coleago consulting - spectrum services summary

Spectrum Services Coleago’s service in relation to spectrum auctions, refarming

and spectrum licence renewal

Stefan Zehle, CEO

Coleago Consulting

January 2014

http://www.coleago.co.uk/consulting-services/spectrum-strategy-and-spectrum-auctions.html

http://www.coleago.co.uk/consulting-services/spectrum-strategy-and-spectrum-auctions.html

http://www.coleago.co.uk/

© copyright Coleago 2014 1

Coleago's Spectrum Services

Stefan Zehle, MBA

Tel: +44 7974 356 258

[email protected]

CEO, Coleago Consulting Ltd

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Graham Friend, MA, M.Phil. (Cantab), ACA

Tel: +41 79 855 1354

[email protected]

Managing Director, Coleago Consulting Ltd

Further information: www.coleago.com

Scott McKenzie, BE, MBA

Tel: +44 7825 294 576

[email protected]

Director, Coleago Consulting Ltd

http://www.coleago.co.uk/who-we-are/coleago-directors.html



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1 Introduction

2 Spectrum Consultation

3 Spectrum Valuation

4 Auction Strategy and Readiness

5 Live Auction Support

6 Coleago’s Project Team and Relevant Experience

7 About Coleago Consulting

© copyright Coleago 2014

Spectrum refarming, spectrum licence renewal and

spectrum auctions

Introduction

3


1

http://www.coleago.co.uk/consulting-services/spectrum-strategy-and-spectrum-auctions/spectrum-licence-renewal.html




Spectrum issues are moving centre stage

Spectrum is moving centre stage

Spectrum was always a key resource for mobile operators and a

factor that explained differences in coverage, notably the ownership

of lower band spectrum. Spectrum is now moving centre stage again

driven by a number of factors:

New Mobile Spectrum: Spectrum is being freed for mobile

services, notably in 2.5 / 2.6 GHz and the digital dividend

spectrum in 700 / 800 MHz.

Mobile Broadband: The development in technology notably

HSPA and LTE enabled the development of a mobile broadband

market which drives spectrum needs.

Refarming: In most countries GSM licences were not technology

neutral, i.e. the licence only allowed operators to run GSM. GSM

is now nearing the end of its life cycle. HSPA and LTE are being

introduced in former GSM bands.

Licence Expiry: In many countries the 900 and 1800 MHz GSM

licences are near to expiry and some 2.1 GHz licences are a few

years away from expiry.

Complex Spectrum Auctions: The primary manner of allocating

spectrum is no longer beauty contests but auctions. Some of

these are highly complex auctions, including combinatorial

auctions.

Developing a spectrum strategy is not the only challenge

The spectrum related evolution is challenging in its own right, but

other factors contribute to the complexity of the business decisions

with regards to the acquisition, renewal and redeployment of

spectrum:

Mature Markets: Many mobile markets are no longer

experiencing revenue growth as mobile broadband revenues

simply offset declining voice revenues.

Large Investment Decisions: The acquisition of new spectrum

and subsequent technology deployment results in significant

capex. Corporate governance demands high standards of due

diligence with regard to investment appraisal of this magnitude.

Demand Uncertainty: There is uncertainty with regards to

iPhone-like device penetration, tablet penetration, traffic volumes.

Technology Uncertainty: The evolution of the technology eco-

system, e.g. the number of bands and technologies that will be

incorporated in devices, LTE band aggregation path, future

spectrum availability, software defined radio, and other technology

factors is uncertain.

Operational Complexity: The multiplication of bands and

technologies within these bands, as well as rolling off GSM results

in operational challenges.

Traffic Offload: The degree to which traffic offload is possible via

WiFi or femto cells may mitigate mobile network demand.

4


Introduction

Events require

operators to make

complex decisions

which require

expertise to ensure

that shareholder

value is not

destroyed

Licence Expiry and

Renewal

Spectrum Reframing

Auctions for New

Spectrum

Major Investment

Appraisal Decisions

Spectrum Strategy

Decisions

Technology Strategy

Decisions

Regulatory Consultation

& Lobbying

Spectrum Valuation

Auction Strategy &

Auction Support

Increase

Shareholder

Value Ev

en

ts

Decis

ion

s R

eq

uir

ed

Req

uir

ed

Exp

ert

ise


Coleago’s services in relation to spectrum auctions, licence renewal and refarming

What is the issue at hand?

Coleago worked with operators who faced

different issues, namely spectrum auctions,

licence renewal, and refarming. In some

cases these three issues are addressed by

the regulator as part of a single process. In

each case spectrum strategy and valuations

are likely to be key components in

successfully addressing the issue at hand.

Allocation of New Spectrum

Obtaining new spectrum often consists of

bidding for it in an auction. For operators

facing a spectrum auction, Coleago offers a

well defined service set at the different

stages in the run up to the spectrum auction

as set out in the table on the right.

Licence Renewal

Coleago can help you to negotiate with the

regulator to retain spectrum without going to

auction, e.g. by arguing the case for an

Administered Incentive Pricing (AIP)

process looking at the Optimum Deprival

Value (ODV) and Best Alternative Use

(BAU) based renewal fees. Good

regulatory advocacy can save millions of

dollars in auction spend.

Refarming

Coleago can help to argue your case with

regards to refarming. Often this is

associated with renewal or redistribution of

lower band spectrum. Coleago AIP pricing

methodologies and spectrum auction

valuation techniques are an important part

of this service.

5


Introduction

Coleago’s spectrum

related services are

structured into four

blocks, supporting

you when facing

licence renewal,

refarming or

allocation of new

spectrum by means

of an auction or an

administered

process

Coleago’s Spectrum Auction Related Services

Spectrum

Strategy &

Consultation

The objective is to influence the process of allocating spectrum in a

favourable manner consistent with your spectrum needs. Questions

that need to be answered include:

What spectrum blocks do we need in which bands?

What auction format should be argued for?

Should there be restrictions, e.g. caps?

In the case of renewal, can an auction be avoided?

In the case of Administered Incentive Pricing, what should the

spectrum renewal fee be; should we argue for ODV, BAU or

benchmarking?

What arguments can be presented consistent with regulatory policy

objectives, economic rationale and international best practice?

Spectrum

Valuation

The objective of any investment decision is to increase or at least

maintain shareholder value. Prior to bidding in an auction you need to

answer the question how much is each block or combinations of

blocks worth to us? This allows you to set bid limits. Coleago’s

structured spectrum valuation process would give your board

confidence in making the investment decision associated with

acquiring the spectrum and subsequent technology roll-out.

Auction

Strategy

Depending on the auction format there may be dominant bid strategies

or ways to avoid negative outcomes in cases where there is

aggregation risk. This can be explored at theoretical level, through

simulations and mock auctions.

Live Auction

Support

In theory a bidder enters the auction well prepared and the auction

itself is a mechanical exercise. However, as the auction unfolds there

will invariably be some learning which needs to be processed at the

end of each day in order to be prepared for the next day’s bidding.


How to approach a spectrum auction

Key Questions in relation to a Spectrum Auction

In respect of a spectrum auction an operator has to find an answer to

four fundamental questions:

How much spectrum do we need in different bands? The

question relates to an assessment of spectrum need in the

context of the growth in demand, notably mobile broadband. This

needs to take account of the overall strategy, for example traffic

offload through WiFi or femto cells.

How much is each block worth, i.e. what is the most we

should bid for it? This relates to valuing each spectrum block

in order to set the bid limit for the auction. This is quite separate

from auction strategy. Clearly, if there is not a bid limit, the auction

will be simple because a bidder would simply pay whatever it

takes to win the spectrum. However, such an approach is unlikely

to add shareholder value and does not conform to standards of

corporate governance and rigorous investment appraisal.

