Grey Bands In Spectrum Policy

[ravi_patent 28]

Importance of spectrum — air waves on which the mobile signals ride — for the telecommunications sector has been repeatedly brought out by various columnists and industry leaders. Yet, the Government’s reactions have invariably been delayed and the policy responses mostly knee-jerk and devoid of vision.

The usual approach has been to appoint a committee with the mandate to work out at what subscriber base an operator should be given additional spectrum. There are several such reports, but these have hardly been of any help to the industry.

Surprisingly, the Telecom Regulatory Authority of India (TRAI) too got into the act when it came up with a revised subscriber base criterion last year — some claim without the usual consultation process needed for transparency. The net result has been further confusion on the spectrum policy front with more ad-hoc allocations.

Committee recommendations

The first genuine attempt by the Government was when it appointed a committee on spectrum with clear and far-reaching terms of reference and with good representation from the academia and comprising experts in the complex field of spectrum management and telecommunication policy.

Press reports give some indications of the major recommendations of this committee. It wants to remove the subscriber base criterion and substitute it with auction — a practice followed the world-over. Also, the committee wants the mergers and acquisition (M&A) guidelines to be revised to arrive at the optimal number of operators; the current criterion does not encourage M&A. In addition, it would like the Government to work towards creation of more spectrum for wireless services.

Spectrum availability

What are the major issues in spectrum policy? The first is: Are the operators working at maximum possible spectral efficiency in terms of spectrum available to them and whether the equipment deployment is optimal? It is well known from telecom traffic theory that for every single MHz increase in spectrum, the traffic handling capability goes up more than in direct proportion (due to trunking efficiency) up to a point; beyond that diminishing results set in.

At the same time, for a given spectrum, an optimal level of equipment needs to be deployed to maximise the traffic-handling capability and number of subscribers that can be accommodated, depending on the pattern of user mobility and the type of data being generated (only voice, or voice plus data, etc.).

There is a cost associated with both spectrum and network infrastructure. If the spectrum is priced below its value and because of the fact that it is scarce (not enough for all operators), operators tend to obtain as much of it as they can, depriving thereby other genuinely needy operators from getting it.

It is claimed that this, along with the archaic and arbitrary subscriber base criterion for spectrum allocation, has prompted operators to falsify their data, claiming more subscribers than they actually possess.

If the acquisition cost of spectrum is in line with market demand, hoarding and reckless acquisition cannot occur. But market driven automatic control is possible only in a controlled auction arrangement.

It is therefore quite logical for the committee to have recommended departure from the old subscriber base criterion and suggested auction even for the remainder 2G spectrum.

When players enter a market at different points of time, the market does not realign itself for the convenience of new operators. The operators have to align themselves to market conditions. The problem arose in the first place when the Government decided that more the number of operators the greater will be the competition and, therefore, the tariffs will be lower.

But beyond a certain level, adding more operators will not enhance competition. In the present situation of limited spectrum, such a step can only lead to small allocations to each operator that there are no economies of scale and return on invested capital goes down.

A market-based approach would have made even start-up spectrum unattractive to new operators without any harm coming to the users of telecom service. There is, therefore, no other approach but to auction the remainder 2G spectrum and this is what the committee has recommended.

Number of operators

The second issue that indirectly affects spectrum efficiency is: How many operators should exist for spectrum utilisation to be optimal and without impacting competition?

While it is neither possible nor desirable in a liberalised market to define the maximum number of operators, the telecom policy can fix a minimum number, say four or five, to ensure the market is not distorted.

Incidentally, the number of mobile operators in well-developed markets is typically four or five. The market forces can best determine the maximum number and, therefore, government policy must incorporate guidelines which help the market operate freely.

It is in this context that M&A guidelines should be framed. An important aspect in this regard is the spectrum that should be permitted to be retained by the merged entities to ensure that they are not able to distort the market. If the total available spectrum is known, this limit has to be in the 20-25 per cent range if the minimum number of operators set by the policy is four or five.

Tech neutrality

The third important aspect is technology neutrality. In the past, the deployed technology was dependent on the availability of equipment. Now 3G equipments (WCDMA and HSPA) are available and have been deployed in several countries in the 900 and 800 MHz bands.

As 3G equipment is able to offer 2G services (mainly voice) far more efficiently than 2G equipment, the operators should have the freedom to deploy the former in the 2G bands. It is not known whether the committee has given any recommendations in this regard. Now that the report has been referred to TRAI, a specific proposal on this issue is required.

Finally, as broadband demand grows, the currently available spectrum will not suffice (it is already in short supply). There is, therefore, a clear need to identify more spectrum for wireless services.

The Government has been pursuing the defence services to release more spectrum with little success. These efforts will have to be strengthened. In addition, if the current analog TV broadcasting is replaced by digital, a substantial chunk of 700 MHz band can be released.

This is a very attractive band for creating more spectrum space and is most suitable for non-LOS (line of sight) mobile communications, including mobile TV. Steps should be taken by DOT, in coordination with the Ministry of Information and Broadcasting, to get this band released, and then allocate certain sub-bands for specific services. On the aspect of creation of more spectrum, a time line should be added.

The Government would do well to accept the committee’s recommendations. However, referring the committee’s report to TRAI will only delay the spectrum allocation process. This could only be justified if the Government hands over the spectrum policy and management work to TRAI in line with the practice in most other countries.

(The author is a former member of TRAI and ex-chairman of BSNL.)

Edited July 1, 2009 by ravi_patent