Telecom and Postal Sector – Spectrum Allocation, Call Drops, Predatory Pricing, etc

Spectrum auction

Note4Students

From UPSC perspective, the following things are important :

Prelims level : TRAI

Mains level : Paper 3- Ensuring the success of radio spectrum

The article analyses the factors influencing the outcome of the spectrum auction and suggests the measures to ensure the success and avoid the repeat of 2016 auction.

Details of the auction

  • Based on the recommendation of the Telecom Regulatory Authority of India (TRAI), the government is planning to auction spectrum in the sub GHz bands of 700, 800, and 900 MHz along with mid-band frequencies in bands of 1800, 2100, 2300, and 2500 MHz across the 22 Licensed Service Areas (LSAs) of the country.
  • The cumulative reserve price — and hence the potential revenue accrual to the government at reserve prices — is about $50 billion.
  • The total reserve price of spectrum put on auction in 2016 was about $90 billion while the realized value was just about one-tenth of that.
  • Hence, while the 2016 auction could be considered as a failure from the auctioneer’s point of view.

Factors determining the success of  the spectrum auction

1) Right reserve price

  • Research on a cross-country spectrum database shows that the reserve price significantly and positively correlated to the winning bid price.
  • However, a higher reserve price also inhibits bidders from bidding for more spectrum blocks.
  • If the quantity effect is more than the price effect, then it results in reduced revenues for the government exchequer, as happened in 2016.

2) Role of Over The Top (OTT) provider

  • Over The Top (OTT) providers who are providing substitute goods such as Voice Over Internet Protocol (VoIP); and capturing a greater mind share of customers while remaining relatively invisible to government regulators.
  • The rise of VoIP subscribers could have a positive effect on winning bid prices.
  • However, the erosion of the position of telcos in the overall digital value network of devices, connectivity, and apps, could result in a lower willingness to pay.

3) Allocation of unlicensed spectrum for WiFi

  • By off-loading mobile data, Wi-Fi supplements the carrier network and reduces the demand for mobile network capacity.
  • A number of countries including the United States have unlicensed the V-band spectrum in 60 GHz — pencil beam band.
  • Referred to as “wireless fiber”, the 60 GHz spectrum provides huge capacities in a limited area.
  • Wi-Fi 6 (a.k.a. IEEE 802.11 ax) that operates in the 2.4/5 GHz unlicensed band requires additional unlicensed spectrum allocation to provide Gigabit speeds.
  • The more the unlicensed spectrum allocation, the lower will be the demand for licensed spectrum.

4) Clarity on the availability of spectrum for auction

  • While there is an indication by the government that the spectrum for the 5G auction, namely 3.4-3.6 GHz, will be held in late 2021, the amount of spectrum that will be made available is not clear.
  • There is still uncertainty about the release of 26 GHz by the Department of Space for mobile services.
  • With this limited visibility, the bidders will be in a quandary whether to acquire the spectrum now or wait for subsequent auctions.
  • Further, some part of the current spectrum holding of all the operators is coming up for renewal in mid-2021, and hence there is additional pressure on them to retain them in the forthcoming auction.

Steps need to be taken

  • A re-visit of reserve prices and lower it further, especially that of 700 MHz which is the “golden band” for covering the hinterlands of the country.
  • Releasing more unlicensed spectrum in 2.4/5/60 GHz for proliferating Wi-Fi as a suitable complement to [the] carrier network.
  • This will also augment the deployments of the Public Wi-Fi project which the cabinet approved recently.
  • Provide visibility of future auctions, especially the quantum of the spectrum that can be put on the block in 3.3/3.6/26/28 GHz.
  • The government should release guidelines on how OTT platforms will be regulated and what will be regulated so that the telcos and OTTs can join hands to provide superior services for the benefit of the consumers.

Conclusion

The government should follow the steps mentioned here to make the auction of the spectrum a success.

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