A Welfare Analysis of 700mhz Band Spectrum : Allocation for Mobile Use

This paper aims to estimate the social welfare change from the additional allocation of radio spectrum to mobile telecommunications service, which is expected to be released according to digital switchover in Korea. To this end, using a model of Hazlett & Muñoz (2009a) (HM hereafter), we estimated demand and supply equations of mobile service to calculate the change of social welfare according to the additional allocation of spectrum. In the estimation, quarterly panel data of 29 countries for the period 1999-2008 was employed. In addition to consumer surplus, producer surplus was also estimated based on financial data of telecommunications operators on operating profit and sales. According to the estimation, the spectrum elasticity of supply was -0.07, and the price elasticity of demand was -0.28. Using the estimation results, it is forecast that social welfare increase by about 11.5 trillion won (10.3 billion dollars) at present value according to the additional 100 MHz allocation. The methodology and result of this study may provide some insights to those in charge of spectrum allocation policy. Policy makers may employ the MH methodology to evaluate the effect of spectrum allocation for various purposes. If spectrum is allocated according to the size of welfare increase, it will contribute to the efficient use of the spectrum. Secondly, they need to pay attention to the price-reducing effect of spectrum allocation for mobile services. Policy makers should consider this kind of economic effect of spectrum allocation policy