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.

3G and BWA Auctions Timeline

With the EGoM deciding on the base reserve price for 3G and BWA spectrum, India is all set to see some action on the auction front. The DoT has announced timelines for the entire process. The key dates are as follows:

Pre-qualification of Bidders 27-Nov-09

Mock Auction 03-Dec-09 to 04-Dec-09

Start of the 3G-WCDMA Auction 07-Dec-09

The EVDO and BWA spectrum auctions will start 2 days after the close of the 3G auction.

If the DoT sticks to this schedule, then the auction process will be completed before the end of this year. Actual rollout of services will take at least another 6 months.

The state-owned companies, BSNL and MTNL already have 3G and BWA spectrum and have been offering services for the past few months. They have not met with much success in acquiring a significant customer base, despite having the first-mover advantage. It is widely believed that the entry of private operators will really kick-start the rollout of 3G and BWA services across the country.

It is interesting to note that the BWA spectrum is mostly unpaired which means that only TDD technologies can be deployed. This will favor WiMAX in the short-run, at least.

Price of 3G and BWA spectrum

As the excitement generated by the EGoM decision to increase the reserve price for 3G and BWA spectrum dies down, thoughts have turned to the fairness of pricing. As expected, both COAI and AUSPI are unhappy at the increase in the price (from Rs 2020 crore, set last year). On the other hand, the WiMAX is pleased with the price for BWA spectrum. Given the current economic climate, it is yet to be seen how many operators will bid for the spectrum. It is likely that all the big boys will be in the ring for 3G spectrum in light of the 2G spectrum crunch. However, using 3G simply to augment voice capacity does not sound like a viable strategy when the price of spectrum is so high. The situation with BWA is not that clear yet.

No 'Spectrum Regulator' says DoT

DoT has now clarified that it does intend to create a new regulator for handling spectrum-related issues. More details in this article.

EGoM for 3G

The 3G spectrum auctions are set to be delayed even further with the government announcing the formation of an empowered group of ministers (EGoM), led by the Finance Minister, Pranab Mukherjee. The EGoM also includes the IT & Telecom minister, Mr. A. Raja and a number of senior cabinet ministers. It is expected to take a final decision on the reserve price for 3G and BWA spectrum and also set the number of players to be allowed in each circle.Although Mr Raja had earlier said that auctions will be completed by October 2009, the latest development clearly means that there's no early end in sight. At a time when the operators in Western Europe, North America and the Far-East are getting ready to deploy LTE, India is still struggling to formulate a policy on spectrum auctions.

Another regulator?

Recently, DoT floated the idea of having a separate regulator for spectrum. Prof. Rekha Jain (IIM-A) has put up a strong case against the proposal in an Economic Times article. What India really needs is a consistent and forward-looking spectrum policy, which takes into our current and future needs. The ad-hoc approach adopted so far has resulted in unnecessay confusion and to some extent, stifled growth.

It's Official: 3G Auction Postponed

The DoT has published a revised timetable for the much-awaited auction of 3G spectrum. As per the latest announcement, the key dates are as follows:

Last date for applications: 15/01/09
Publication of ownership details: 16/01/09 (19/01/09)
Bidder ownership compliance certificate: 20/01/09 (21/01/09)
Pre-qualification of bidders: 22/01/09
Mock auction: 27-28/01/09
Start of 3G auction: 30/01/09
Start of BWA auction: 2 days after the end of 3G auction

Note that the dates in brackets are for BWA only.

3G Auction Postponed

According to news reports, the Govt has decided to postpone the 3G auction by two weeks. No official notification has bee issued yet, but the COAI Director General has been quoted as saying that the auction will now take place at the end of January, instead of the earlier date of January 16. The reason being given is the large number of requests from various parties for more time to study the DoT memorandum on 3G and BWA spectrum auction. At the same time, it appears that the Cabinet Committee on Economic Affairs is yet to approve the 3G policy. Note that any delay in auctioning 3G spectrum automatically delays BWA spectrum auction as it's to be held only after 3G auction is over.

A delay of two weeks is not such a big deal given the extended delay in finalising 3G spectrum auction for different reasons. However, any further delay beyong January may lead to the whole process being frozen until a new govt takes shape after the general elections, expected to take place in the spring.

3G Watch

The long-drawn 3G spectrum game seems to be coming to an end. According to the latest announcement from DoT, 3G auction will start on January 16, 2009. Details of the whole process are provided in a document posted on the DoT website. As per the timetable, the final date for submitting applications is 5th of January. Pre-qualification of bidders will be announced on January 9 and a mock auction will take place on 12th and 13th January. BWA auction will begin two days after the 3G auction is over.