How do we obtain the spectrum as cheaply as possible? This

relates to auction strategy. In any auction, the bid limits should

be set before the start of auction. The role of bid strategy is to

ensure the spectrum is obtained for less than the bid limit.

Depending on the auction format there may be an opportunity to

influence the outcome and avoid negative effects such as

aggregation risk (e.g. be stranded with unwanted blocks). This is

addressed by examining the auction rules and developing a bid

strategy which will be tested through simulations and mock

auctions.

How do we conduct the auction? This relates to executing the

auction strategy during the auction. You enter the auction well

prepared. However, as the auction unfolds there will invariably be

some learning which must be processed at the end of each day so

that you are well prepared for the next day’s bidding. You must

ensure compliance with bid protocols and procedures and have

an effective daily communications and review process.

6


Introduction

Valuing the

spectrum is the most

critical and time

consuming task in a

spectrum auction

process.

Spectrum valuation

is quite different from

auction strategy.

How many spectrum

blocks do we need in

each band?

How much is each

block worth to us (set

the bid limit)?

How can we obtain the

optimum combination

of blocks as cheaply

as possible?

Spectrum Need

Technology assessment in

relation to mobile

broadband demand and

corporate strategy

Spectrum Valuation

Valuation of each block

and combinations of blocks

Auction Strategy

Examine auction rules, set

bid limits, develop bid

strategy, explore through

simulations and mock

auctions

Question in Relation

to Auction Requirement to Answer

the Question

How do we conduct a

successful auction?

Auction Execution

Implement the bid strategy

incorporating the use of the

auction support tools



Valuing spectrum requires answers to difficult questions

Project Challenges

The valuation of

spectrum will raise

many questions and

the valuation

methodology and

model will need to

capture and reflect

the answers to these

key questions

Market landscape

Will the mobile broadband landscape be more substitutional / complementary to fixed networks?

What will be the mobile broadband penetration for handsets, tablets and other devices in 10 years time?

How will customers value higher headline speeds, better average speeds, consistency of speed over the

coverage area, more extensive geographic coverage, better in-building coverage?

Data usage How much will customers use in the future and how much will they be prepared to pay?

What services are driving forecast growth, what is likely usage by device type?

Technical

What are likely uplifts from LTE advanced / MiMO, spectrum efficiency factors in terms of bits per Hertz?

Which band combination will be available in devices, what bands can be aggregated and when?

What are the limits to sit densification and small cells?

What are the incremental costs of equipment at different bands and when will it be available?

Spectrum

How much spectrum is needed and what is the optimal combination of frequencies and block sizes?

How does Interference impact on specific blocks and how does it effect valuation?

What spectrum will become available in future?

Data traffic profile Will the data traffic profiles continue to follow voice profiles e.g. top X% sites carrying Y% of busy hour traffic?

Will this depend on the mix of complementary versus substitutional traffic?

Impact of network

congestion

Will network congestion lead to higher retail prices and/or lower SACs?

What implications does possible network congestion have on MNO’s MVNO strategies?

Relationship with

fixed broadband

Can the fixed network be part of a mitigating strategy if spectrum is not acquired?

Will mobile broadband and fixed broadband complement or compete?

How much traffic can be offloaded and can you serve other mobile operators?

Mitigating

strategies

The role of Wi-Fi and network consolidation with another operator

Manage demand – QoS pricing, enforce caps, service restrictions

Acquire spectrum at a later date through spectrum trading


Coleago’s expertise can help you to negotiate low spectrum renewal fees

Licence Renewal and Refarming: Developing the right

arguments

Operators faced with the expiry of their licence and refarming usually

go through a negotiation process. It is rare for regulators to re-

auction spectrum. Therefore the development of suitable arguments

for low spectrum licence renewal fees is the most important aspect.

Based on our experience, Coleago will develop a coherent set of

arguments for an appropriate form of renewal and technology

neutrality at the lowest possible cost.

Administered Incentive Pricing (AIP)

Most regulators are obliged to agree a methodology for renewal that

extracts a return for society and ensures that economic benefit is

generated. Recognising that a simple re-auction may not be

appropriate, many regulators have opted for negotiated renewal

prices using different forms of AIP such as benchmarking, Optimum

Deprival Value (ODV) or Best Alternative Use (BAU).

Optimum Deprival Value (ODV)

Deprival value is a cost-based valuation approach that answers the

question “what is the least cost system or bundle of assets needed to

provide customers with the existing level and quality of services,

should a certain existing asset be removed?”

This approach can be applied to valuing spectrum rights by

addressing the following: “If an operator was deprived of incremental

spectrum rights, what incremental costs would be incurred to

replicate the existing level and quantity of services using the

remaining spectrum rights?” These costs are “avoided” by owning the

incremental spectrum rights and so, in this context, represent the

value of those rights. That is, the rights holder should be prepared to

pay up to the value of the incremental costs to avoid being deprived

of its spectrum rights, so long as the incremental costs are less than

the present value of the free cash flows generated from the spectrum

services.

Typically ODV is based on a calculation of the deprival value of an

“average” operator. As a consequence, the value per MHz (applied to

all operators) should lie between the highest and lowest private

values of all the individual operators. ODV therefore stimulates

efficient use of the resource by incentivising spectrum hoarders to

release it or put it to more productive use.

ODV (also known as the ‘Smith-NERA’ or ‘least cost alternative’

method) is the basis of the UK’s Administered Incentive Pricing (AIP).

Best Alternative Use (BAU)

In contrast to ODV, BAU considers the value placed on an additional

amount of spectrum by alternative user(s). This could, in theory,

include:

An alternative technological use

A new mobile entrant

Competitors

ODV vs. BAU

ODV represents an upper bound on what spectrum holders will be

willing to pay. ODV has the potential to encourage reallocation to the

most efficient mobile operator, but conservative (lower) valuations

should be set, given the risk of substantial negative consequences if

ODV is overestimated.

The highest of these BAU values determines the corresponding fee.

The calculation of the BAU requires modelling of the revenues and

costs of alternate uses.

Coleago’s experience in ODV and BAU modelling and

argumentation can produce substantially lower renewal fees

Coleago can help you to produce the most favourable (low) spectrum

valuations based on ODV and BAU and, depending on the situation

present well reasoned arguments for the suitability of the preferred

methodology.

8


Introduction

Operators who face

licence expiry are

usually better off

with a negotiated

settlement rather

than a re-auction.

This also appears to

be the approach

preferred by most

regulators.


Why choose Coleago Consulting?

Differentiator Benefits for You


Introduction

The main benefits of

using Coleago are:

More accurate

valuations

Greater confidence

in the valuation

range

Reduced project risk

Lower demands on

management time

Greater consensus

between group and

the operating

company

Quickly able to establish credibility and respect

with senior management at the op co and group

Confidence to challenge established thinking

Project delivery is fast, efficient and accurate

Able to resist “going native” and remain objective

Able to identify the key challenges quickly

We already know how to tackle the challenges

so more time can be spent on quality analysis

We can build consensus between operating

companies and Group around the spectrum

business plan

Time is not wasted working out how to do things

The use of existing tools reduces the need for

modelling and so reduces risk

More time can be spent on strategy and

developing and agreeing assumptions

The operating company takes ownership

The operating company becomes self reliant

Project team learn from Coleago

Better relationship between group and the op co

Specialists in

Spectrum

Valuation

Optimised

Methodology

and Tools

Mature,

Experienced

Consultants

Commitment to

Knowledge

Transfer

More accurate valuation range

Greater confidence in the valuation range

Lower project risk

Less time required from senior management

Better decisions

Management time not wasted arguing over

assumptions between the group and op co

Greater likelihood that the business plan will be

successfully implemented

Projects can be delivered at lower cost

Projects are lower risk

Greater confidence in the valuation range

Lower expenditure on future consulting fees

Group better able to influence future decisions

The human capital of the business expands

Project Benefits

9


Coleago can help you to present the right arguments to

regulators at the consultation stage. Good lobbying and well

argued submissions can save large amounts of capital

expenditure.

