Make 5G Lord of the Rings

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By Rekha Jain

In August 2018, the Telecom Regulatory Authority of India (Trai) launched suggestions for the public sale of, and the reserve costs for, the 700, 800, 900, 1800, 2100, 2300, 2500, 3300-3400 and 3400-3600 MHz bands of Telecom spectrum.

The suggestions have necessary implications for the sector, not solely as a result of Trai is contemplating making extra spectrum out there however, extra considerably, new 5G bands (3300-3600 MHz) might be auctioned for the first time.

In the final public sale held in 2016, the 700 MHz, a extremely prized band as a result of of its potential to offer cost-effective protection, didn’t appeal to any bids.

Other bands additionally had a lukewarm response, regardless of the comparatively decrease quantity of spectrum held by Indian operators with respect to world operators. The ultimate bid costs have been very near the reserve worth. The excessive reserve costs have been cited as causes for the end result.

 

Historically, each market and reserve costs of spectrum in India have been excessive in comparison with different growing international locations. A current report from the trade physique GSMA that tracked and analysed 1,000 spectrum assignments throughout 102 international locations throughout 2010-17 has revealed that growing international locations have larger spectrum prices and decrease cell service ranges.

While excessive spectrum public sale costs contribute to authorities revenues, in India, previous auctions have contributed revenues beneath expectations and have created a excessive debt burden for the sector estimated at $76.9 billion. This has slowed the deployment of networks and applied sciences.

Trai’s methodology of arriving at the reserve worth in lots of circumstances is predicated on linking it to the bid worth in the earlier public sale. But the valuation and, therefore, public sale costs in subsequent years usually are not essentially going to be larger than in the earlier rounds.

There are a number of components that decide the valuation of spectrum, together with the quantity of spectrum out there in several bands, expectations from the subsequent spherical of auctions, band traits, quantity of spectrum held by the bidder, state of the know-how ecosystem, the enterprise technique and regulation reminiscent of spectrum caps per band or total caps, rollout obligations, and so forth.

Right of Entry Reserved

Another facet of Trai’s willpower of reserve worth is linking it with technical effectivity with respect to another band, as was finished for the 3300-3600 MHz band. Similar logic has been utilized to estimating the 700 MHz reserve worth, which is ready at two occasions that of 1800 MHz.

However, public sale costs are decided by contemplating extra than simply the technical effectivity of completely different bands. This is clear from the spectrum public sale outcomes in different international locations.

For instance, the per-MHz worth in 700 MHz was decrease than that in each 1800 MHz and 900 MHz bands in Germany in the auctions concluded in June 2015, and it was half the worth of the 800 MHz band in auctions in Iceland in May 2017.

Another dimension of reserve worth willpower has been linking it to the profitable bid of 1800 MHz band. While 1800 MHz is a vital band for 4G LTE deployments, operators are actively buying the 3300-3600 MHz band because it permits for coverage-capacity tradeoff. Not solely does 3300-3600 MHz present for higher capability than the present bands, it additionally permits larger protection compared to different 5G pioneer bands in larger frequencies.

Consequently, international locations searching for to encourage the offtake of 5G have saved low reserve worth for this band. In India, the reserve worth of this band, each in buying energy parity phrases and change charge, is larger than that in international locations like Ireland, Spain, UK and South Korea — which had the highest reserve worth — the place auctions have concluded just lately.

Given that the operators in most international locations have already got larger complete bandwidth than with these in India, excessive spectrum prices are a further burden for the latter.

This is as a result of, to handle with smaller bandwidths, operators must deploy extra gear, so as to present comparable throughput or protection. Additionally, the decrease GDP/capita for India will make it tougher for Indian operators to be commercially viable.

Further, the decrease smartphone penetration, at round 30%, albeit growing, and the regulatory burden in phrases of spectrum utilization fees (SUC), and different levies that represent practically 30% of the revenues constrain the competitiveness of Indian operators. The regulatory burden could possibly be lowered by a range of means. Recognising that the ecosystem in varied bands has not reached comparable ranges of maturity, some governments are considering much less onerous cost phrases.

For instance, in Italy, in the auctions this month, profitable bidders are anticipated to pay solely 20% of the 700 MHz worth upfront. The remaining is staggered with funds due in 2022, which is the estimated yr when the ecosystem is anticipated to stabilise.

Auction Action

Additionally, since an necessary goal of auctions is to reach at a market-discovered worth, the reserve worth must be saved at a fraction of the final public sale worth to permit for aggressive bids. Lower SUC fees additionally cut back the regulatory burden.

With the present excessive debt burden, and simply three non-public operators, the market worth for spectrum is more likely to be subdued. It is crucial that Trai and the division of Telecom rationalise the reserve costs.

(The author is government chair, IIMA-Idea Telecom Centre of Excellence, IIM, Ahmedabad)

DISCLAIMER : Views expressed above are the creator’s personal.

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