3G spectrum is to be auctioned in the 2.1 GHz band. The amount varies from circle to circle due to limited availability. 4 blocks (2x5 MHz each) will be auctioned in Mumbai and Kolkata whereas Delhi will have only 2 blocks. UP (West) and HP have only 3 blocks available whereas only 2 blocks will be auctioned in Gujarat. A single block is available in West Bengal but there is no 3G spectrum right now in Rajasthan and North-East circles. Rest of the circles have 4 blocks each. Note that these numbers exclude the spectrum already allocated to BSNL and MTNL (1 block each in their respective service areas).

In case of BWA, each service has 3 blocks (20 MHz each) up for auction. MTNL and BSNL have already been allocated BWA spectrum. Of the 4 blocks per circle for BWA, 2 are in 2.3 GHz band and 2 in the 2.5 GHz band. Since unpaired spectrum is being made available for BWA, it is obvious that only TDD-mode deployments will be possible.

Impact of mobile number portability

We have been hearing for the past few months regarding the introduction of Mobile Number Portability (MNP) in India. DoT has now opened the tender for providing MNP services. Names of the winners will be announced in February 2009. So it's unlikely for the service to be active anytime soon. Nevertheless, MNP will be a big boon to Indian mobile users, as it will free them from the tyranny of mobile operators. At the moment, someone who wishes to change his/her mobile operator has to surrender the existing mobile number and get a new one. This has been a big deterrent to those who want to switch operators. Despite initial opposition, the incumbent operators have now agreed to support MNP. If, as expected, MNP is launched in the second half of 2009, the new 2G operators and prospective 3G operators will benefit the most as they seek to create churn from the incumbents. End users will also finally have real choice. However, it must be noted that they will be expected to pay a fee to get the number ported.

DoT Amends 3G and BWA Policy

In the wake of the debate triggered between various stakeholders (and Govt depts) after DoT announced the long-awaited 3G and BWA sepctrum policy, a number of changes have been announced.

With regards to 3G, the eligibility criteria has been strengthened by stipulating that a non-UASL entity aiming to bid for spectrum must have prior experience in running 3G services. Spectrum for EVDO will also be allocated via auctions thus reversing the earlier position of giving spectrum to CDMA operators based on subscriber criteria. The reserve price for 2x1.25 MHz in 800 MHz band has been set at 25% of the 3G reserve price (following the pro-rata calculation). Finally, the annual spectrum fee will not be calculated on the incremental revenue earner from 3G services. This is going to be a tricky one, separating revenue earned from 2G and 3G services. The formula for determining the incremental revenue will be specified later.

As for BWA services, CMTS licence holders are now also eligible to bid for spectrum. The spectrum in 2.3 and 2.5 GHz band will be allocated for TDD mode only. The reserve price has now been doubled, such that it becomes 50% of the 3G base price (for a paired 2x5 MHz block). The roll-out conditions have also been changed. Now, 90% of a metro service area must be covered within 5 years and 50% of rural SDCAs must be covered in Category A, B and C areas during the same period.

The full set of amendments are available on the DoT website.

DoT Guidelines for 3G and BWA Spectrum

The DoT announced its policy for allocation and pricing of 3G and BWA spectrum in August 2008. The 2.3 and 2.5 GHz bands have been earmarked for BWA with 700 MHz and 3.3-3.6 GHz to be considered later subject to availability. For 3G services, the 2.1 GHz band (1920-1980 MHz paired with 2110-2170 MHz) has been identified. In addition, CDMA operators can get spectrum for EVDO services in 450 MHz, 800 MHz and 1900 MHz bands, depending on availability. Any entity that already has a UAS license or fulfils the criteria for getting it is eligible to bid for 3G and BWA spectrum. In case of BWA, Category A and B ISPs will also be allowed to bid.

3G spectrum is to be auctioned per service area in the form of 2x5 MHz blocks, with 5 to 10 such blocks in each service area, depending on availability. Each operator can bid for only one block in a specific service area. CDMA operators can apply for 2x1.25 MHz in 800 MHz and allocations will be made (subject to availability) on the basis of subscriber base in the service area. The price will be equivalent (on a pro-rata basis) to that paid for a 2x5 MHz block by the highest bidder in 2.1 GHz band. The reserve price has been set as follows:

• Mumbai, Delhi and Category A – Rs 160 Crore
• Kolkata, Chennai and Category B – Rs 80 Crore
• Category C – Rs 30 Crore

It has also been stipulated that for future auctions, the reserve price will be same as the highest bid in the upcoming auctions. A controlled, simultaneous, ascending e-auction will be used for 3G spectrum allocation. Note that BSNL and MTNL automatically qualify to get spectrum in the services where they currently operate. Nevertheless, they will have to pay the same price as the highest successful bid.

