By Dan Locke, Analyst, Pyramid Research

VWiMAX spectrum has been significantly cheaper than 3G spectrum; in some cases, WiMAX spectrum has been less than one-thousandth of the cost of 3G spectrum for a given geographic area. In the UK’s 3G spectrum auction of 2000, mobile operator Vodafone paid a whopping $9.4 billion for a 30MHz national license. This is in sharp contrast to what was paid for a regional 3.5GHz license in a Fixed Wireless Access (FWA) auction three years later. The most expensive license in this auction ($3.2 million) covered Greater London, one of the denser regions in the UK. The price per MHz per population for the 3G license was about 500 times higher than the price per MHz per population for a Greater London WiMAX license. Similar differentials apply in other Western Europe markets, where 3G spectrum was sold at high prices.

3G spectrum has been more expensive than WiMAX spectrum for a number of key reasons:

• 3G was national, WiMAX is regional: WiMAX licenses have primarily been issued on a regional basis, a trend not consistent with 3G licenses. Such regionalization does have an impact on average pricing; while it is possible for a bidder to acquire all regional licenses, regions are not created equal. As a result, players with the deeper pockets will typically focus on the more attractive areas, impacting country level averages.

• Mobile network operator (MNO) desperation: Deeppocketed MNOs have long felt that owning 3G spectrum was central to their strategic future. Few feel the same about WiMAX or are willing to enter yet another expensive auction. Bidders for WiMAX spectrum to date have mainly been smaller-size players, with large MNOs remaining faithful to the cellular technology roadmap.

The impending inflation of WiMAX spectrum costs
While 3G spectrum may have generally been overpriced, WiMAX spectrum is currently undervalued. That is unlikely to last: WiMAX spectrum is about to get a lot more expensive as more regulators release lower frequencies to be used for mobile WiMAX. The 2.3GHz and 2.5GHz bands have better propagation characteristics than the 3.5GHz band, enabling an increase in traffic capacity without the need for additional base stations. In addition to creating a better business case on the Capex front, a slew of mobile services can be offered with mobile WiMAX in these frequencies. US MNO Sprint Nextel’s US$3bn investment in mobile WiMAX using the 2.5GHz band should increase the viability of mobile WiMAX’s capabilities. With competition with MNO services set to be more frontal, we expect more MNOs to take WiMAX bidding a lot more seriously, if only for defensive purposes.