Calculating AIP in Practice: An example for mobile spectrum

Application of the Smith-Nera model used by Ofcom requires that the regulator knowing the input alternatives and the quantum of these alternatives. The required information includes:

  1. Identify for each band current and potential uses.
  2. Apply the least cost method of determining opportunity costs for current and potential uses.
  3. If there is an opportunity cost higher than the current use then set the spectrum price higher and between the current and new value.
  4. If there is no higher value, then set it at the current use.
  5. Consider the practical limitations for allocating spectrum between uses and apply judgment.

Calculating AIP – General Steps

  • Collect cost data for current inputs: land, equipment and maintenance;
  • Collect cost data for new scenario: land, equipment and maintenance;
  • Changes from an expansion of capacity in the existing network;
  • Changes due to advanced more efficient technology;
  • Determine differences in cost for chosen scenario: same amount of data/voice traffic using either more spectrum or more efficient technology;
  • Standardize the savings for an increase in spectrum: say 2 X 1 MHz additional spectrum.

AIP

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