Spectrum Consultation

10


2


Typical spectrum allocation consultation process

11 Coleago's Spectrum Services


In the run-up to a

spectrum allocation

there is usually

consultation with

stakeholders.

Depending on the

jurisdiction this

ranges from informal

meetings to a well

structured multi-step

process in order to

ensure that all views

are heard.

Consultation

responses are not

only received from

operators but also

from other interested

parties, including

associations of users

and vendors.

Stage Activity Operator’s Actions

Policy

Formulation

The Government formulates policy for the allocation of spectrum.

Government departments or ministries involved may include

Telecoms, Development, Finance, Competition Commission, etc

Lobby politicians

PR campaign to influence the debate

Notice of

Consultation

At this stage the process moves to the telecoms regulatory authority

who issues a notice of consultation. This includes a description of the

consultation process and timetable. There may also be a workshop to

obtain inputs from stakeholders in an informal manner.

Lobby politicians


Prepare workshop materials

Meetings with regulatory agency

1st Round

Consultation

The regulator issues a formal consultation document which contains a

list of decisions that need to be made in relation to the spectrum

allocation, a discussion and analysis of the issues, perhaps a

preliminary conclusion (“we are minded to....”), and an invitation to

respond to questions relating to each decision that needs to made.

Analyse consultation document

Commission independent reports that

support own view point

Prepare & submit response to consultation


Cross

Submission

The regulator would normally publish the submissions received from

different stakeholders and invite cross submissions. This gives

stakeholders the opportunity to comment on points made by other

stakeholders.

Analyse other submissions quantitatively

(how many agree with x) and qualitatively

Prepare and file cross submission document


2nd Round

Consultation

The regulator issues a second consultation document which draws on

the submission received and presents its conclusion and a proposal

ahead of the final determination. If an auction is proposed this would

include a description of the auction format and rules.

Analyse consultation document

Submit response to consultation


Final

Determination

The regulator publishes the final determination, including the process,

detailed procedures and rules. The regulator answers questions for

clarification of the process, procedures and rules.

Analyse determination document

Questions for clarification

Explore legal recourse if necessary


Specific auction issues should also be addressed during the consultation stage

Understanding the objectives of the auctioneer

A response to a spectrum consultation must take account of the legal

framework and policy objectives:

Revenue generation: The auctioneer will quite often have this as

an objective. From the bidders’ perspective an auction designed

to generate economic efficiency and maximise revenue will

minimise the profits from participation for the bidders who value

the spectrum most highly.

Promoting participation and enhancing competition: For an

auction to be competitive there needs to be excess demand for

spectrum relative to the available supply. Greater participation can

contribute towards a more efficient outcome and may lead to

greater revenues. Amongst the measures used by auctioneers to

increase participation are:

– Setting low reserve prices

– Selecting an auction mechanism that allows for the possibility

of a weak bidder securing spectrum in the presence of a

stronger bidder

– Providing bidder credits (used in some US auctions)

– Specifying differential activity rules which favour new entrants

– Setting aside spectrum for new entrants (e.g. in Canada)

– Careful spectrum packaging and the use of spectrum caps

Spectrum packaging

If there are significant differences and generic lots are used then bid

strategy becomes more complicated as a second auction (known as

an assignment round) is required to allocate the specific blocks. The

packaging of blocks into lots may reduce aggregation risk and favour

strong bidders.

Spectrum caps and set-aside

Spectrum caps and set-aside are tools used by auctioneers to

promote competition or create a “level playing field”. Depending on

how these are applied it can increases prices or depress prices.

Sequential versus simultaneous auctions

A bidder participating in a sequential series of auctions must guess

what the future prices in later auctions will be when determining its

bid in the current auction. Sequential auctions for spectrum lots

where there are complementarities between lots in different auctions

can lead to very profound exposure risk.

Provision of information

The more information that is made available the more efficient the

outcome provided that collusion or forms of strategic bidding are not

present. A key piece of information that may have a significant impact

on bidding strategy is the number of bidders. If only the incumbents

are bidding then demand is likely to match supply and there is a

much greater chance that some spectrum lots will be sold at reserve.

Reserve prices

A high reserve price reduces the benefits of strategic demand

reduction and also reduces the opportunities for price discovery. High

reserve prices do discourage frivolous auction participation. If the

price is not met, then lots will go unsold and the auction may be

considered as a failure.

Bid increments

In multi-round auctions non-discretionary bid increments are

increasingly standard as discretionary bid increments have been

used to implement strategic bidding strategies such as signalling.

Non-discretionary bid increments also reduce the scope for human

error when submitting bids.

Spectrum trading

The assumption of spectrum trading suggests that any inefficiency in

the auction outcome can possibly be rectified afterwards although in

practice it cannot be relied on as transaction costs (e.g. capital gains

taxes) are non-negligible and there may be anti-trust issues. There

are few examples of spectrum trading and it is not obvious why a

competitor will help a rival for less than the full economic benefit.

12


Apart from the

auction format, there

are many aspects of

an auction that

should be carefully

examined and

addressed in the

response during a

spectrum

consultation



Coleago's approach to spectrum consultations

13



Provide policy makers with evidence based information that is

necessary to make an informed opinion and decisions that take

into account your needs.

Provide the regulatory body with evidence based information in

order to influence the contents of the formal consultation

document.

Provide the regulator’s staff with documentation that is not just

perceived as a lobbying document but actually furthers their

understanding of the issues at hand. If the inputs are seen to be

of value by the regulator this will maximise the lobbying impact.

Scope a PR campaign to reach a wider audience and capture the

political debate.

Objectives

Coleago will provide a written report addressing the following:

The development of a clear statement of your desired outcome for

internal purposes.

Analysis of the policy objectives, the regulator’s position and

desired outcome.

Couching your desired outcome into language and arguments in

line with the stated or unstated policy objectives.

Providing rational argumentation, including evidence from other

markets, which support your arguments.

Advice and collateral with regards to the PR campaign.

Key Outputs

Successful lobbying is based on reconciling the

optimum outcome for the bidder with the

optimum outcome from the regulator's

perspective.

As a starting point we need to understand the

current situation. Any argumentation submitted

to the regulator must be evidence based, i.e.

precedence from other markets in a similar

situation as well as theoretical arguments.

At best, your lobbying documents are

perceived to be of value to the regulator’s staff

because they provide good insight and

evidence that will help them to successfully

execute the allocation of the spectrum. Given

most regulator's limited resources this point

may be of particular importance.

Approach

Lobbying should

take place prior to

the issue of the

formal consultation

document in order to

influence the policy

that underpins the

allocation, the shape

of the consultation

process and the

contents of the

consultation

document.

The audience

extends beyond the

regulatory agency

and includes

politicians, MPs,

NGOs and other

stakeholders.

