Spectrum portfolios in a 5G world

A new report from Deloitte, Spectrum portfolios in a 5G world—posits that wireless service providers (WSPs) have yet to realize the true value of their spectrum assets despite investing hundreds of billions of dollars adding to their portfolios.

They must remedy this in time for the 5G era, the report says, as spectrum will be about more than just keeping pace with data demand as it facilitates a new breed of applications like remote healthcare and autonomous vehicles.

As well as helping WSPs decide where to invest, accurate spectrum valuations will facilitate better financing and investment decisions by the financial community, and lead to optimal policy decisions on spectrum auctions, licensing terms and sharing mechanisms, the report suggests.

"From a business perspective, this report raises some of key questions for WSPs in Asia," says Taylor Lam, Telecommunications, Media and Entertainment Sector leader, Deloitte China. "They need to consider how to best adapt and deploy their spectrum portfolios so they can provide the right type of coverage and performance, capacity and cost-effectiveness."

Due to 5G's high deployment investment and as-yet-incomplete standard, telecom operators should adopt longer-term, more flexible deployment driven not by data demand, but by application scenarios, Deloitte China believes. This will happen first in high user density areas before expanding to more scenarios once technical barriers are broken down.

For instance in the US market, from an investment perspective, the report notes that spectrum represents nearly a third of the enterprise value of the top six spectrum holders, yet they understate its value by continuing to carry spectrum on their balance sheets at its original cost. This makes it difficult for financial institutions to make investment and financing decisions, even as they have come to realize spectrum assets are a useful indicator of a company's value. Meanwhile, the 5G market has already attracted wide attention from capital markets, initially through basic technologies and downstream applications.

More accurate spectrum valuations will also open up new financing and investment opportunities like spectrum leasing, the report says.

It goes on to explore how not all spectrum is created equal, delving into issues including frequency and bandwidth; duplexing to eliminate spectrum interference; impairments and sharing; clearing and build-out requirements; and handset and equipment availability.  

It also looks into new types of spectrum ownership, including shared use models that have the benefit of boosting capacity on commercial networks but might not be reliable enough for critical applications in the 5G era. Advances in high-frequency spectrum, meanwhile, may be particularly useful in "last mile" broadband but have the drawback of limited range and an inability to penetrate buildings.

The report ends with some key questions for spectrum valuation.

"For WSPs, these include whether spectrum portfolios support corporate strategy and are being regularly reviewed to ensure optimal value generation," says Taylor Lam.

"For investors, the key questions include whether fair market value estimates are accurate, and how changes in spectrum holdings could affect a company's value. Policymakers, meanwhile, have to consider questions such as whether they are providing access to spectrum that meets the needs of a rapidly evolving marketplace."