Infrastructure Prices are Falling, for Good Reasons

Communications infrastructure costs are falling, for a number of reasons. Open source, virtualization and many new says of creating more bandwidth efficiently are among the reasons. Consider the cost of spectrum.

As much as some desire high spectrum prices (politicians who want to raise revenue, spectrum sellers who want to maintain high values for their assets, for example), low spectrum prices are good for service providers and consumers, as both benefit from lower costs.

The recently-concluded auction of 28 GHz spectrum produced low prices, compared to many other auctions over the past couple of decades.

And some will point to concrete reasons why that might have happened.  For starters, millimeter wave spectrum is more challenging in terms of signal propagation. Signals will not penetrate buildings and are obstructed by foliage and other obstructions, thus requiring more intensive engineering, use of smaller cells and therefore more backhaul. All that translates into higher costs to create commercially-useful connections.

Geographic coverage areas are smaller than in some past auctions, which again has implications for infrastructure to provide commercial service.

Also, the quantity of spectrum is vastly higher than in many prior mobile spectrum auctions. As always, more plentiful supply also means less scarcity, and less scarcity means lower prices. Consider two prior recent auctions, which featured 10-MHz blocks, where the 28-GHz auction reatured 425 MHz blocks.

Two orders of magnitude makes a difference.

Also, the 28-GHz auction was more oriented to rural areas, covering about 24 percent of the U.S. population and did not include counties located in most large metropolitan areas.

The prices paid for this 28 GHz spectrum were $0.011 per MHz-POP (megaHertz per potential user).  Compare that with prices paid for other recently-awarded spectrum:

Auction	Average Price (MHz-POP)
AWS-3 (Auction 97)	$2.71/MHz-POP
TV Broadcast Incentive Auction (Auction 1002)	$1.26/MHz-POP
28 GHz (Auction 101)	$0.011/MHz-POP

source: Wiley Rein

Some of us who simply point out that spectrum prices are falling for any number of good reasons, including a vast amount of new supply, ways of reusing spectrum (sharing and small cells), aggregating spectrum, aggregating licensed and unlicensed spectrum, as well as combining 4G and 5G spectrum from the same or different towers.

Some of us would say that lower spectrum prices are falling because effective supply now is eliminating scarcity. And scarcity is what causes high prices.