Situation Analysis

Statement of Your

Internal Position and

Desired Outcome

Statement of Policy

Objectives and the

Regulator’s Desired

Outcome

Information and

Arguments Presented to

the Regulator

Evidence to Support the

Argumentation


Coleago’s approach to a spectrum consultation is based on analysis and rational argumentation

14



Lobbying should

start in advance of

the formal

consultation

process, however

depending on the

timing the pre-action

lobbying step may

have to be skipped

Main Tasks Deliverables

1 The spectrum

landscape

Analyse the distribution of existing spectrum among operators and

examine likely competing positions.

Understand the future availability of spectrum, which blocks in which

bands will become available at what dates

Clear view of present future

distribution of spectrum and future

availability

2 Analysis of own

spectrum need

Utilisation of existing spectrum, band plan, analysis of technology

eco-system (band combinations in devices, spectrum aggregation),

high level analysis of demand and future spectrum need for capacity

and coverage

High level spectrum utilisation plan

Eco-system evolution (band

combinations in devices, spectrum

aggregation)

3 Analysis of

competing bidders

Identification of potential competing bidders and determine their likely

auction objectives and position during consultation

Report about other bidders and their

position and likely objectives

4 Statement of

optimum outcome

Together with your management team Coleago formalises a

statement of optimal outcome from your perspective

Statement of your desired auction

objective

5 Review regulatory

policy objectives

Analysis of the spectrum licensing policy objectives and

understanding the criteria for selection of methods of spectrum

allocation

Report with an understanding of

spectrum allocation process

6 Lobbying prior to

formal consultation

Outline of lobbying and PR campaign and develop key messages and

produce collateral

Document with lobbying messages

7

Response to

consultation and

cross submissions

Review of the regulator’s proposed spectrum allocation auction format

and rules

Development of argumentation in favour of your position based on

policy objectives, situation analysis, international comparisons;

Draft submissions (1 round) and draft

cross submission

Coleago branded independent report

8 Questions on final

determination

Analyse final determination and identify points that require further

clarification

List of questions for clarification


Indicative duration and resource requirement

Indicative Manday Requirement

In cases where Administered Incentive Pricing (AIP) models are not

required, the mandays requirement is as follows:

Development of high level spectrum need and spectrum strategy

would require technical and marketing consultants for 20 to 30

mandays in total over a three to four week period. It should be

noted that this work might also feed into the valuation work, i.e.

time may be saved later on depending on the requirements.

The support during the lobbying process, including the analysis

and production of relevant documents depends entirely on the

process and whether our work commences prior to the issue of

the consultation document or afterwards and what type of

independent public reports need to be generated. In our

experience the process requires a significant number of meetings

and iterations with senior management. In the range of 20 to 40

mandays may be required. The duration would be dictated by the

consultation process.

In cases where AIP models (ODV and BAU) and benchmarking

are required around 80 mandays would be needed to develop the

models and extract and manipulate relevant benchmarks.

Typically two full time and one part time consultant would work on

this over an eight week period.

15



The work involved

depends largely on

the scope and

whether ODV and

BAU spectrum

pricing models need

to be developed

Week 1 Week 2 Week 3 Week 4 Week 5

Analysis of spectrum landscape

Analysis of own spectrum need

Analysis of competing bidders

Statement of your optimal

outcome

Review regulatory policy

objectives

Lobbying and PR campaign

outline and collateral

Draft and submit response to 1st

consultation

Independent Coleago branded

report


Coleago’s Approach, Methodology and Deliverables

Spectrum Valuation

16


3

http://www.coleago.co.uk/consulting-services/spectrum-strategy-and-spectrum-auctions/spectrum-valuation.html

http://www.coleago.co.uk/consulting-services/spectrum-strategy-and-spectrum-auctions/spectrum-valuation.html


Overview of the spectrum valuation process

17


Spectrum Valuation

Coleago has

developed a proven

methodology for

valuing spectrum

which is summarised

here

Main Tasks Deliverables

1 Data collection

Much of the necessary data is gathered prior to the arrival of the consulting teams

through the use of templates. Once the team has arrived a series of kick-off

meetings are held to review and understand the data and identify gaps.

Historic and current data to

populate the valuation model

Spectrum landscape

2 Spectrum &

eco-system

review

Coleago will analyse the current spectrum holdings and future options, not only in

this auction but in the foreseeable future. We will overlay those with the evolution

of the technology eco-system, notably LTE band combinations in devices and

carrier aggregation, MiMo, etc.

Appreciation of spectrum

options and understanding of

the implications for each

option

3 Valuation

scenarios &

business impact

Workshops to determine your business’s strategy and key assumptions for the

“with spectrum” and “without spectrum” business cases including deployment

rules, agree sources of spectrum value and the rules for impact on the business,

notably customers & revenue depending on the auction outcome.

Agreed valuation scenarios,

assumption sets and rules for

input into valuation model

4 Marketing

modelling

Coleago uses a proprietary approach to forecasting customers, revenues, and

traffic that combines both top down and bottom up approaches. Our methodology

allows for the efficient developments of business cases with the ability to quickly

and easily examine a range of sensitivities and scenarios.

A range of demand forecasts

for revenue and traffic for

handset and large screen

devices

5 Network

modelling

Our network planning model is integrated with our customer and revenue

forecasting. The network model examines busy hour traffic and develops roll-out

plans that combine both coverage and capacity driven network expansion.

A populated and integrated

technical model

6 Financial model

and valuation of

different blocks

Revenue forecasts and network capex and opex forecasts are combined in our

financial modelling and valuation suite. The model develops the financial

statements and KPIs which allow us to benchmark the reasonableness of forecasts

against our database of KPIs. We value the business with and without the

spectrum using Discounted Cash Flow. The valuations are benchmarked against

our database of spectrum prices paid at previous auctions.

A populated and integrated 15

year financial model

A valuation of the blocks for

the different spectrum bands

Supporting benchmarks

7 Risk analysis We run sensitivities and scenarios to identify the key levers of value creation and

assess the business case for risk.

A report on the sensitivity of

the valuation to assumptions


Indicative spectrum valuation project plan and milestones

Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9

Kick-off meetings and agreement

of approach and valuation points

Data collection and review

Strategic and scenario planning

Marketing modelling

Technical modeling

Financial forecasting / modelling

and valuation

Initial Valuation complete

Competitor Valuations

Valuation presentations, review,

iteration, risk analysis

Final valuation review and

agreement

Milestone

Spectrum Valuation

Key milestones

include:

Data collected

Scenarios agreed

Assumptions agreed

Modelling

completed

Draft valuations

Competitor

valuations

Final valuations

18

Data collected

Demand scenarios agreed

Modelling completed

Initial valuations delivered

Valuation

presentation

Valuations

agreed


Note: The project will be conducted in English and all deliverable will be in English.

Competitor valuations complete


Resource requirement

Overview of the Team

For a spectrum valuation, Coleago are proposing a small, highly

experienced team of consultants which will interface easily with your

team. We propose 3 full time consultants and 2 part time consultants

as well as a part time project director

The team structure is as follows:

Client Relationship – responsible for managing the relationship

with you, contractual matters and billing as well as providing a

peer review of key results and advising on methodology and

approach. This role is not full time.

Project Management – responsible for managing the Coleago

team and interfacing with your project manager. This role also

focuses on developing the valuation framework, scenarios and

evolving the discussions around strategy as well as reporting and

presenting. This is a full time role.

Marketing Modelling – responsible for generating the market

demand forecast and marketing forecasts down to gross margin.

This is carried out by the same person as the project management

role.

Financial Modelling – responsible for taking the results of the

market demand forecasting and technical modelling work streams

and combining the results to develop full financial forecasts and

valuations. This is a full time role.

19


Spectrum Valuation

The project will be

delivered by a team

drawn from our

highly experienced

group of consultants.

