Spectrum reservation options for Mobile Virtual Network Operators

Mobile Virtual Network Operators (MVNO) operate without owning spectrum usage rights, by leasing spectrum from Mobile Network Operators owning a license. Spectrum leasing may occur through a reservation process that assigns the MVNO the right, but not the obligation, to lease spectrum at a later time. Reservation contracts may be signed with strict guarantees, that provide MVNOs with the certainty of obtaining the needed spectrum, or soft guarantees, which allow the MNO to adopt an overbooking policy and refusing to lease the spectrum, compensating the refused MVNO through the payment of a penalty. In this paper the two kinds of reservation contracts are compared from the viewpoint of the MVNO, by considering the profitability of the two alternatives. The cash flows associated to the two kinds of reservation contracts are determined and employed to compare the alternatives. The probability of overbooking and the expiry time of reservations appear as the major decision factors, while the penalty value has a negligible influence. It is shown that the reservation contract with soft guarantees is to be prefereed for larger values of the expiry time and for the lower values of the overbooking probability.