It is understood that the Department of Telecommunications (DoT) is proposing to auction spectrum in the 900 MHz and 1800 MHz bands later this year, possibly in December. The process is a result of licences due to expire in 2015 and 2016. After aggregating spectrum of all 22 circles, a total of 184 MHz and 104 MHz will be up for auction in 900 MHz and 1800 MHz bands, respectively. This will also include 78 MHz of unsold spectrum in 1800 MHz left over from February 2014 auctions.
Auctioning spectrum already in use can be tricky, as it can impact consumers in terms of service discontinuity, in case the serving operator fails to retain its existing spectrum. Also, the operator defending its spectrum without a viable alternative will be under unreasonable pressure from its peers who will perceive spectrum in auction as ?new spectrum? and with no existing business to protect.
A majority, or 73% (210 MHz), of the offered spectrum in the December 2014 auction is ?spectrum already in use?, and only 78 MHz (27%) is ?new spectrum?. Of this ?new spectrum?, 58% (46 MHz) is concentrated only in three of the 18 circles up for auctions. Hence, it is evident that there is hardly any alternate spectrum for the operators to move their services to, in case they fail to win back their existing spectrum.
The proposed auction, unless designed to take care of the above concerns, will create highly damaging stress in the industry and also fail to meet government?s policy objective of boosting broadband services in the country.
The 900 MHz vacated as a result of licence renewal requirements will be able to provide, at the maximum, two slots of 5 MHz in some circles and only one slot in several other circles. Currently, incumbents have 2G infrastructure in this band offering voice and low-speed data services. Due to the propagation advantages offered by this band, it will attract a lot of bidders. Various operators will enter the bidding process with one or more of the following objectives in their mind: to protect existing 2G operations, to enter 2G or 3G operations, and to fill 3G/4G holes in their existing 3G or 4G spectrum holdings.
Different considerations will predominate for different operators in different circles. Consider the case of an incumbent operator who loses his 900 MHz spectrum in the upcoming auction. While the government is not obliged to protect any particular operator?s interest at the time of renewal of licence, to ensure optimal price discovery and prevent distortion in the auction process, it is important to increase the supply of ?new spectrum? which can act as a viable alternative for all the participating bidders. Putting up just the withdrawn 900 MHz spectrum for auction is not enough opportunity. It is interesting to note that the quantum of ?new spectrum? offered in nine important circles?Bihar, Gujarat, Haryana, Maharashtra, Punjab, Rajasthan, UP (East), UP (West) and West Bengal, after taking together the spectrum auctioned in February 2014?works out to be substantially less than the 900 MHz spectrum which will come up for renewal. This is due to the fact that 17% (67 MHz) of the total spectrum offered in the 1800 MHz band is ?partial?. (Partial spectrum is no substitute since 900 MHz spectrum service is pan-circle and cannot be replaced by a partial coverage service). For example, in the Maharashtra circle, the total availability of 1800 MHz spectrum in the February 2014 auction and the upcoming auction later this year is 6.8 MHz, against 14 MHz of 900 MHz and 2 MHz of 1800 MHz spectrum with the two incumbents, leading to a shortfall of 9.2 MHz despite the incumbents participating in the auction in February 2014.
In short, in these nine important circles, all participating operators, especially the incumbents, will be under huge pressure due to lack of supply of ?new spectrum? in alternate spectrum bands. Such a situation is ripe for a bloodbath because for the incumbent it becomes a must-win situation which can lead to ?winners? curse? due to unreasonable bidding by a challenging operator, who has no existing business to defend, and decides to dig in or decides to drop out at the last minute. Also, pressure can be from an operator who finds no other alternate spectrum for expanding 3G/4G services. Nor can the government rejoice even with the possibility of a windfall increase in spectrum auction revenue since spectrum sold at excessive prices will see depressed roll out (especially in rural or in semi-urban areas) due to limited funds left to be spend on infrastructure procurement.
What, then, is the option for ensuring the growth of broadband services in the country and decent revenues for the government?
Offering additional supply of ?new spectrum? in alternate spectrum bands is obviously the only solution. This may be done by finding fresh spectrum in 900/1800 MHz bands by releasing spectrum from defence and other telecom users. Also, creating three more 2×5 MHz slots in 2100 MHz band by putting through the spectrum swap proposal already on the table will ease the situation and help manage the intensity of auction, as it will enable alternative spectrum for participating operator for enhancing broadband networks coverage and capacity. This will result in more revenues for the government as well, and better services for the consumers, thereby creating a win-win situation for all.
The author is former member, Trai