This study contributed to the UK government’s review of the approach to setting administered incentive prices (AIP) for radio spectrum.
AIP was introduced in 1998 under the Wireless Telegraphy Act with the objective of
promoting greater efficiency in the use of spectrum. In 2002, the Independent Spectrum Review recommended that spectrum prices should be set on the basis of opportunity cost – the value of the next best alternative use for the spectrum. The Government endorsed the use of opportunity cost pricing and proposed that the approach to setting AIP be reviewed.
This study assessed whether the existing methodology for calculating AIP generates optimal incentives for licensees to use spectrum efficiently, and recommended practical approaches to setting and implementing AIP. It set out many of the precepts on which current approaches to setting AIP are based.