Sunk Cost Analysis of Frequency Spectrum Auction Prices in Indonesia Using Data Envelopment Analysis

Abstract

The purpose of this study is to investigate the sunk cost argument on the auction price of the frequency spectrum by measuring the efficiency of the frequency license fee paid by the auction winner. The efficiency method employs a nonparametric approach, namely Data Envelopment Analysis (DEA) with the Linear Programming method, with the hypothesis model tested using Path Analysis. The dataset under consideration was Indonesia's Big Three Service Providers (2015-2020). The results show that the spectrum auction price is efficient in its impact on service prices, revenues, and income taxes. The spectrum auction price has no effect, lending credence to the argument that the spectrum auction price is considered a sunk cost in the telecommunications industry. The research reason is that the higher the auction price, combined with the lower cost of service due to high competition, the harder it is for small businesses to win the auction. The winning bidder will remain under the control of the prominent organizers, so the government issues a merger policy for small businesses to compete in spectrum auction bids.