Financial Modeling

and Valuation

(Full Time)

Technical Modeling

(Full Time)

Client Relationship

(Part-time)

Technical Strategy

(Part Time)

Project

Management,

Valuation

Scenarios, Market

Model

Technical Strategy – responsible for advising on the spectrum and

technology strategy as well as debating and discussing key

assumptions for radio and capacity planning purposes such as

throughput and other elements of technology performance. This is

not a full time role.

Technical Modelling – responsible for developing the technical

model and working closely with you to understand the existing

network and current network strategy and reflecting the

assumptions from the technical strategy discussions in the model.

This is a full time role.

Manday Requirement

For an indicative eight to ten week project and depending on the

scope we would require around 90-100 man-days.

On-Site Presence

The valuation work requires considerable interaction with the client‘s

team and hence almost all work would take place on-site.


Coleago helps you to develop your auction strategy to

ensure that you obtain your preferred block as cheaply as

possible

Auction Strategy and Readiness

20


4

http://www.coleago.co.uk/consulting-services/spectrum-strategy-and-spectrum-auctions/spectrum-auction-bid-strategy.html

http://www.coleago.co.uk/consulting-services/spectrum-strategy-and-spectrum-auctions/spectrum-auction-bid-strategy.html


A well defined auction strategy should take account of the key issues in an auction

Economic efficiency

Auctions are said to be economically efficient if they allocate

spectrum to the bidder who places the highest private value on the

spectrum. A well designed auction should seek to ensure the most

economically efficient outcome subject to the attainment of other

policy objectives such as maintaining or promoting competition or

raising revenue. An economically efficient auction is best for a strong

bidder, whereas a weak bidder may prefer formats that allow for

unexpected outcomes.

Exposure risk

The existence of complementary lots generates exposure risk.

Exposure risk is the risk that a bidder seeking to aggregate

complementary lots bids for the lots on the basis of their synergistic

valuation. The bidder is then outbid on one lot and is left with a

stranded lot at a price which is greater than its stand alone valuation.

For example high and low band spectrum are complementary in

terms of capacity and coverage. Contiguous spectrum lots are also

complementary. Exposure risk arises in the SMRA format and

SMRA-AS, although the latter is designed to alleviate exposure risk.

Substitution risk

Two items are said to be substitutes if an increase in the price of one

item leads to an increase in demand for the second item. For

example 800 and 900 MHz spectrum are seen as potential

substitutes. Substitution risk arises when bidders are unable to

arbitrate between two substitutable spectrum lots in response to

changes in price. Substitution risk is present in SMRA auctions.

Threshold risk for new entrants

A potential response to the issue of exposure risk is to allow bidders

to make package bids for combinations of lots which together deliver

synergies. Package bidding will favour bidders targeting large

packages of spectrum lots. Auction designers can overcome this by

setting aside spectrum for new entrants but this may drive up

demand for the remaining lots.

Transparency and certainty over outcomes

Uncertainty over outcomes is particularly high in the CCA format

which uses package bidding and prices are determined using a

second price rule. When bidders place a specific bid in an auction

there is a preference for certainty as to what will be the outcome of

that bid in terms of which lots will be won and at what price.

Pricing rules

A lack of uniformity in prices is a particular issue in the CCA format

where there is the potential for embarrassing outcomes. Operators

generally have a preference for low prices for themselves and,

possibly, higher prices for other bidders for similar spectrum lots. The

worst outcome is usually regarded as paying a higher price relative to

other bidders for similar lots.

Activity rules

Activity rules are a key element of all multi-round auctions and

govern the behaviour of participants during each round. Generally

they are used to promote honest or sincere bidding and to manage

the speed of the auction but they can also be used to enable bidders

to manage exposure or continuity risk. It may be possible to “park”

eligibility points on spectrum blocks with (relative) impunity to prevent

a rise in the price of desired blocks.

Corporate governance issues

A very significant challenge with combinatorial or package auctions

(e.g. CCA) is that the set of required valuations can quickly become

computationally burdensome or indeed infeasible. As the number of

available lots increases, the number of possible combinations grows

exponentially. Setting bid limits and approving bids are a corporate

governance challenge in CCA auctions.

21


The issues

surrounding a

spectrum auction

depend on the

particular auction

design



Different spectrum auction formats pose different challenges for operators

Auction Formats and Rules

The format and rules of spectrum auctions flows from policy

objectives and regulatory intent. Depending on the spectrum on

offer, the existing spectrum landscape , the expected level of

competition in the auction, and the Client’s spectrum need particular

auction formats may be preferred.

Auction formats may have specific rules that may or may not serve

the Client’s interests and these should be analysed carefully in order

to influence these rules to support the Client’s objectives.

The table below summarises key aspects associated with SMRA,

SMRA-AS and CCA auction formats.

22 Coleago's Spectrum Services


Auction design can

have a significant

impact on auction

outcomes

Design Principle SMRA SMRA-AS CCA

Simultaneous award of spectrum PPP PPP PPP

Flexibility over the use of specific or generic lots PP PP P

Consistent with proposed spectrum packaging PPP PPP PPP

Capable of implementation without package bidding PPP PPP O

Transparency of bidders and bids PPP PPP PP

Certainty over prices paid PPP PPP O

Certainty over lots awarded PPP PPP O

Certainty over total expenditure PPP PP P

Simplicity and ease of presentation and transparency of results PPP PP O

Aggregation risk PPP PPP O


Bidding strategy, bid limits, valuations and value creation

23



In developing a

bidding strategy and

potential bid limits

the business must

trade off value

creation against the

likelihood of

acquiring the

spectrum

Theoretical maximum

value of the spectrum

Bid limit

Amount actually paid

Value created

In an auction with a second price rule the amount actually paid is

determined by the value the next highest bidder places on the spectrum

To estimate the potential for value creation it is important to value the

spectrum to other bidders

The theoretical bid limit is calculated by comparing the business with the

spectrum against the business without the spectrum – if you bid this

much you would create zero value

The operator’s board will determine the proportion of the maximum they

are prepared to pay in the case of certain auctions such as a first price

auction, in order to secure the spectrum – but they hope to pay less

The value created by acquiring the spectrum is the difference between

the theoretical maximum value of the spectrum and the amount paid to

acquire that spectrum.

Bid Limits and Value Creation

Valuation, valuation, valuation

Auction design has improved dramatically in recent years and within

Europe the focus has been on economic efficiency – awarding

spectrum to those operators who can generate the maximum value

from its use (subject to considerations of competition). In order to

achieve economic efficiency auction designers have sought to

develop auctions where operators are encouraged to bid “honestly”

or “sincerely” which means that they bid based on the value they

place on the spectrum and only retire from the auction once auction

prices have exceeded their valuation. If the auction designer has

developed a good auction then bidding strategy should be relatively

straightforward but valuation will remain critical. Most game theorists

will stress to their clients that confidence in their valuations is

paramount.

Spectrum valuation however is not a simple task even in the most

straightforward of auctions. Valuation presents very significant

challenges when multiple bands are being auctioned simultaneously.

In light of the fact that spectrum is both substitutable and

complementary auction designers often adopt a combinatorial auction

design and even when such a design is not chosen the bidders must

adopt a combinatorial or package based approach to bidding. The

result of this package or combinatorial approach is that bidding

strategy may well require the operators (at least in theory) to value

every conceivable combination of spectrum. Furthermore this task

may well have to be repeated for competitors. The result is that

valuation points can in theory multiply into the hundreds and even

thousands.