All licensees will have to pay 1% of AGR as spectrum fees annually from the second year onwards. The spectrum allocation will be for a period of 20 years and non-UASL entities that get spectrum will be granted UASL licenses (upon paying the appropriate UASL entry fees). DoT has mandated that within 5 years of getting the spectrum, 3G operators in metros must cover 90% of the respective service area and 50% of the DHQs/cities in Category A, B and C circles for which they have a license. In the latter case, 15% of the covered DHQs should be rural SDCAs.

In case of BWA, a maximum of 20 MHz can be obtained by a successful bidder across both the bands (in the form of two 5 MHz blocks in each band). The reserve price for auction has been set to one-fourth of the 3G price. The auction process will be same in for 3G spectrum. In case of a tie between two bidders who happen to be UASL operator and Category A/B ISP respectively, preference will be given to the former. If the tie is between two entities with similar license, then subscriber base will be deciding factor. As with 3G spectrum, BSNL and MTNL will automatically get 20 MHz in their respective services areas by paying a price equal to the highest bid during the auction process.

All licensees will have to pay 1% of AGR as spectrum fees annually from the second year onwards. The duration of spectrum ownership will be 15 years. Same considerations apply for new entrants (without UAS/ISP license) as with 3G. BWA service providers in metros will have to cover 90% of their respective service areas within 5 years of getting spectrum. In Category A/B/C circles, 25% rural SDCAs must be covered within 2 years and 50% within 5 years.

Note that DoT has not explicitly ruled out trading and/or sharing of spectrum. As per the guidelines, these, if allowed, will be subject to Government policy. This is in contrast to the guidelines issued earlier in February which clearly stated that “no trading/ reselling of spectrum is allowed”.

3G Guidelines Coming Soon ?

There are reports that the Department of Telecommunications (DoT) will set out the 3G policy for India later this week. The Minister for Communications and IT, Mr. A. Raja is expected to make an announcement on Friday, August 1, 2008. Such speculation is not new and many such false dawns have occurred before. However, given that the UPA governmet survived the trust vote recently, it must surely be feeling emboldened to push through some long-pending policy initiatives before the next general election. More on this at GigaOm.

TRAI Recommendations on BWA Spectrum

The Indian telecom regulator, TRAI launched a consultation paper in May 2008 on allocation and pricing of spectrum in 2.3-2.4 GHz, 2.5-2.69 GHz and
3.3-3.6 GHz bands which have been earmarked for BWA services. TRAI finally released its recommendations to the Department of Telecom (DoT).

On the question of eligibility, TRAI recommended that UASL, CMSPs and Category A and B ISPs should be allowed for bid for spectrum in these bands.

The DoT was advised to convert the existing city-specific licenses for spectrum in 3.3-3.4 GHz to circle-wide licenses (as used for mobile networks). TRAI also suggested that licensees with spectrum in both 2.5 and 3.3-3.4 GHz bands should move to 3.3-3.4 GHz and the remaining spectrum in this band should be auctioned in 2x7 MHz blocks only to those who don’t already own spectrum in this band or existing licensees with less than 2x7 MHz holdings (provided they vacate existing spectrum if they win). On the contentious question of choice between TDD and FDD, although TRAI favored the former option but it decided to leave the choice to the operators.

For the 2.3-2.4 GHz and 2.5-2.69 GHz bands, TRAI recommended that spectrum should be auctioned in 5 MHz blocks with a maximum of 15 MHz per service provider (combined total of allocations in both bands). In addition, the TDD mode was favored for allocations in the 2.3-2.4 GHz band. The DoT was advised to get additional spectrum in 2.5-2.69 GHz vacated within pre-defined time duration in coordination with the Dept of Space. In case, additional spectrum (in addition to the currently available 40 MHz) becomes free, then DoT may decide to allow both TDD and FDD modes as per the internationally accepted band plan, otherwise, the spectrum may be given for TDD in 5 MHz blocks.

On the issue of pricing, TRAI recommended that the reserve price and bank guarantees should be the same for all the three bands (RP for 15 MHz should be 60, 30 and 10 Crore Rupees for Metro & Category A, Category B and Category C circles, respectively). Service providers already having spectrum in 3.3-3.4 GHz band should be asked to pay the same price as new licensees. In addition, annual spectrum fee of 1% of AGR should be charged from all BWA service providers.

TRAI recommended that a simultaneous ascending e-auction should be organised for 5 MHz blocks such that each bidder can go for 1, 2 or 3 blocks (needs to be specified beforehand). It was suggested that successful bidders can choose to have contiguous blocks by paying a 25% premium on the highest bid value for each contiguous 5 MHz block.

This is, by no means, the end of the debate on how to allocate and price BWA spectrum. Immediately prior to the release of TRAI's recommendations, the DoT wrote to TRAI that spectrum should be allocated in 10 MHz blocks. However, TRAI decided to publish its recommendation for 5 MHz block size. It must be noted, though, that TRAI's others recommendations more or less matched DoT's thoughts.