Indian Private Network Debate
Unless this issue settled gracefully, the entry of new technologies will become difficult and the spectrum bands will remain underutilized
Recently India has seen a significant tussle between lobby groups over the government's decision to allow companies (of certain net worth) to seek spectrum directly from the government for the purpose of deploying private networks. Though the rules for such assignment are not in place yet, the debate still continues unabated. Operators are worried, that in case such direct access to spectrum (outside auctions) is allowed, then it will disturb the level playing field, and will be tantamount to a “backdoor entry”. Also, it might even impact the intensity of the forthcoming 5G auctions, leading to a loss of revenue to the exchequer. Looking at the intensity of this debate, it appears that the operators are really concerned, and they don’t want any direct assignment of spectrum to entities outside the process of auction. Now, if auctioning of the spectrum is the only way out left of assigning spectrum, will India be able to deploy the latest and upcoming technologies, given the fact, that these technologies do not work in the manner the conventional technologies do? Will India be able to use its spectrum resources efficiently? If not, how should India modulate its rules, given the fact that we have a black legacy of the “2G Scam” — leading to the Supreme Court order for auction of the 2G spectrum in 2012 (given earlier in 2008 based on FCFS policy), as it was done for the allocation of 3G bands? Finding answers to these questions is the purpose of this note.
Why certain spectrum bands are always assigned through auction?
The reason: these bands are in high demand. Why? As it is cost-effective to offer services in these bands, due to availability of cheaper handsets. The affordability of these devices is enabled by the worldwide usage of such bands — driving economies of scale. Unless the handsets are affordable, the operators can’t reach the consumers, and hence without such access, it is useless for the operators to hold spectrum in such bands, as they will not be able to monetize it. Hence, the demand for these bands is high, and due to such demand, there are no effective means (other than auctions) for dolling them out, as otherwise, transparency will get compromised. In 2008, the 2G spectrum was in high demand, and therefore these spectrum bands should not have been assigned on a First Come First Basis (FCFS), and therefore, the 2012’s SC judgment should be seen in the light of this context. Auctioning such a spectrum band can also ensure that such resources are handed over to only serious players, who can use them most efficiently. Spectrum being a perishable resource, if wastage, can be detrimental to the economy and therefore not in the interest of the nation.
Should all spectrum bands be assigned through auctions?
No. There could be three main reasons for this. A) There could be situations when a spectrum band is not in high demand (or limited demand), mainly due to due to the lack of affordable handsets (or user-end devices). Auctioning such a spectrum band will serve no purpose, neither to the government nor to the consumers (as the supply of such spectrum is generally much more than the demand). And if an auction is forced, then there is a risk that these bands will lie fallow and unused and therefore, will not be in the interest of the nation. Most commercial players, in the business of offering services to consumers, will find such a spectrum band useless as there will be no takers for their services, due to the non-availability of affordable devices.
B) In some situations, fragmentation of spectrum bands through auctions can be detrimental to the interest of all the stakeholders. Take the example of the satellite spectrum, should it be auctioned in the manner we do for terrestrial services? No. But Why? As doing so will severely limit the satellite operator’s ability to offer high-speed broadband services, and therefore will also not be in the interest of the consumers. Satellite operators like to share (coordinate) spectrum with each other, quite unlike terrestrial operators do — who will like to have an exclusive assignment. The reasons are simple- a) for a terrestrial operator, exclusive assignments are easy to manage and make perfect economic sense as the cost of coordination of spectrum (sharing between each other) is quite high (though in some situations, where geographical separation is possible, sharing might make economic sense); b) on the other hand, for a satellite operator, he has no choice but to coordinate, as it can’t harness the full capacity of the spectrum if exclusively assigned. The satellite operator’s frequency reuse capability is severely limited, as the total number of satellites (equivalent to the BTSs on the ground) can never be at par with its terrestrial counterpart. And therefore, if its spectrum is fragmented, then it will also limit its capacity to offer high-speed broadband services in proportion to the fragmentation. But one might argue, that even for a terrestrial player, it will be challenging to deploy BTSs in remote locations, and therefore spectrum in these locations will remain underutilized. This is true, that is why satellite and terrestrial services complement each other. The satellite services are agnostic to the type of terrain, and therefore more effective in providing services in areas that are economically unviable for a terrestrial player to do. The interested reader can go through the note titled — “Satellite Spectrum — Auction or Not, and Why?” for a deeper understanding.
