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Spectrum for 5G: Key considerations for sale of airwaves

July 27, 2018
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The government aims to bring 5G to India on track with the global timeline by 2020. A key step in this regard will be the allocation of appropriate spectrum that supports 5G services. Globally, a few companies have allocated 5G spectrum and many others are chalking out strategies to do so soon. The Indian government would need to look at several aspects such as the bands in which airwaves are to be sold, the quantum of spectrum, the reserve price, and, most importantly, the financial health of the sector before it finalises the spectrum auction timeline. Industry experts share their views on the level of market readiness for the launch of 5G and the key considerations that will make spectrum sale a success…

From left : Hemant Joshi , TMT India Leader, Deloitte; Murtuza O. Kachwala, Managing Director, Telecom, Media and Entertainment, Industry Practice, Protivity, India; Rajan S. Mathews, Director General, Cellular Operators Association of India; T.V. Ramachandran, President, Broadband India Forum

What is the level of market readiness for the launch of 5G in India?

Hemant M. Joshi

The 5G market is still at a nascent stage in India. The government has allocated Rs 5 billion ($77 million) for the development of 5G and aims to launch these services in India by 2020. Some of the top technology institutes are working on different research and development (R&D) projects along with telecom operators and network equipment vendors. The Department of Telecommunications (DoT) will set up a development centre to work on 5G technology in partnership with the Indian Institute of Technology (IIT) Madras. A leading network vendor has showcased the first ever live 5G end-to-end demonstration in the country. Some of the leading operators have invested significantly in developing the new-generation network as well, and have started deploying massive multiple input multiple output.

There has been good progress in terms of R&D and technology development, but 5G standardisation, policy, spectrum allocation and fibre backhaul remain key areas of concern.

Murtuza Onali Kachwala

The government is keen on an early launch so that the country is not left behind when the rest of the world shifts to 5G in 2020. DoT has asked operators to vacate spectrum within six months from March 27, 2018, the date of issue of the notice, and has stated that the sale of spectrum will happen in the next round of auctions. It has also asked the telecom regulator to give its recommendations on the reserve price of airwaves. However, as cash-strapped incumbent operators continue to slug it out in the ongoing price war with Reliance Jio Infocomm Limited (RJIL), industry players seem unsure about the investment required for the transition to 5G.

On the other hand, original equipment manufacturers are aggressively pushing for 5G as telecom capex-related investment in 5G will further assist equipment manufacturers such as Huawei, Nokia, Ericsson, Samsung and ZTE in improving their revenue streams in the coming years.

Rajan S. Mathews

Unlike earlier telecom technologies, which were rolled out in India well after the rest of the world, 5G will be rolled out along with, and in some cases, ahead of, many countries. While commercial roll-out is expected in 2020, its uptake is expected to take much less time than that taken by the preceding technologies. Operators are already preparing themselves, having signed R&D partnerships with leading equipment vendors and academic institutions to test the 5G potential. Ericsson launched the country’s first centre of excellence (CoE) and innovation lab for 5G on July 3, 2018, at IIT Delhi. The government has also formed the 5G High Level Forum to ensure that there are no regulatory hurdles in the deployment of the technology.

T.V. Ramachandran

5G requires a very different policy and regulatory mindset, and this is the most essential prerequisite for entering the 5G era. In this respect, India is very much on track for the early launch of 5G. The government has formed a high-level forum of experts to draw up the roadmap for achieving 5G by 2020. The basic ecosystem is in place and steps have been initiated for major trials by end-2018.

Equipment testing programmes have been made between vendors and service providers along with academia. For example, Ericsson is setting up a CoE with a 5G test bed and incubation centre at IIT Delhi.

Most importantly, there is a huge requirement for the services that can be provided through 5G, be it in healthcare, manufacturing, rural productivity or education. Thus, a potentially powerful market is waiting to be exploited.

What are your views regarding operators’ resistance to 5G spectrum sale in 2018-19?

