Tel­cos Set to Bat­tle for Spec­trum!

Will the magic num­ber of Rs 5.66 lakh crore from the forth­com­ing spec­trum auc­tion ma­te­ri­al­ize for In­dia gov­ern­ment? Un­likely, says Prof V Srid­har of IIIT-Ban­ga­lore

Voice&Data - - FRONT PAGE - Dr V Srid­har (The au­thor Dr V Srid­har is Pro­fes­sor at IIIT-Ban­ga­lore) vndedit@cy­ber­me­dia.co.in

With the reshuf­fling of the cab­i­net, one of the prin­ci­ple agenda for the Min­is­ter of State for Tel­com­mu­ni­ca­tions & IT, Shri. Manoj Sinha is to con­duct a suc­cess­ful spec­trum auc­tion later this year. In this ar­ti­cle, we ex­plore the sup­ply and de­mand side char­ac­ter­is­tics of spec­trum for pre­dict­ing pos­si­ble strate­gies by var­i­ous tel­cos in the forth­com­ing auc­tion.

On the de­mand side, though scarcity of spec­trum and spec­trum frag­men­ta­tion still haunts the sec­tor, thanks to shar­ing, trad­ing, and MVNO guide­lines an­nounced by the gov­ern­ment, there are some ac­tions on the ground. Trad­ing and acquisitions are use­ful mar­ket­based tools for spec­trum re­al­lo­ca­tion. Though the to­tal quan­tity of spec­trum dur­ing this process will not change, pos­si­ble un­der-uti­lized spec­trum held by one of the firms will be put to bet­ter use and trunk­ing gains will im­prove spec­tral ef­fi­cien­cies. Th­ese meth­ods are use­ful when firms want to exit the mar­ket as is il­lus­trated by the ex­am­ples below. With Air­tel+Qual­comm+Augure+Video­con ac­quir­ing Air­cel’s 2300 MHz through trad­ing ar­range­ment; RCOM+MTS+Air­cel ac­qui­si­tion; Voda­fone+Tikona cou­pled with pos­si­ble ac­qui­si­tion of Telew­ings; the num­ber of play­ers in each Li­censed Ser­vice Area (LSA) has been dras­ti­cally re­duced, lead­ing to spec­trum con­sol­i­da­tion. The av­er­age num­ber of spec­trum hold­ers has fallen from 10 pre acquisitions to 7 post acquisitions; the av­er­age spec­trum hold­ing across bands per op­er­a­tor per LSA has in­creased from about 2 × 13.87 MHz to 2 × 17.77, a sig­nif­i­cant 30% in­crease (See Ta­ble 1 for de­tails)

The shar­ing of ra­dio spec­trum pro­vides an op­por­tu­nity for op­er­a­tors with very high MHz per mil­lion sub­scribers, to off­load un­der-uti­lized spec­trum though the sec­ondary mar­ket. RCOM and RJio are in talks to share spec­trum, specif­i­cally in 800 MHz. All th­ese are ex­pected to de­crease de­mand for spec­trum.

Fur­ther, Tel­cos that are big play­ers in ur­ban mar­kets, where data us­age is ex- pected to ac­cel­er­ate ex­po­nen­tially, are en­ter­ing into a va­ri­ety of in­sti­tu­tional ar­range­ments to en­able their sub­scribers to take ad­van­tage of high ca­pac­ity Wi-Fi net­works that op­er­ate in un­li­censed spec­trum band. The ar­range­ments for data off­load to un­li­censed spec­trum bands range from the tel­cos them­selves set­ting up Wi-Fi ac­cess net­works to third party ser­vice providers pro­vid­ing such ser­vices. Some tel­cos have come to­gether to set up such third party ser­vice providers, in the same man­ner that they col­lab­o­rated to set up in­de­pen­dent tower com­pa­nies. This is likely to de­con­gest the li­censed spec­trum in the dense ur­ban ar­eas.

TRAI, in its re­cent con­sul­ta­tion pa­per on “In-Build­ing Ac­cess by Telecom Ser­vice Providers” has en­vis­aged shar­ing of telecom in­fra­struc­ture in­side res­i­den­tial or com­mer­cial com­plex and pub­lic places such as air­ports. If suit­ably en­acted, ef­fec­tive In-Build­ing So­lu­tions (IBS) either us­ing ra­dio re­lays, Fem­to­cells us­ing part of the li­censed spec­trum and/or Wi-Fi hotspots us­ing un­li­censed spec­trum will get de­ployed, thus re­duc­ing de­mand for li­censed spec­trum of the macro cells in ur­ban cen­tres. In ru­ral ar­eas, as op­posed to ur­ban ar­eas, net­works are not ca­pac­ity con­strained. The net­work cov­er­age even in ru­ral ar­eas is ex­ten­sive to­day. With the roll out of sec­ond phase of the BharatNet, it is ex­pected that broad­band ac­cess in ru­ral ar­eas is a real pos­si­bil­ity.