C) Also, there are certain spectrum bands that can’t be auctioned (using conventional methods) even when devices are available. The reason is that these bands are already in use by other users (satellite, terrestrial, state, defense, etc), and therefore the exclusive assignment of such spectrum band is not possible, as it will cause interference to the services already in operation. In that case, should we leave such bands alone, and not try to further harness any leftover capacity? No. The whole debate on private networks falls in this category.
The TRAI has recommended 40 MHz in 3700–3800 MHz for low-power indoor use for private captive networks. This block of spectrum can’t be used by the TSPs, as they need to transmit at high power, thereby jeopardizing the C-band satellite receivers already operating in parallel in this band. The only way to operate in this spectrum band (without impacting satellite services) is to operate at very low power, which is suited for a private network operation.
The other band that TRAI has recommended is 4800–4990 MHz. Here too commercial equipment availability is not seamless. But more important is the government agencies' interest in this band, and the only way to share spectrum with them is to operate at low power — only suited for a private network-like operation.
Then in mmWave, the TRAI has recommended spectrum for private networks in 28.5–29.5 GHz, here too high power commercial IMT services will be difficult due to the presence of ISROs satellites.
Hence, if private networks are not allowed to leverage these spectrum bands, then these resources will get underutilized — jeopardizing the interest of the nation and its consumers.
What if the DoT decides to auction spectrum for private networks as well?
Doing so will be totally impractical. Why? The companies wanting to seek spectrum for private networks will not know in advance the location where they will need spectrum (private networks assignment are mandated to be limited within the premises of the entries, and they can’t offer services to others but only self-consume, just like a home wifi user do). The location of these premises will keep changing based on their business needs (like an individual who might want to relocate). Therefore auctioning, and exclusive assignment of the spectrum band for the whole LSA (like we do today for commercial players) will make no sense for them. In such a situation, only administrative assignment makes sense, and this is further amplified by the fact that in a particular location there will be only one demand, as multiple companies might not operate on the same premises. And therefore, even a location-based auction is NOT possible as only one company will be seeking a spectrum for that specific location and all others can’t operate in that location when one is already operating there.
But will such administrative assignment not impact the “Level Playing Field”?
As per the definition given in Merriam Webster, level playing means — “a state in which conditions in a competition or situation are fair for everyone”. This means, that if govt decide to impose a certain set of conditions (license fees, rules for acquiring spectrum, etc) for a set of players, then such conditions must remain the same for all other players trying to access the resource at different points in time. Otherwise, it will be tantamount to “backdoor entry”, thereby disturbing the competitive dynamic of the market. And this will not be in the interest of any of the stakeholders — operators, consumers, and above all the government.
In my view, the level playing field for the operators does not get impacted just by the DoT’s decision to administratively assign spectrum to the private operators. But there could be an impact, and that will depend upon the DoT’s rules of empowerment for the entities seeking to deploy private networks.
What are the rules of ‘Empowerments” for a PN Entity as per the DoT’s guidelines?
As per the guidelines issued by DoT, entities wanting to deploy Captive Non-Public Networks (Private Networks)- a) Can seek services directly from the telecom operators; b) Can obtain spectrum on lease from the telecom operators; c) May also obtain spectrum directly from DoT. Now, if an entity opts for options (b) & ( c), then the entity will need a license to be issued by the DoT under Section 4 of the Indian Telegraph Act, 1885. The scope of the license, along with some key conditions are listed below in the box below for easy reference.