Auction strategy, an introduction

Setting bid limits

Valuation is the most important aspect of a spectrum auction and

essential to bid limits. However, with multiple lots on offer setting bid

limits becomes complex. A bidder’s board will delegate the task of

bidding to a bid team and the board will provide the bid team with a

bid limit which cannot be exceeded. From a corporate governance

perspective it is essential for the bid team to have certainty that their

total potential expenditure when they participate in an auction will not

exceed their given budget limit.

In an SMRA auction, the combination of lots awarded and prices paid

together determine the total expenditure for an auction participant,

while in a CCA auction, it will be determined by the most expensive

package bid submitted in the supplementary or assignment rounds.

Learning

Bidders typically do not avail themselves of the information that is

made available by multi-round auctions. The auction may reveal how

other bidders value lots and what they want. A critical question for

bidders is to what extent you regard your valuations as common and

whether you would alter your valuation to reflect information revealed

in an auction process.

Bidding “sincerely”

Auction design has improved dramatically and the focus has been on

economic efficiency – awarding spectrum to those operators who can

generate the maximum value from its use (subject to considerations

of competition). In order to achieve economic efficiency auction

designers have sought to develop auctions where operators are

encouraged to bid “honestly” or “sincerely” which means that they bid

based on the value they place on the spectrum and only retire from

the auction once auction prices have exceeded their valuation. Pay-

offs from strategic bidding may be low and unexpected

consequences could be costly. However, most auctions have

features which means operators have to develop an auction strategy.

Considerations for strategic bidding

Strategic bidding can arise in all auction formats. There are many

different examples of strategic bidding and can generally be defined

as seeking to “game” the auction to achieve a better result than

sincere and straightforward bidding based on the value placed on the

spectrum. Examples of strategic bidding are provided below.

Collusion: A SMRA can be viewed as a negotiation between bidders

as to how to allocate lots amongst themselves. Bidders have been

observed to use signalling through coded bids to coordinate the

division of licences. If tacit collusion can be coordinated quickly

through signalling the auction will end quickly with low prices.

Parking: Bidding on lots that are low priced but high in eligibility

points which are not of interest to the bidder but are valuable for

preserving eligibility. Parking strategies are used to avoid bidding on

desired lots in order not to increase their price (demand reduction),

whilst retaining the ability to increase demand on desired lots at a

later stage. Parking can also be used for punishing.

Predation: A strong bidder has an incentive to develop a reputation

for aggressiveness in order to reinforce its advantage. If a bidder has

a reputation for aggressiveness this will discourage others from

participating in an auction or bid less aggressively. In CCA auctions,

strong bidders can at almost no risk to themselves drive up the prices

for weaker players by submitting bids for very large packages that

they do not really want.

Strategic demand reduction: In auctions for multiple lots where

prices are uniform bidders have an incentive to shade their bids

(reduce the bid limits below their valuations) for multiple lots. The

reason for the differential in shading is due to the fact that demanding

more lots will raise the price on all lots and so the more lots that are

demanded the greater the incentive to shade bids to reduce demand.

It is the differential in shading that generates the inefficiency .

24



In order to bid

successfully in

modern auctions a

bidder must develop

an auction strategy.

This is a process

quite distinct from

spectrum valuation.


Develop bid strategy: an integrated approach

Formalise a bidding strategy covering all stages of the auction.

Understanding what combination of blocks the Client should bid

for and at what thresholds bidding should switch between blocks.

Obtain the preferred combination of blocks at the lowest possible

price and avoid being stranded with unwanted blocks.

Be prepared to participate effectively in the actual auction, i.e. to

place bids round by round for different combinations of blocks.

Objective

Key Activities


An integrated

approach to bid

strategy

development is

needed, covering

auction analysis,

simulation, and

empirical validation

of strategic

hypotheses

Comprehensive analysis of auction format and rules, and report

on opportunities, risks, and mitigating strategies

Testing and validation of strategic hypotheses

Formulate, agree and document definitive bid strategy

Key Output

25


Auction Theory: We apply the principles of economic game theory

analysis to identify a dominant bidding strategy. We test the

hypothesised dominant strategy in mock auctions and through

simulations. The iterative process is workshop and facilitation based,

and ensures a robust strategy and a well prepared and trained bid

team capable of executing the strategy effectively. These workshops

create auction awareness among your management.

Simulation

& Testing

War

Gaming

Auction

Theory

Bid

Strategy

Mock Auctions: These are the training ground for staff executing

the auction and are required to test systems. In Coleago’s experience

the participation in mock auctions is also an “eye opener” for senior

management, helping them to understand the risk associated with an

auction of either overpaying or not obtaining the desired combination

of spectrum blocks.

Auction Simulations: While a mock auction gives some strategic

insight, running hundreds or even thousands of computer simulations

produces a much better understanding of possible outcomes and

thus gives better insight into the outcomes of different bid strategies.

Auction

Objectives

Package Values

& Bid Limits

Competitor

Intelligence

Bid Play-Book

Analysis of Life

Auction Data

Updated Forecast

& Plan

Inputs for strategy

development

Strategy

design process

Live auction

execution


Overview of auction strategy development and auction readiness

26



Spectrum auctions

present operators

with considerable

risk – the risk of not

securing essential

spectrum but also

the risk of over

paying, the so called

“winners curse”.

Objectives Deliverables

1 Auction objectives,

valuations, bid limits

Understand the work of the valuation team. To agree

auction objectives. Set bid limits and explain rationale.

Senior management workshops and statement of the

client’s primary and secondary auction objectives

Recommended bid limits.

2 Develop competitor

intelligence

Identify competing bidders and ascertain their auction

objectives, auction strategies and bid limits relative to

own valuation.

Report covering competitor objectives, bid limits and

likely auction strategy.

3 Develop bid strategy

Generate actionable insight into the auction format

and rules, and into the underlying opportunities, risks,

and mitigating strategies.

Report with analysis of auction rules & format.

Report on game theory aspects and combinatorial

properties of the auction, opportunities, risks and

mitigation and other theoretical aspects.

Senior management presentations and workshops.

4 Develop bid

optimisation &

support tools

Create the tools that allow Coleago to validate bid

strategy and support the implementation of the bid

strategy in a live auction environment.

Excel bid-optimisation tool and Excel based auction

tracking tool, with price-prediction capability (subject

to auction format).

5 Bid strategy testing

and refinement

Validate strategic hypotheses through auction

simulations and quantify risks and opportunities

Testing of alternative bid strategies.

Identification and quantification of risks and

opportunities. Empirical validation of supplementary-

bid optimisation and price prediction capabilities.

6 Mock auctions &

auction readiness

Test the bidding strategy and to train the auction team

and to test auction support tools, bid room protocols,

procedures and disaster recovery as well as providing

insight to senior management .

Hold two mock auctions.

A tested final bid strategy and a trained bid team with

tested auction support tools and procedures.

Audit of the organisation’s readiness for the

impending auction.

7 Game plan To be able to execute the bid strategy in accordance

with robust corporate governance.

The Auction Game Plan Report covering all aspects

relevant to the successful execution of the auction.


Deliverables and resource requirement

Deliverables

Coleago will deliver the following:

Conduct workshops with senior management to understand

valuation creation in the context of the spectrum valuation and

auction, to set bid limits, explain the implications of the auction

format, and recommended bid strategy.