Hemant M. Joshi

Although the government is aiming to commercially launch 5G by 2020, it needs to consider the readiness of telecom operators. The industry debt stands at a staggering Rs 7.7 trillion. Telcos have spent around Rs 3 trillion on spectrum since 2010. Data tariffs have dropped by 90 per cent and voice tariffs by 58 per cent in the past couple of years due to disruption and tariff wars, while data consumption has gone up by 800 per cent. Sector revenue is at an alarmingly low level. Telcos are still investing a lot in infrastructure development. Under these circumstances, it will be a huge challenge for them to invest in new spectrum for 5G where the ecosystem is still under development.

Murtuza Onali Kachwala

Currently, operators in India are in major financial distress because of 4G service roll-out. They have already invested millions of rupees, but 4G services are still not fully operational. The ARPU, an indicator of a telecom operator’s performance, for all incumbents has fallen sharply in the fourth quarter of 2017-18 — Bharti Airtel’s ARPU fell 27 per cent year on year to Rs 116, Vodafone’s fell by 16 per cent to Rs 119, and Idea’s fell 26 per cent to Rs 105. RJIL, which has been offering heavily discounted bundled plans to customers, recorded an ARPU of Rs 137. Hence, the resistance to 5G is natural, as operators are yet to reap the benefits of their 4G investments.

Rajan S. Mathews

India’s telecom operators are not opposed to the technology being installed in the country at the earliest possible. However, the financial health of the telecom sector is exceptionally poor at this time. A new technology means significant investment in buying more spectrum, as well as in setting up infrastructure and services. Telcos are in no condition to do that right now. We anticipate that the telcos will be in a far better condition to acquire additional spectrum and invest in the new technology towards end 2019.

T.V. Ramachandran

Successful operators will be at the forefront of catering to the market. The adoption of 5G will be driven by market forces, just as we saw in the case of 4G. Hence, I do not believe there will be any real resistance when spectrum sale happens. What is important is the optimisation of spectrum allocation and auction design. The good news is that the government recognises this and has articulated it in the National Digital Communications Policy, 2018.

What should be the auction timeline? What should be the key considerations in terms of reserve price, spectrum bands, quantum, etc.?

Hemant M. Joshi

Although 5G will boost the Digital India programme, the government should consider the telcos’ point of view before setting the auction timeline. Multiple mergers and acquisitions, large debt and tariff wars may give a setback to the telcos. Considering the failure of the 2016 spectrum auction, the government should carefully evaluate the reserve price for 5G spectrum and align it with global prices. The government is planning spectrum allocation in the 3.3-3.4 GHz band for 5G, but the unsold 700 MHz spectrum could also be put up for sale again. In addition, the quantum of contiguous spectrum is crucial to provide good quality of service, considering the huge increase in data users and multiple new applications of 5G technology.

Murtuza Onali Kachwala

An auction in 2018-19 would give telecom operators a very short timeline to prepare themselves. An extension in the spectrum sale would give them a chance to overcome their current financial burden and revisit their existing business models. A key consideration will be the reserve price. In the last auction, held in 2016, around 60 per cent of the spectrum on offer remained unsold, including in the 700 MHz band, as operators felt the price was too high. Given the current financial stress in the sector, the government may be in for another disappointment in the next spectrum auction if the price is not reasonable. Another important consideration will be the spectrum bands. Globally, 3.5 GHz is the standard for the deployment of 5G services. The regulator plans to put up 175 MHz (3425-3600 MHz) radio waves for access services in the upcoming auction and is considering allotting the E-and-V bands that connect mobile towers with each other.

Rajan S. Mathews

5G technology will be a catalyst for the government’s Digital India plans and will usher in a new era of services and abilities. While it is difficult to comment on exact numbers for reserve price, etc., the fact is that 5G will increase average data speeds by three to four times compared to what we have available today on 4G. Once commercially available, it will enable operators to substantially reduce the cost of data production to one-tenth of the present cost.

T.V. Ramachandran

5G will require that each operator is assigned at least a 100 MHz block of spectrum in the 3.5 GHz band and a 1 GHz block in the 28 GHz band to provide reasonable 5G services. Since the quantum of spectrum required for 5G is much higher than for 4G, the reserve price should be brought down to a sufficiently reasonable level.

