Mobile spectrum licence renewal is often framed as a choice between incumbent continuity and testing the allocative efficiency of the current assignment. In this white paper, Managing Director Hans-Martin Ihle and Associate Analyst Gaurav Khatri treat renewal as an investment instrument. The authors model a regulator that chooses a renewal fee intensity parameter before operators invest. Operator investments create positive externalities that are not captured by private returns. A renewal fee below full market value can increase ex ante investment and raise welfare. The optimal pre-committed fee intensity is below one (i.e., below full market value) when private returns are below social returns to investment.
The authors then examine a no-commitment setting in which the realised fee or auction price is higher when investment succeeds. This creates a hold-up problem. Even where expected fee intensity equals full market value, success-dependent extraction lowers investment relative to a pre-committed full-market-value rule.
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