Recommended initial bid strategy hypothesis

Simulation software and auction support tools to test the bid

strategy hypothesis

Bid team training, including mock auctions

The Auction Game Plan Document:

– Statement of hierarchy of primary auction objectives

– Secondary auction objectives

– Valuation matrix and bid limit matrix

– Identification and description of auction trigger points for

switching auction objectives and / or bidding strategies – e.g.

bid limits approached, risk of eligibility being compromised,

signs of strategic bidding

– Description of bidding patterns or behaviour to look out for

which might indicate forms of strategic behaviour from other

bidders

– Contingency plans in response to strategic bidding or irrational

bidding

– Competitor bid limits and triggers for re-assessment of

competitor valuations

– Triggers for bid limit escalation procedures

– Bid team roles and responsibilities

– Bidding protocols and procedures

– Disaster recovery

– Post auction press releases prepared for win / lose outcomes

27



Around 50 to 90 man

days are required for

auction strategy

Client Resource Requirement

The work requires considerable interaction with the Client’s team and

hence most of the work would take place on-site.

Because considerable interaction is required, the Client must ensure

that relevant project team members are available for the project in a

timely manner. This includes senior management with regards to

making decisions notably agreeing the auction objectives and setting

bid limits. The auction participants must be available for the mock

auctions.

The Client must make available a secure environment to discuss the

auction details and also a facility to hold the mock auctions. Typically

we expect to have two to four people per team with a minimum of

three bidding teams per mock auction.

Manday Requirement

Typically the work would be carried out during a six to eight week

period, depending on the auction format, required speed and

availability of client staff to take place in the mock auctions.

Coleago’s project team would include:

Academic auction panel members

Senior consultants

Director review and oversight

Depending on the exact requirements in total we would require from

50 to 90 mandays for this work stream.

On-Site Presence

The work requires considerable interaction with the client ‘s team and

hence most of the work would take place on-site.


Indicative auction strategy and readiness project plan and milestones


We recommend

running three mock

auctions including

one with the

government

auctioneer.

The mock auctions

also provide a

chance to test

protocols and

disaster recovery.

28


Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7

Auction objectives, valuations,

bid limits

Develop competitor intelligence

Develop bid strategy: analyse

auction format and rules

Develop bid optimisation &

support tools

Bid strategy testing and

refinement

Run three mock auctions (incl.

one with government) plus

check auction readiness

Write and present game plan

Auction objectives agreed

Auction support

tools complete

Mock auctions

complete

Game Plan

delivered

Bid strategy

agreed


Coleago provides you with support during the auction so

you are prepared for the next day’s bidding

Live Auction Support

29


5


Supporting the client during the auction on a round by round basis

30



Coleago will support

the Client during the

auction with on site

presence and

additional access to

the wider Coleago

team.

The Benefit of Auction Support

In theory the client enters the auction well prepared and the auction

itself is a mechanical exercise. However, as the auction unfolds there

will invariably be some learning which must be processed at the end

of each day so that the client enters each auction day well prepared

for the next day’s bidding.

A senior Coleago consultant would be part of the auction team. This

team member would support the bid team by:

Ensuring compliance with bid protocols and procedures

Selection of optimal bid

Providing support should the unexpected happen

Input on daily communications

Input in the daily strategy review

Unexpected Events

During the auction the client needs to be able to manage unexpected

events which may arise within or outside of the auction process and

review the results of each round as they conclude.

Ideally the client will have a clear bid strategy and well trained team

and no unanticipated events occur. However, Coleago will participate

as a full time member of the bid team to advise on round-by-round

tactical bid decisions as well as how to respond to external and

internal events which may alter the view of valuation and therefore

bid limits.

Daily Bid Strategy Review Meeting

Coleago will moderate daily bid strategy review meetings which will

provide the client with an “insurance policy” if the auction does not

proceed as anticipated.

We propose to hold the review meetings at the end of each day, so

that additional experts from Coleago’s team can dial in as and when

needed. This gives the client the benefit of access to a wider team

without having the costly on-site expense.

Daily Reporting and Strategy Review

At the end of each day the client will need to analyse the days

bidding and review its strategy going forward. The client can access

a broader Coleago team if required to provide inputs to the daily

strategy review.

Communications

At the end of each days bidding the auction team will need to inform

senior management on the days activity and provide insights on the

likely auction outcomes.

The client will need to develop an internal communication strategy

which covers:

Recipients

Timings

Format and medium

Content

In addition to internal communications the client should prepare its

external communications prior to auction should the client acquire/not

acquire spectrum.


Deliverables and resource requirement

Deliverables

Coleago will deliver the following:

On-site presence of one Coleago expert for the duration of the

auction - the consultant will have been part of the team working on

the previous phases.

Moderate daily bid strategy review meetings.

Access to the wider Coleago team for end-of day reviews via

telephone.

Manday Requirement

The man-days required for this phase depend on the length of the

auction. We would expect one consultant to be present on-site

throughout the auction and further consultants, directors and

academic auction panel members to be on call for the end-of-day

review session as needed.

Fees will be charged on a time basis for each category of consulting

staff and expenses at cost.

31



Example, on-site auction support in India

A Coleago consultant was on-site with the client for the duration

of the BWA auction. The Coleago consultant organised daily

review meetings at the end of each auction day. The purpose of

the review meetings was:

to update auction tools,

analyse and review the results,

make decisions for next day’s bidding.

It is important to bear in mind that the purpose of the review

meeting was not to review bid limits; these had been previously

set.

In addition, Coleago conducted two sessions via video links with

Coleago’s UK based auction expert. The main purpose of these

meetings was to review bid strategy and issues such as

complementarity and scale with the view to avoid being stranded

with unwanted blocks.


Coleago has conducted spectrum consultations,

valuations and auctions world-wide. Our experience

includes projects as recent as this year thus ensuring

that we are familiar with latest developments.

Coleago’s Relevant Experience

32


6

http://www.coleago.co.uk/who-we-are/clients.html



A powerful combination of skills and experience

A powerful combination

Ensuring success in the forthcoming consultation and auction will

require an effective partnership between the Client and Coleago .

Coleago delivers a rare combination of the skills and experience

described below. In this section we seek to demonstrate that Coleago

is uniquely placed to offer this combination.

Business planning expertise

Developing spectrum valuations involves developing a supporting

business plan. Coleago’s consulting team has been developing

telecoms business plans since 1994 and the lead project Director,

Graham Friend, along with Coleago co-founder Stefan Zehle are the

co-authors of the award winning “The Economist’s Guide to Business

Planning.” The proposed consulting team all have extensive business

planning expertise.

Business modelling expertise

To support a business planning project and to develop spectrum

valuations Excel business modelling skills are required. Given the

likely large number of valuation points, the need to value spectrum to

all likely auction participants and the need to develop a range of

alternative scenarios to deal with uncertainty over issues such as

demand and technology the consulting team must have exceptional

modelling skills.

Coleago’s Excel modelling credentials are unrivalled. The firm

develops best practice Excel business models based on the

methodologies and approaches which are described in “The

Economist’s Guide to Business Modelling”. Coleago’s models are

based on the Coleago MAPPED Modelling Methodology which

delivers user friendly, modular and therefore, flexible models which

are fit for purpose. Coleago also provides training to telecoms

companies such as France Telecom, Telefonica and Vodafone.

Telecoms experience

Our business planning and modelling expertise has been developed

exclusively within the telecoms sector. We are not just experts in

business planning and modelling but experts in deploying these skills

in the context of the telecoms sector. Furthermore, our consultants

are drawn exclusively from the telecoms industry itself.

Spectrum related experience

Coleago consultants have been focusing their telecoms business

planning and modelling expertise on spectrum related projects for 17

years. Our experience encompasses some of the most challenging

spectrum valuation projects that have taken place which have

combined not only combinations of different spectrum bands but

regional and temporal combinations as well adding additional layers

of complexity. We are sought out by industry publications for our

insight on spectrum auctions and for access to our spectrum auction

database. Recent press comment and white papers include:

“Making sense of recent European spectrum auctions”

“German spectrum auction prices – demand is the key driver”

“Spectrum auctions and shareholder value”

“Digital Dividend 2013 timeline”

“Austrian 2.6GHz spectrum auction”

“A fundamental flaw in the Indian 3G spectrum auction”

“3G spectrum prices in India”

Spectrum consultation related reports

Coleago produced a report for the World Bank on “Best Practice

in Spectrum Renewal and Pricing” (2011).

