Nothing wrong with spectrum sharing

The telecom industry is a tormented one with mounting losses and uncertainty in regulation. Take the recent instance of DoT banning the 3G roaming pact, disallowing intra-circle roaming arrangements between operators.

SECONDARY SPECTRUM MARKET

In most countries, the starting point of liberalisation of the telecom industry is the command and control (C&C) approach. In the C&C approach, the Government may do all or some of the following: ration spectrum, specify technologies and services for spectrum use, put in strict mergers and acquisition (M&A) norms, and confer non-sharable rights to spectrum holders.

However, the paradigm of regulation has shifted to creating a competitive and sustainable environment for various services, including telecommunications. Technologies have also evolved to accommodate flexibility in spectrum management.

Under the flexible approach, the Government uses market mechanisms for spectrum assignment, accords freedom in the choice of technologies and services in those bands, promotes secondary markets for trading and leasing of spectrum, and separates universal service obligations from licence terms.

In India, examples of such policy directives include the Unified Access Service Licence (UASL) in 2003, 2G intra-circle roaming in 2007, and the liberalisation of spectrum use in 2012.

However, India is unique in its excessive fragmentation of spectrum holdings, and hence requires more innovative approaches in spectrum management. The spectrum HHI in India is about 0.15 (in a scale where 1 indicates monopoly occupancy of spectrum); and average spectrum holding by each operator is 10 MHz across all bands (i.e. 800, 900, 1800, 2100 MHz paired bands), about one-fourth of the international average.

INDIA’S ADVANTAGES

Of course, the problem of spectrum fragmentation can be rectified to some extent by allocating more spectrum. But due to the Government’s inability to allocate more spectrum, in part due to difficulties in transferring spectrum from defence, it is better that Government gives a free hand to the operators to manage spectrum through market mechanisms, including secondary spectrum markets.

In the recent controversy on 3G roaming pact, spectrum-starved operators decided to share spectrum (without transfer of spectrum rights) through mutual agreements, thus creating an “unofficial” secondary market. This is an excellent example of operator enterprise. It is time the Government legitimises it ex-post by allowing spectrum sharing and trading for the benefit of all — better quality of service for subscribers and hence increased usage; higher efficiency for the operators; optimal utilisation of meagre spectrum doled out by the Government; and increase in Government revenue through the annual licence fee, which is a percentage of the adjusted gross revenue of the operators.

Though secondary spectrum markets have not been successful in Australia, New Zealand and some European countries due to “market thinness”, or lack of sufficient participation, the activity level is very high in the US. Mobile operators have bought spectrum from each other as well as from broadcasters and other niche spectrum holders.

US PRECEDENT

Of late, AT&T and Verizon are on a buying spree, as they vie with each other in expanding their 4G LTE (long term evolution) networks. For example, in 2012, AT&T obtained approval to purchase 700 MHz and 2300 MHz spectrum from the likes of NextWave Wireless, Comcast, Horizon Wi-Com and San Diego Gas & Electric Company.

Verizon recently agreed to pay $3.6 billion to buy spectrum from a consortium of cable companies to augment its spectrum capacity. Sprint acquired Clearwire recently for its 2.6 GHz 4G spectrum. However, it is to be noted that even in the US, there are no more than 3-4 operators in a geographical licenced service area (LSA) (only 3 pan US operators: AT&T, Verizon, and Sprint). In India, there is an average of 9-10 operators in each LSA, thus providing enough market richness for the secondary market to flourish.

In the US, the President’s council of advisors on science and technology in their report last year, recommended about 1,000 MHz of federal spectrum holding to be released for shared access. In a first ever move, the US military will experiment in the coming weeks with sharing of spectrum that they use for aviation radars in the 3550-3650 MHz band for 4G LTE based indoor networks in hospitals. The mobile virtual network operators (MVNOs) who lease spectrum from the mobile network operators to provide niche services, are very active in Europe.

However, the Government needs to do some fresh thinking to loosen its control over spectrum, while operators need to collaborate and compete transparently. We have lost much of our edge in telecom due to non-transparency in spectrum allocation, in-fighting among the operator community and lack of Government will to implement foolproof policies.

It is time to implement the vision of NTP 2012.

(Sridhar is with Sasken Communication Technologies and Prasad is with MDI, Gurgaon. Views are personal.)

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