a) CNPN license may establish indoor/within premise isolated Captive Non-Public Network(s) for own use within the area of operation of license.b) CNPN license cannot be used for providing commercial telecommunication services.c) CNPN license shall be valid within such locations in the country where the CNPN license is the occupant of the geographical area(s)/property(ies) (either owned or leased) on which such CNPN(s) to be established.d) CNPN licensee having operations at more than one location will require only one CNPN license. e) The license shall be valid for 10 years. The licensee may apply for renewal of the license, which shall be processed as per extant policy.f) CNPN license shall deploy network elements as per TEC standards…g) CNPN licensee shall not connect its network to public networks in any manner…h) Licensee can connect its CNPNs established at multiple locations through leased lines obtained from the licensed TSP.i) CNPN Licensee shall not be required to pay any Entry Fee and License Fee.j) Applicant will have to pay one-time non-refundable application processing fee of Rs 50,000/-
One can make out from the above description that the empowerment of a CNPN licensee is significantly less compared to those of the TSPs (telecom operators). Hence, if the empowerment is significantly less compared to the operators (who have access to an exclusive spectrum and can also transmit at full power unrestricted through the license area), then how can such decision of DoT impact the “level playing field”? The reader can clearly see the logic here.
But what about the loss of revenue for the telecom operators?
This is important, as the telecom operators are looking eagerly to monetizing this new opportunity — made possible due to the march of technology. But the problem is if DoT blocks/dilutes the flexibility of the Indian companies compare to its global counterparts, then India’s larger interest will get compromised, that too when India is trying its best to nurture its manufacturing sectors and make them at par with their global counterparts. Hence, it is clear that the “loss of revenue” of the telecom companies if any, shouldn’t lead to tightening of rules for those wanting to leverage private networks for the purpose of enhancing their business efficiency.
Also, as discussed above, if the option of accessing the spectrum directly from the DoT is blocked, then our spectrum bands will get underutilized. This also is not in the interest of the country at large.
What is the solution to ensure that the TSP’s overall interest is not compromised?
Actually, the DoT has taken many steps in order to alleviate the pain of the telecom operators, so that their business operations remain healthy. However, it is a no brainers that more is needed to be done. As doing so is in the interest of the nation, as we can’t expect good quality services at an affordable cost from a sector that is reeling under pressure due to the high cost of operation, and the need to make continuous investments.
The first step that DoT has taken by announcing phase1 reforms for the telecom sectors. Most important in this is the reduction of SUC (spectrum usage charge) by as much as 85%, as soon as the operators take the new 5G spectrum (an operator with annual revenue of Rs 80,000 Cr can end up saving Rs 2000 Cr annually). Please read my note — “Will 5G impact SUC, if yes, how?”.
The second step that the DoT has taken is to protect the operator’s interest to a net-worth floor of Rs 100 Cr for those entities wanting to seek spectrum directly from the DoT. This shall mean that those entities having a lower net worth than Rs 100 Cr will have no option but to get spectrum directly from the telecom operators.
But this may not be enough as in case the operators genuinely are under pressure due to the need to buy spectrum at high prices then their viability definitely gets impacted. Either spectrum prices should get reduced drastically, or DoT should abandon the practice of charging license fees. Both can’t go together. No country anywhere in the world, that doles out spectrum through the process of auctions also levies huge license fees (as a share of revenue) as an extra burden. The process of charging licensee fees and auctioning spectrum at an exponential rate has significantly reduced the competitiveness of the telecom industry that we see today.
What is the way forward?
From the above discussion, it is clear that the auction cannot be a viable means for assigning public resources such as spectrum for all situations. The decision will rest on the type of case, as has been described earlier in this note. Else, this will not only jeopardize our capability to absorb new technologies but also will make spectrum lay underutilized. India needs the latest and the best technology to grow its GDP, and it also can’t afford to waste its vital natural resources (spectrum) — which are scarce and also perishable. One can’t deny the much-needed flexibility to the entities wanting to deploy private networks compared to their global counterparts. This will limit their capability to compete with global giants and impact India’s overall aspiration of growth and prosperity. Though there is no level-playing issue as regards the entry of entities deploying private networks, however, the telecom companies’ concerns can’t be totally ignored. They need to remain healthy. Then only Indians can experience good quality services at an affordable rate. Hence, DoT needs to totally abandon the practice of charging license fees at the current rate but only extract the cost of managing these licenses (administrative cost). If that can’t be done immediately, then there needs to be a clearly defined roadmap in that direction. That is why settling the debate on the “private network” gracefully is very important. As it has exposed the venerability of our licensing system, which needs to be refined according to the changing times so that India is able to leverage the fruits of technological advancement for its people and in the larger interest of the nation.
(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.