“A Critical Assessment of Alternative Auction Formats”, on behalf

on a mobile operator in Australia (2011).

“ComReg Auction Design Analysis - A review of the proposed

ComReg auction and commentary on the suitability of the design”

on behalf of a mobile operator in Ireland (2010)

33


Coleago’s experience

Coleago combines

expertise in business

planning and

modelling with

extensive

experience in

telecoms and

spectrum valuation

Guide to Business

Planning named

Outstanding Academic

Title 2009

The Guide to Business

Planning, which recently

appeared in its 2nd edition

was named as one of the

"Outstanding Academic

Titles, 2009 (Business and

Economics)" by Choice, the

US academic review journal.

Source: Choice, 5th of

January 2010

http://www.coleago.co.uk/training-executive-coaching/guides-to-business-planning-and-business-modelling.html





About Coleago Consulting

34


7


A leading boutique telecoms consulting and training firm

Operators and regulators

Telecoms operators around the world trust Coleago to

provide insight and advice on key strategic and commercial

issues through our broad range of consulting and training

services.

Experience based consulting approach

We do not use inexperienced associates or analysts – all our

consultants have a minimum of 10 years experience and

most have over 15 years, often at board level in operational

businesses. Our insight and advice is therefore based on

practical experience and proven processes and

methodologies developed over many years. Clients can be

confident that their project will be delivered by Partner and

Senior Manager level consultants from start to finish and our

solutions and recommendations will be credible, relevant,

realistic and practical.

Developed and developing market experience

Coleago has worked with clients in developed markets and

also in some of the most challenging emerging markets

including the Yemen and the Sudan and we have launched

and operated GSM businesses in countries such as Algeria.

Small, effective teams

Our consultants are highly experienced, multi-skilled and

have extensive project management experience. This allows

Coleago to deploy smaller teams as we do not require the

hierarchy of traditional consultancies to manage large teams

of juniors. Clients find our small teams easier to work with

and integrate into their own project teams.

Exceptional value

By eliminating many of the overheads of traditional firms we

are able to offer end-to-end partner level consulting at fee

rates that provide exceptional value.

35


Coleago Consulting

Based in the UK

Coleago provides

consulting and

training services to

global and regional

telecoms, media and

technology players

Advice covering a broad range of technologies

We have advised clients on wireless, fixed, cable, satellite and fibre based

technologies. We have specialist expertise in spectrum valuations and

spectrum auctions have participated in more than 50 awards since 1994.

Media and technology experience

We have developed strategies and business plans for media companies, TV

channels and web based businesses as well as technology companies.

Innovative training services

Coleago has developed a range of training and management development

programmes, including a War Game (business simulation)

Junior Consultant

Senior Consultant

Manager

Senior

Managers

Partner

Analyst

Traditional

Consulting Firm

Model


We provide a broad range of consulting services

36


Coleago Consulting

We specialise in

telecoms business

analysis, planning

and modelling to

ensure that our

advice and

recommendations

deliver increased

shareholder value

Strategy & Business

Planning

Marketing & Customer

Management

Regulation &

Interconnect

Business

Transformation &

Cost Reduction

Due Diligence

Improving Network

Performance

Spectrum and

Licences

Digital Content &

Media

Fund Raising

Strategy Development,

Marketing Strategy War Gaming Business Planning Business Modelling

Spectrum Strategy Spectrum Valuation for

Auctions

Spectrum Auction Bid

Strategy Licence Applications

Market Forecasting &

Market Planning

Market Segmentation &

Customer Insight

Customer Life Time

Management

Improving Customer

Care

Commercial Due

Diligence Technical Due Diligence

Cost Reduction Restructuring Turnaround

Network Audit Network Sharing Outsourcing

Interconnect Cost

Modelling

Interconnect

Agreements and RIO Regulatory Strategy Accounting Separation

TV Business Planning Digital Media Strategy Digital Content

Monetisation

Information

Memorandum Equity Fund Raising Debt Fund Raising


We offer an innovative suite of training, development and coaching services

Specialist Telecoms Trainers

Our trainers are first and foremost telecoms industry

experts who are able to gain the respect of

programme participants. They are also outstanding

trainers with a passion for their subjects.

Telecoms Focus

Our programmes are developed exclusively for the

telecoms sector and use real life telecoms case

studies, examples and benchmarks throughout.

Bespoke Solutions

We develop bespoke solutions for clients often

utilising information about their specific markets to

illustrate key points.

Tailored Deliver

We provide pre-course questionnaires and hold

telephone interviews with every participant to ensure

that each and every delivery contains the right

content delivered at the appropriate level.

Innovative Programmes

We use simulation tools, role plays and challenging

case studies to provide an entertaining and

rewarding learning experience.

War Gaming

Our War Game process is the most realistic

simulation of a telecoms market currently being

offered and is the closest thing to running a

telecoms business after actually running a telecoms

business!

37


Coleago Consulting

Our telecoms War

Game is a unique

and exceptional

management

development

platform and our

Dragons’ Apprentice

offers a new

approach to team

building

The Telecoms Mini-

MBA

War Gaming & The

Dragons‘ Apprentice &

Coaching

Finance for Non-

Financial Managers

Technology

Investment

Appraisal & Excel

Modelling


Coleago has delivered assignments for global operators and smaller players

38


Coleago Consulting

Our clients include

fixed and mobile

operators, MVNOs,

equipment vendors,

regulators and

content providers

P4 Poland

Gibraltar

Regulatory

Authority

VIP-Net

GSM d.o.o

Croatia

Kuwait

Sudan

Saudi Arabia







http://www.vodafone.co.nz/

http://www.shoprogers.com/default.asp?shopperID=6WTTCBCD0U509HLTN5N2H9GX9S4JE0F4

http://www.answers.com/topic/warid-logo-jpg

http://www.nedjma.dz/watweb/home.do;jsessionid=552D0EEDFB53F31137B351183230985C.fm01

http://www.ideacellular.com/index.htm

http://www.cincinnatibell.com/

http://www.sunrise.ch/


Coleago’s consultants lead and shape the industry

39


Coleago Consulting

Coleago is regularly

asked to speak at

key telecoms

conferences around

the world as well as

sitting on

governmental

working groups and

industry bodies that

shape the future of

the industry

Business texts written by the founders of Coleago

Guide to Business Planning named Outstanding Academic

Title 2009

The Guide to Business Planning, a book authored by Graham

Friend and Stefan Zehle the Directors of Coleago, which recently

appeared in its 2nd edition was named as one of the "Outstanding

Academic Titles, 2009 (Business and Economics)" by Choice, the

US academic review journal.

Source: Choice, 5th of January 2010

www.lib.uwo.ca/news/business/2009/12/23/outstandingacademictit

les2009businesseconomics.html

Participating in shaping the telecoms industry

Coleago’s consultants are actively involved in telecoms

industry events. For example, Stefan Zehle, Coleago CEO,

spoke at over 20 conferences and forums, and most recently

at the GSMA Spectrum Workshop in London (June 2010).

Coleago consultants are cited in the press world-wide

including Total Telecom, Wall Street Journal, Wall Street

Journal Asia, Deutsche Welle, Business & Economy India,

Financial Times, New York Times, BBC News.