The issue of the assignment of spectrum to the operators for backhauling access traffic has been a point of debate since 2014. The DOT's existing policy (dated 16th Oct 2015) is to assign this spectrum administratively and charge a % revenue share as license fees. However, DOT now intends to auction this spectrum. As it feels that doing so is necessary to align with the Supreme Court’s Judgment dated 2nd Feb 2012. Hence, to resolve this conundrum, in the past, there have been multiple backs and forths between DOT and TRAI, which culminated in a recommendation from TRAI dated 29th Aug 2014. However, DOT is yet to take a formal decision on this recommendation. This fact is mentioned by the TRAI in its paper dated 11th April 2022 (Clause 2.408, page 148). The purpose of this note is to analyze DOT’s and TRAI's approaches to the assignment and pricing of the E-Band spectrum. Are the problems with these approaches? And if yes, what are the possible solutions?
Background
The background related to this topic has been captured in my earlier note dated 6th Dec 2015, titled — Should we Auction MW Spectrum? I encourage the readers to go through this article, as it captures all related information linked to this topic from the beginning.
In nutshell, the key issues that DOT wanted the TRAI to recommend in 2014 are — a)Methodology for allocation and pricing of microwave access and backhaul spectrum; b) Annual spectrum usage charges and criteria for pricing for different bands of MWA & MWB carriers including any upfront charges, along with the date of applicability.
As stated above, the DOT’s current policy is to assign MW spectrum administratively and charge a proportional % revenue share (based on the quantum of spectrum assigned) which is agnostic to the band where such assignment is made. The revenue share % can go as high as 3.95% of AGR (Adjusted Gross Revenue) for 2 x 308 MHz (11 carriers of 2x28 MHz each).
Problem
The problem is the current approach is neither scalable nor optimal from the point of view of SUC. Please refer to the table below. Note the SUC (spectrum usage charge) on account of MWA & MWB spectrum is 24% (Rs 1568 Cr) of the total SUC (Rs 6739 Cr) that the operators paid in FY21–22 (Source — DOT). This is when the operators only have a few MW carriers compared to what they can possibly get.
Now with the advent of 5G, this problem will further aggravate. Why? As to aggregate data emanating from the 5G access, the operator will need a much fatter backhaul pipe, compared to what they have today. The reason — 5G will drive a disproportionate amount of traffic in the access — driving the operator’s backhaul needs significantly. This will push the % revenue share number out of the roof, thereby increasing the operator's outflow at par with what they pay already for access spectrum acquired in auctions. E-band assignments will be in chunks of 2x250 MHz. Hence, one carrier translates to 9 carriers, each of 2x28 MHz and a revenue share of 2.8% as per the existing formula.
However, the TRAI (17th Nov 2015) wanted the E-Band to be assigned on a link-by-link basis using a light-touch regulation. As per TRAI, for this purpose, WPC should make necessary arrangements for an online registration process by developing a suitable web portal. Responsibility for interference analysis should rest with the licensee, who will have to check the WPC link database prior to link registration (links should be protected on a “first come, first served” basis). WPC can also maintain a waiting list for the same spot. (Part 4.31, TRAI’s Recommendation). TRAI’s pricing proposal for E-Band is Rs 10,000/- per link per annum per 250 MHz carrier.
Analysis
In my view, as of date, neither DOT nor TRAI has an optimal solution for assignment and charging of the E-Band spectrum.
The reason is that the DOT’s formula for calculating spectrum usage charge (SUC) for microwave spectrum can’t be applied directly to the E-Band spectrum without major tweaks, as it will make the cost of holding the E-Band spectrum disproportionately high (2.8% for a block of just 2x250 MHz).
And the TRAI’s approach of charging the E band spectrum based on a link-by-link basis will create an accounting nightmare for DoT (audit and reconcile license fees) due to a large number of links that the operator will deploy, compared to what they have already done for the microwave spectrum. And on top of this, DoT will have to deal with the multiple disputes emanating from the operator’s end on account of the responsibility of interference management. This the TRAI has left to the operator to manage on its own and which the regulator simply cannot wash its hands away.
Solution
The best solution is to assign the E-Band spectrum on an exclusive basis, just like we do today for microwave access. This will give the operator full flexibility to use the spectrum as he likes (for both access & backhaul), without having to worry about interference from any of the neighboring users. E-Band has 7 GHz of spectrum in total (71–76 GHz and 81–86 GHz). Hence, each operator can easily be given 1.5 GHz each.
Now, whether to auction this spectrum or not is a decision that DoT has to take. If auctioned, then the SUC of this spectrum should be brought at par with the 5G access spectrum, i.e 0%, and the weighted average formula can be used to calculate the aggregated value of SUC. Such an approach will help in enabling the operators to use the E Band spectrum for either access or backhaul as they wish, just like any of the auctioned access spectrum today.
And if DoT decides not to auction this spectrum, then a SUC of 1% can be levied as the TRAI had earlier recommended for the satellite spectrum. For more details please read my earlier note — Satellite Spectrum SUC & Implications.
Conclusion
5G auction is incomplete without a clear robust policy on the assignment of the E band spectrum. Both are closely interwound with each other. Without the E Band spectrum, the operators will not be able to utilize the 5G spectrum that they plan to acquire in the forthcoming auction. I hope the DoT has thought this through and will enable a clear policy on the assignment and pricing of E Band spectrum along with the release of the NIA (Notice Inviting Application) of 5G.
(Views expressed are of my own and do not reflect that of my employer)
PS: Find the list of other relevant articles in the embedded link.
