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Regulating Spectrum Use: Sharing and trading guidelines yet to be finalised

May 27, 2015
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Historically, the use of radio spectrum to deliver telecommunication services has been highly regulated. However, there is a growing consensus that the hitherto prevalent regulatory paradigm will prove inadequate to deal with the significant increase in spectrum demand in the near term. Spectrum licence holders need flexibility to respond quickly to changes in market demand and technology. Therefore, policymakers and regulators worldwide are developing new ways of spectrum regulation with a focus on evolving more flexible and market-oriented models to increase opportunities for efficient spectrum usage. In this regard, strategies such as spectrum sharing, leasing and trading are finding increasing acceptance among policymakers. In India, while the relevance of these strategies is recognised, the guidelines on spectrum sharing and trading are yet to be finalised.

Spectrum sharing

Spectrum sharing is an arrangement between two spectrum licence holders whereby the two licensees share usage rights over shared spectrum. This is one of the ways to manage network congestion.

In India, the Telecom Regulatory Authority of India (TRAI) has proposed to allow spectrum sharing in cases where both licensees have access to spectrum in the same band. According to the guidelines issued by TRAI in July 2014, licensees can pool their spectrum in the same licence service area (LSA) for simultaneous use, utilising a common radio access network (RAN). The shared RAN would be connected to the core network of each licensee. The basic objective of spectrum sharing is to provide an opportunity to telecom operators to pool their spectrum holdings to gain better spectral efficiency.

However, there is a limited techno-commercial proposition for spectrum sharing in India. This is because the bigger issue facing the Indian telecom market is coverage, not capacity, whereas spectrum sharing economics works best for capacity augmentation. In fact, in India, most operators have a lot of spectrum capacity in the 1800 MHz, 2100 MHz and 2300 MHz bands. However, there is no operator that has adequate sub-GHz spectrum in the 850 MHz, 900 MHz or 700 MHz bands, which is essential for rolling out long term evolution (LTE) services.

For instance, in Delhi, operators have their base layer on GSM in the 900 MHz band. When these operators started deploying 3G networks, they co-located almost all their 2100 MHz sites in the 900 MHz band. Since there is a significant difference in radius between the 900 MHz and 2100 MHz bands, good quality coverage is not being delivered.

Therefore, even if the capacity were to be increased on the 2100 MHz sites, it would not improve the customer experience because the need of the hour is add-itional towers to improve indoor coverage rather than capacity augmentation at the same sites. Going forward, monetising underutilised spectrum and the launch of the 850 MHz band will be the key drivers for spectrum sharing.

Spectrum trading

Spectrum trading involves the transfer of licence rights from the existing licensee to the new user. It contributes to more economical and efficient utilisation of frequencies as trade will take place only if the buyer expects to derive greater economic benefit from the acquisition. In such a case, it is the market and not the regulator that determines the value of the spectrum. Trading makes it possible for companies to expand more quickly than would otherwise be possible. It also makes it easier for a new entrant to acquire spectrum in order to enter the market.

According to TRAI’s working guidelines for spectrum trading released in January 2014, only the outright transfer of spectrum (on a pan-LSA basis) will be permitted and not spectrum leasing. Further, only that spectrum is allowed to be traded, which has been acquired through auctions held from 2010 onwards, or for which the service provider has paid the market value to the government.

Spectrum trading is expected to have a better value proposition and a greater demand in the Indian telecom market. Since operators possessing contiguous spectrum in the 1800 MHz band do not have a roadmap to deploy it, the spectrum is expected to be put up for sale in the market. Further, the harmonisation of non-contiguous spectrum is likely to drive spectrum trading, which is expected to provide an upside to tenancy sites as new and existing operators deploy 3G/LTE in new geographies.

Conclusion

The spectrum sharing and trading guidelines issued by TRAI in 2014 have not been accepted by the government. In fact, the government has asked TRAI to review its recommendations as it feels that some parts of the guidelines are impractical and counterproductive. As a result, the roll-out of the spectrum sharing and trading mechanism is expected to take some more time.

Based on a presentation by Pankaj Aggarwal, Director, Capitel Partners

 
 
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