The key considerations for 5G auctions are as follows:

Make spectrum assignments more flexible with greater use of dynamic database systems: Dynamic spectrum database technology can revolutionise wireless communications and network deployment by making spectrum abundant for a myriad innovative uses.

With the right policy changes, usable spectrum could be made abundant. Instead of exclusive licences to a limited set of parties, spectrum could be made available for many different types of users, subject to simple technical standards. Transmitters and receivers would be able to determine dynamically, in real time, which spectrum is available, and move between different bands as necessary.

Recognise mid-band spectrum, particularly the 3.5 GHz band, as a critical part of a next-generation wireless strategy: The mid-band spectrum range not only offers more potential bandwidth than frequencies below the mid-band range (low-band spectrum), but is also optimal for some uses, because it offers a shorter range propagation compared to low-band spectrum, yet a longer range propagation compared to spectrum above the 24 GHz high-band spectrum. Device ecosystems already exist for some portions of the mid-band range, including standardised long term evolution equipment and mass-market Wi-Fi devices, and other countries and regions are studying the use of some portions of mid-band spectrum for wireless broadband services, potentially creating economies of scale for mid-band equipment.

How has the global experience been for 5G spectrum sale? What are the international best practices and the key lessons for India?

Hemant M. Joshi

5G technology is being designed to support all spectrum types and bands. European regulators are focusing on and prioritising the mid-band spectrum in the 3.4 GHz to 3.8 GHz band for 5G, which will allocate up to 100 MHz of contiguous spectrum to operators. Meanwhile, other operators are also prioritising and focusing on the 26 GHz band, which spans the 24.25 GHz to 27.5 GHz frequency range. South Korean telcos have been allocated 3.5 GHz and 28 GHz spectrum for 5G, with 100 MHz of contiguous spectrum. In the US, the Federal Communications Commission (FCC) is still considering changing to the 3.5 GHz band. Germany is planning to hold spectrum auctions in early 2019. India needs to consider the global practices and experiences before firming up its auction plans.

Murtuza Onali Kachwala

China, South Korea, the US, Japan, Germany, the UK, France, Canada, Russia and Singapore are the top 10 countries on the 5G list. As per the Cellular Telecommunications and Internet Association, China’s lead in 5G is due to a combination of proactive government policies and industry momentum. The US’s high rank can be attributed to the fact that its wireless industry is a global leader in the run-up to 5G commercialisation, with significant investments in next-generation networks. Spain and Italy are both holding 5G spectrum auctions this year, and the UK has just completed its 5G spectrum auction. Meanwhile, India is still contemplating regulations on 5G spectrum. Countries are racing ahead with preparations to develop technologies and put in place the architecture that will be necessary for 5G services. South Korea has already demonstrated its 5G services during the 2018 Winter Olympics. There are different international best practices. While the UK has just held its 5G auctions, other countries like Japan plan to divide spectrum between two operators at a fixed price. For India, operators can put pressure on suppliers, negotiate better deals, and consolidate and monetise content to prepare for the future.

Rajan S. Mathews

Countries like the US, China, South Korea, China, Japan, Sweden and Estonia have already started deploying some form of 5G  on a trial basis. However, the global committee on standards is still working out the specifications for the equipment to be manufactured for service providers to deploy across the world.

We saw 5G usage in the Winter Olympics in South Korea, which is the most advanced telecom market in the world. South Korea auctioned 3.5 GHz and 28 GHz spectrum for 5G in June 2018. However, 5G will be far more effective during the Summer Olympics in Japan in 2020. The final standards and specifications are not expected till the middle of next year.

T.V. Ramachandran

South Korea recently auctioned 3.5 GHz and 28 GHz spectrum for 5G. There are other countries like the US, Australia and Singapore that are planning their 5G auctions. The 5G High Level Forum in India has also identified key 5G bands for India, which include the 3.5 GHz and 28 GHz bands. The Telecom Regulatory Authority of India (TRAI) and DoT need to urgently review the spectrum valuation/ pricing methodology and set reserve prices at reasonable levels in line with international norms adjusted for Indian price parity and the extremely low ARPUs. A novel and rational method has been proposed by the Broadband India Forum in the context of inputs for the NDCP and it is hoped that we can take this further in the TRAI consultations.

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