The Way Ahead for Spectrum Allocations in India?

In early 2008, a committe of experts was set up by the DoT/TRAI to examine the issue of spectrum allocations for 2G services in India, in the face of intense controversy and arguments between different parties, especially regarding the much-criticised 'Subscriber Linked Criterion' for additional spectrum allocation, on top of the start-up spectrum that a UAS/CMTS licensee gets in the beginning, for free. The committee submitted its report sometime back but TRAI made it available only last week. The report makes a series of recommendations regarding allocation and pricing of 2G spectrum in future. If implemented, this will have far-reaching impact on spectrum policy in India. These recommendations are summarised below.

Start-up Spectrum
Existing UAS licensees are entitled to receive 4.4x2 MHz of GSM spectrum or 2.5 x 2 MHz of CDMA spectrum. However, in future, new UAS licensees should not be given any start-up spectrum. In consequence, the license will not be tied to any roll-out obligations. Auctions should be the basis of spectrum allocations in future.

Allocation of additional spectrum
The current practice of allocating additional spectrum based on the so-called Subscriber-Linked Criterion (SLC) should be discontinued in favour of an auction-based approach. The minimum quantum of spectrum for such auctions should be 1x2 MHz, with bidders limited to existing UAS/CMTS licensees only.

Aggregate spectrum holding
The aggregate spectrum holding of a UAS/CMTS licensee should be limited to 25% of the total spectrum assigned for 2G services in the each Licensed Service Area (LSA). Note that this limit applies across all wireless technologies classified as 2G (such as GSM and CDMA).

Spectrum charge (for those holding more than 6.2x2 MHz)
It is also recommended that a licensee, whose current spectrum holding exceeds 6.2 x 2, has to pay for it. In case the additional spectrum (above 6.2 x 2 MHz) was allocated after the cut-off date of 17/01/08, the licensee has to pay an upfront charge, to be decided on pro-rata basis with respect to the price for 3G spectrum. Those who received additional spectrum prior to the cut-off date can either pay an upfront charge as in the previous case or choose to pay annual spectrum fee.

Sharing/trading/merging of spectrum
One of the key recommendations is to allow licensees to share, trade and merge spectrum so as to meet the continuing scarcity of spectrum in the country. Although no limit is set on the amount of spectrum holdings that can be used by a licensee for transfer/merger transactions, however the limit of 25% (mentioned above) will apply to licensees whose total holdings increase after of merger/transfer of spectrum.

Any transfer/merger of spectrum for which the holder(s) did not pay any upfront charge will be subject to a transfer fee. This will apply to start-up or additional spectrum assigned without auction. In case of a merger, the transfer fee is calculated for the lower of the spectrum holdings of the two entities that are merging. The transfer charges recommended will not apply when the spectrum in question was granted with the UAS/CMTS license or as additional spectrum for which upfront charge has subsequently been (or agreed to be) paid or obtained via auction.

In case of sharing, the proposal is to levy a sharing fee, which is determined based on the smaller of blocks being shared by the two parties. In case, the sharing is tri-partite, the sharing fee will be based on the two smaller shared blocks. In both cases, sharing should be allowed only the entire spectrum holding of each party is to be shared with the other parties. Furthermore, such an arrangement is deemed feasible only all 2G spectrum is considered same in terms of spectrum levies.

A discount of 20% on transfer/sharing fee during the year following the issuance of a formal policy notification has been recommended, so as to provide an incentive to the licensees to undertake such transactions.

Lifetime of spectrum allocation
The recommendation is to make service licenses perpetual, renewed every year upon payment of the requisite fee. However, spectrum holding will have separate validity, notified at the time of spectrum assignment/auction. Upon the expiry of this period, the holder should have the first right of refusal for another 20 years. This will incur the payment of a fee determined as per appropriate market-based mechanisms.

Spectrum charges
The charges levied from 2G spectrum holders should be uniform and independent of the spectrum band. This contrasts with the current policy where spectrum charges escalate with the size of holding in a non-proportional basis. Furthermore, the charge for equivalent amount of CDMA and GSM spectrum is also unequal.

Roadmap for future
An important recommendation is for the government to set up a committee to develop a roadmap for exploiting the digital dividend, encompassing a strategic review of spectrum allocation across various bands (both licensed and unlicensed bands), harmonization with ITU allocated bands, policies and plans for government use of spectrum, instruments and institutions for managing towards a more commercial use of spectrum and unleashing the potential of wireless for Indian citizens.

The report is available for download on the TRAI website. Interestingly, a news item appeared in the Economic Times yesterday, quoting unnamed TRAI officials, saying that major changes in spectrum policy are in the offing. Some of the things mentioned therein sound similar to the recommendations of the expert committee.