no way for them to pass. This is the purpose of spectrum allocation, to simply put everything in
its place, in this case in a specific radio spectrum, to prevent interference and chaos.
Some standardization organizations working on spectrum allocation and regulation:
European Conference of Postal and Telecommunications Administrations (CEPT)
International Telecommunication Union (ITU)
Inter-American Telecommunication Commission (CITEL)
Types of spectrum allocation:
No one may transmit — Spectrum band is reserved for a specific use such as radio astronomy so that
there is no interference with radio telescopes
Anyone may transmit — As long as transmission power limits are respected
Only licensed users/organizations of the specific band may transmit — Examples are cellular and
television spectrums as well as amateur radio frequency allocations
Spectrum Valuation
Radio spectrum is an extremely valuable and often scarce resource which makes a major contribution to
economic and social development, and is necessary to ensuring national and civil security. Maximizing
and ensuring an efficient distribution of the net benefits generated by spectrum are important goals
promoted by spectrum values and spectrum price mechanisms, which help to ensure that spectrum is
used efficiently by users.
Spectrum values reflected in spectrum prices help to promote both economic and technical efficiency in
the use of radio resources. Spectrum values can also be significant and help raise significant revenues
for the government and recover the costs of managing spectrum.
Methods for Valuing Spectrum
Spectrum is either valued using prices in market transactions (auctions, spectrum trading or leasing) or
by administrative means. Market based methods allow users to estimate the commercial value of
spectrum based on their own and the market's expectations around what benefits that can be derived
from its use. Administrative methods are also used in the assignment of spectrum and the
determination its prices. In some cases, the method employed simply results in a recovery of spectrum
management costs plus targeted revenue. In other cases, analytical and modeling techniques are used
develop prices which reflect the underlying spectrum value.
Administrative fees and prices
The administrative assignment of spectrum is often supplemented by imposing charges for spectrum
use. These charges usually take the form of simply setting fees sufficient to recover the costs of
spectrum management. Prices can also be used to guide users in making decisions to use spectrum
more efficiently. One example, applicable within the framework of administrative assignment of
spectrum, is to set a charge for spectrum equal to an estimate of what the spectrum might be worth in a
market context. This is sometimes called ‘administered incentive pricing’.
Market-based prices
Alternatively, prices can emerge through an authentic market transaction such as an auction or
secondary trading. The general theory of prices involves assumptions regarding the economic behaviour
of consumers when using resources while being concerned with rational preferences for certain
outcomes, utility (maximizing efficiency and profit) and information availability and access. From these
assumptions, economists developed a structure to help understand how the allocation of scarce
resources among alternative ends occurs in markets. We employ these basic principles to begin our
understanding of how market prices for spectrum are set.
Administered incentive prices
We also describe a method where the spectrum regulator attempts to approximate the prices (often flat
rate charges) that might emerge in a market context. This method is referred to as ‘administered
incentive pricing’: ‘administered’ because prices are set by the regulator reflecting the opportunity cost
of spectrum while incorporating potential ‘incentive’ properties: prices are thereby set at a level to
encourage efficient use reflecting spectrum scarcity.
Cost Recovery and Spectrum Usage Fees
In the section Cost Recovery and Spectrum Usage Fees, we discuss the necessary recovery of spectrum
regulatory agency operations costs. A discussion on spectrum usage fees follows.
Lotteries
Next, we discuss where spectrum is assigned by means of a lottery: a winning ticket chosen at random
will carry with it a spectrum award. This is a ‘non-pricing’ method of assignment. However we note it
here (and advise against it), as the lottery winner will often wish to turn the licence into cash (if he or
she is allowed to do so) by trading it on markets.
Spectrum Auctions
We then consider, in some detail, how prices for spectrum licences can emerge through an auction
process, reviewing different types of auction and their likely outcome. Auctions are a well-known means
of using market-generated prices to assign spectrum at the time of its first issue by the spectrum
regulator. In markets where subsequent or secondary trading of licences is allowed, procedures will
emerge that set the prices for such trades, and these may also include auctions.
Adjusting Spectrum Prices
Finally, we give an account of how the spectrum regulator approximates spectrum prices that might
emerge in a market context by setting spectrum charges, which reflect the opportunity cost of spectrum.
An important issue can arise when the regulator uses both administrative and market-based systems for
different spectrum segments, which is the issue of price adjustment and alignment. For example, a
regulator needs to consider how spectrum prices should be adjusted in adjacent bands when auctions
take place indicating a rise in the opportunity cost of spectrum and equally should prices fall along the
lines of mark-to-market valuation adjustments.
