4.4.1  Methodologies for Spectrum Pricing 

The following methodologies exist for spectrum pricing 

Administrative Incentive Pricing, 

Auction, 

Based on market indicators; 

Cost recovery 

Revenue Share 

These are detailed below. The pros and cons of each methodology are 

tabulated in Annexure F. 

4.4.1.1 

Administrative Incentive Pricing (AIP) 

AIP is used where demand for spectrum exceeds supply.  It involves setting 

the fee for a right to use radio spectrum in a way that supports specific 

objectives, such as promoting technical efficiency or the provision of services 

in rural areas.  To be effective, AIP has to be set at such a level that it will 

influence the investment decisions made by the Service Provider, e.g. by 

making it more economic to build more base stations rather than acquire more 

spectrum or to extend service to areas that might otherwise be uneconomic.  

In areas and frequency bands where the demand for spectrum exceeds the 

supply, the level of AIP should reflect the amount of spectrum assigned to 

each user. 

AIP levels may be set by considering the cost implications for a Service 

Provider of adding or subtracting a quantity of radio spectrum, assuming that 

the same network capacity and grade of service is maintained.  These costs 

would typically include an increase or reduction in infrastructure, the use of an 

alternative transmission platform such as cable, or the use of an alternative, 

sub optimal frequency band.  This approach is sometimes referred to as the 

 least cost alternative  approach to AIP. An example to demonstrate the 

applicability of AIP in the Indian context is given in Section 4.4.1.1.2.2. The 

example carries only indicative values. 

4.4.1.1.1 

Choice of technology to determine AIP 

AIP is not intended to favour any one particular technology, hence where 

spectrum may be used by a choice of technologies a consistent fee should 

apply regardless of the actual technology chosen.  This raises the question of 

how the fee should be determined, i.e. should it be based on the assumption 

that the most efficient technology is used, or on some other basis? 

Fees should be set at a level that ensures Service Providers have an 

incentive to use the spectrum efficiently, but not so high that their ability to 

offer an acceptable grade of service at a competitive price is compromised.  

Setting fees on the basis of the most efficient available technology (in this 

case assumed to be CDMA) could have such adverse impact on existing 

GSM operators, as it would not be practical to switch their networks to another 

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