How­ever, the strin­gent norms on ra­di­a­tion as set up by the DoT, will con­tinue to haunt the op­er­a­tors. The re­luc­tance of res­i­den­tial com­mu­ni­ties to al­low tow­ers to be set in their premise will con­tinue to in­hibit de­ploy­ment of ac­cess net­works, thus pos­ing net­work de­sign chal­lenges to the op­er­a­tors. This is likely to have a pos­i­tive ef­fect on de­mand as larger spec­trum hold­ing re­duces re-use and hence the de­creas­ing need for tow­ers and as­so­ci­ated an­ten­nas. Fur­ther, de­mand for data net­works is ever in­creas­ing and will con­tinue to put pres­sures on ac­cess net­works and hence the need for ad­di­tional spec­trum.

The re­serve price for var­i­ous bands based on win­ning bid prices of last auc­tion is much higher than spec­trum prices in other coun­tries. For in­stance, the av­er­age re­serve price pro­posed for 1800 MHz band is about Rs 75/MHz/ pop­u­la­tion com­pared to the av­er­age win­ning price Rs 45/MHz/pop­u­la­tion found in the last auc­tion in met­ros; and for 2100 it is Rs 98 and Rs 35 re- spec­tively. The av­er­age re­serve price of € 1/MHz/Pop­u­la­tion for 1800 MHz in met­ros, is an or­der of mag­ni­tude greater than the re­cently held auc­tion in Ger­many that went for € 0.35. The re­serve price set for 700 MHz in met­ros and cat­e­gory A ar­eas are re­spec­tively € 4and € 0.84 com­pared to € 0.22 found in the 2015 auc­tion in Ger­many. Th­ese high re­serve prices es­pe­cially in met­ros and cat­e­gory A cir­cles are likely to de­ter op­er­a­tors from bid­ding ag­gres­sively.

On the sup­ply side, com­pared to ear­lier auc­tions, there are more blocks put on auc­tion. Though not fi­nal­ized, re­lease of about 200 MHz of 1800 MHz (across pan In­dia) is likely to be very at­trac­tive for the op­er­a­tors plan­ning to of­fer LTE. About 3-4, 5 MHz car­ri­ers

put on auc­tion in 2100 MHz will also have its fair share of at­trac­tion due to the ubiq­ui­tous avail­abil­ity of low price 3G WCDMA hand­sets even in sec­ond and third tier towns in the coun­try. The su­pe­rior band in terms of prop­a­ga­tion char­ac­ter­is­tics – the 700 MHz band, is un­likely to get its due, thanks to the high re­serve price.

Though 20-40 MHz of spec­trum in the 2300 and 2500 MHz are be­ing made avail­able, th­ese bands are likely to elicit de­mand. First, though TRAI con­sid­ered 2300 and 2500 MHz as a sin­gle band for 50 per­cent band de­pen­dent ceil­ing on hold­ing, its fi­nal rec­om­men­da­tions are to treat this separately. Through the num­ber of acquisitions and trad­ing as in­di­cated above, the op­er­a­tors are lim­ited by the in-band up­per limit on spec­trum hold­ing in 2300 MHz. The global de­ploy­ment of Time Di­vi­sion Du­plex­ing (TDD) in 2500 MHz is poor, this in­di­cat­ing an un­der de­vel­oped ecosys­tem for hand­sets and equip­ment. The state Pub­lic Sec­tor Units, namely BSNL and MTNL could not suc­cess­fully de­ploy 4G net­works in 2500 MHz though they were given one-year lead in 2009 it­self, and ended up re­turn­ing the spec­trum in a num­ber of LSAs.

An av­er­age of only 2 × 3.25 MHz of spec­trum is only be­ing made avail­able in 800 MHz. Though 800 MHz spec­trum has seen good trac­tion in Fre­quency Di­vi­sion Du­plex­ing (FDD) -LTE de­ploy­ment glob­ally, the op­er­a­tors have lit­tle in­cen­tive to ac­cu­mu­late spec­trum in this band, ex­cept for RCOM. RCOM along with spec­trum block of MTS af­ter ac­qui­si­tion, has more than 2 × 8.75 MHz in Gu­jarat, Ker­ala, Kar­nataka, Rajasthan and UP (West). With ad­di­tional spec­trum, not only will they be able to pro­vide su­pe­rior cov­er­age and 4G ser- vices in this band, but also trade it with RJio. Hence we ex­pect that the avail­able blocks of 800 MHz will be gob­bled up either by RCOM or RJio.

Though re­serve price/MHz/Pop for 900 MHz is al­most 3 times that of 800 MHz, it is likely to see de­mand in cat­e­gory A and B cir­cles. By con­sol­i­dat­ing 900 MHz spec­trum, the op­er­a­tors can seam­lessly pro­vide 2G and 3G ser­vices with im­proved qual­ity of ser­vice.

In sum­mary, we ex­pect to wit­ness quite a bit of ac­tion in 800, 1800 and 2100 MHz, mod­er­ate in 900 MHz, and very lit­tle in 700, 2300 and 2500 MHz. Need­less to say, there will be blocks un­sold. Hence the one magic num­ber of Rs. 5.66 lakh crore re­al­iza­tion from this auc­tion will not come by!

The re­serve price for var­i­ous bands based on win­ning bid prices of last auc­tion is much higher than spec­trum prices in other coun­tries

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