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

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