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:
- Identify for each band current and potential uses.
- Apply the least cost method of determining opportunity costs for current and potential uses.
- If there is an opportunity cost higher than the current use then set the spectrum price higher and between the current and new value.
- If there is no higher value, then set it at the current use.
- 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.