Spectrum Auctions in India – Explained, Pointwise

Introduction

The department of telecommunication (DoT) successfully conducted the spectrum auctions in March 2021. The government generated over Rs 77,000 crore from the auction as compared to Rs 45,000 crore expected

However, the government has skipped the sale of the much-coveted 5G airwaves in this round. Auctions for that would be done in the future.

Similarly, even though the spectrum auctions earned crores of money to the government, Only 37% of the airwaves found buyers in the recent auction due to various issues. In this article, we will explain the various issues with Spectrum auctions.

Source: Economic Times

About the recent spectrum auction

• The DoT offered spectrums across the 700 MHz, 800 MHz, 900 MHz, 1800 MHz, 2100 MHz, 2300 MHz and 2500 MHz bands. The last auction took place in 2016.
• Both Indian and Foreign companies were eligible to bid for the auction. Foreign companies required to 
  • Either set up a branch in India and register as an Indian company or 
  • Tie-up with an Indian company to be able to retain the airwaves after winning them.
• The three largest telecom service providers in India(Jio, Airtel, and Vodafone Idea) brought the majority of the spectrum.
• The successful bidders will have to pay 3% of Adjusted Gross Revenue (AGR) as spectrum usage charges.
  • AGR is divided into spectrum usage charges and licensing fees that are fixed between 3-5% and 8% respectively.

What is spectrum?

• Devices such as cellphones, radio, wifi, etc. require signals to connect with one another. These signals are carried on airwaves. These airwaves must be sent at designated frequencies to avoid any kind of interference.
• Such airwaves are called the spectrum. The various frequencies are subdivided into bands.
  • Frequency is the number of repetitions of the wave that one can see in a period. 
  • If a wave repeats slowly, it is low frequency. If the wave repeats more, then it is called high frequency. Hertz(Hz) is the unit of Frequency.
• Range of various devices:
  • Radio – 100-200 Megahertz (Mhz)
  • Telecom – 800 Mhz – 2300 Mhz
  • Wifi – Earlier it was 2.4 Ghz and now enhanced to 5 Ghz.

What is a spectrum auction?

• The Union government owns all the publicly available assets within the geographical boundaries of the country. This includes the airwaves also. So the government has the right to sell the airwaves.
• The selling of airwaves as a band for a certain period is known as Spectrum Auctions. The central government through the DoT(Department of Telecom) auctions these airwaves from time to time. 
• The government performs spectrum auctions after dividing the entire country into telecom circles. Presently India is divided into 22 telecom circles. 
• All these spectrums are sold for a certain period of time, after which their validity lapses, which is generally set at 20 years.
• With the expansion in the number of cellphones, wireline telephone and internet users, the need to provide more space for the signals arises from time to time.
• Telecom companies are willing to set up the required infrastructure to use the waves once they auctioned the particular spectrum. 

History of spectrum auctions

• The first spectrum auction in India was conducted for a 900MHz band, in 1994. 
• After the 2001 auction, the government switched to an administrative allocation model. Under this, the government would select the companies best suited for developing India’s telecom infrastructure. 
• However, this didn’t yield a positive result, and the spectrum was licensed at far lower rates than what was raised by auction. 
• Post 2G spectrum case, the government again switched to the spectrum auction method.

Need of spectrum auctions

• Prohibit Interference: The primary objective is to prevent interference in signal transmission. Dedicated bandwidth in a spectrum ensures smooth transmission for radio, cellular and wifi services.
• Determine Fair Value of Spectrum: Spectrum auctions will help in determining the right value of airwaves and creates a spirit of competition in the telecom sector.
• Source of Revenue: The government is able to earn substantial revenue from spectrum auctions. For example, in the latest spectrum auctions, the government earned more than 77000 crore due to the higher demand for spectrums.
• Rising Population: United Nations Population report has predicted that India would surpass China as the most populous country in the future. With this, more spectrum would be required to serve a growing user base. 
• Technological Advancement: The movement from 4G to 5G would require allocating more spectrum for new services. The proposed 5G allocation in 2022 would see the debut of airwaves in the 3300MHz-3600MHz band.
• Expiring Licences: The spectrum is generally allocated for a 20-year period. After that, it is imperative to conduct spectrum auctions. For example, Various licenses of telecom companies like Jio were expiring in July 2021. So the government has to perform spectrum auctions for those spectrums before the licences got expired.

Issues in spectrum auctions

• High Reserve Price: The government before conducting auctions, reserves a price for a spectrum. Telecom companies have to place bids for spectrum above the reserve price only. But the government usually fixes a higher reserve price, so spectrum attracts only fewer buyers.
  For example, Only 37% of the airwaves found buyers in the recent auction due to the high reserve price. The 700 MHz band failed to attract buyers as the reserve price was placed at 1.97 lakh crore.
• Obsolete Auction Format: The government has not updated the spectrum auction format for a long time. Due to which a persistent fall in the number of bidders is witnessed.
• Competition from Voice Over Internet Protocol (VoIP) subscribers: Over The Top (OTT) providers are providing substitute goods such as VoIP. 
  • This allows them to capture a greater share of customers while remaining somewhat invisible to government regulators. 
  • This hinders the position of telecoms and reduces their willingness to pay more in spectrum action.
• Allocation of unlicensed spectrum for Wi-Fi: Wi-Fi shares the load of the carrier network and reduces the demand for mobile network capacity. 
  • If the government wants to expand the Wi-Fi facilities, it needs to keep more spectrum unlicensed. The more the unlicensed spectrum allocation, the lower will be the demand for licensed spectrum.
• Clarity over Future Spectrum Auctions: The amount of spectrum that will be allocated for the 5G auction is not clear. It is creating confusion among companies like acquiring the spectrum now or waiting for subsequent auctions.
• Regulatory Framework: The poor framework has resulted in the forceful exit of various players from the telecom sector. This automatically impacts the potential of spectrum auction as more bidders mean better prices.
• High Upfront Fees: Some experts are also demanding rationalisation of 50% upfront fees on some spectrum bands. High fees place a greater financial burden on telecoms which impairs their functioning.    

Suggestions to improve Spectrum Auctions

• Grossly unrealistic pricing of the spectrum should be rationalized. The Department of Telecommunications(DoT) should consult with TRAI and other stakeholders for rationalising the price.
• The government should release more unlicensed spectrum for multiplying Wi-Fi as a suitable supplement to the carrier network. This will increase the placements of the Public Wi-Fi project which got the approval of the cabinet recently.
• The government should provide clarity about future auctions, especially the 5G spectrum bands.
• Further, the government should release guidelines on future Spectrum Auctions. It will enable the telcos and OTTs to join hands in providing superior and better services for the benefit of the consumers.
• The time frame for paying spectrum fees should be enhanced so that the financial burden on telecom operators gets reduced. 

Conclusion

Spectrum is a perishable scarce resource and loses its value if left unused. It is important for the government to ensure that the spectrum put on the block is sold in the most optimum way. This can be rightly done by balancing the interests of business, government and consumers.