On 16th Aug 2022, the DOT informed the TRAI that it is envisaging auctioning spectrum for satellite services on an “exclusive basis”. On the same breadth, it requested the TRAI to explore the feasibility and the procedure of sharing auctioned spectrum among multiple service licenses (both satellite and terrestrial) and make recommendations on the criteria for sharing — including appropriate interference mitigation techniques (para(2.2(a)-Page 141 of TRAI’s paper). The purpose of this note is to evaluate how the TRAI will be able to deal with this dilemma. And why I call this situation a “dilemma” will become clear as you read through this note.
TRAI’s Dilemma
The TRAI is in a real dilemma. Why? The Reason — On one hand, DoT is seeking to auction spectrum on an exclusive basis, and in the same breath, the DoT is also seeking recommendations from the TRAI on the “procedure of sharing” an exclusively assigned spectrum. Why? Is there an intent to make sharing mandatory? If so then what purpose does “exclusive assignment” serve? As per Webster's Dictionary the word “exclusive” is synonymous with “The power to exclude”. So if something is assigned tagged with exclusivity, then the assignee must have the power to decide whether to use the resource by himself or share it with someone on his own terms and conditions. No?
(Please note the concept of spectrum sharing in the case of satellite services is quite different than in the case of terrestrial services. It will become clear as you read through this note)
The reason I lay out this fact at the beginning of this note as resolving this dilemma is pivotal for the successful assignment of the satellite spectrum. By success I mean the assignment strategy should prevent the creation of artificial barriers, enable efficient usage, promote competition, and motivate the operators towards the latest and best technologies — all these are in the interest of the consumers and India at larger. While we do so, we should also use this opportunity to learn from our past experiences, so that we prevent repeating some of the mistakes which have impacted the telecom industry badly by bringing it to a situation of a certain duopoly.
Why Auction?
Let’s begin by asking this fundamental question — Why auction? The primary reason to auction a resource is to prevent a stalemate (who to give who not to) when the demand is more than the supply. If the reverse is true then the process of “auction” really serves no purpose. Why? Reason — It will lead to no price discovery, all resources will get assigned at the reserve price. Assignment of resources as the reserve prices is a huge problem, as it empowers the market leaders to use it as a tool to limit competition.
A case in point is the last few auctions of the terrestrial (IMT) spectrum. We find that most got sold at the reserve price, and only those circles saw a price increase where the demand was more than the supply, thereby turning the auctions virtually into an administrative assignment at the reserve price.
If it was not then why did 67% of the offered spectrum remain unsold in 2016? And in 2021 this number went up to 69%! Why? Also, why did almost all the spectrum got sold at reserve price? This is when the quality of data services is poor and the network seems always congested- pointing to the fact that either spectrum is lying unused for insufficient. See the figure below.
Similarly, in 2022 a large quantum of the spectrum was left unsold (not captured in the above chart), and here also almost all of it (99.99%) went at the reserve price (see chart below).
Hence it is fair to conclude that auctioning resources whose demand is less than supply serves very little purpose, as it turns the whole process into an administrative assignment at the reserve price, and prevents optimal utilization of public resources — which is in the end of the day harms the interest of the consumers and the nation at large.
Satellite Spectrum — Is Demand > Supply?
In my view, the answer is No. Why? Actually, the answer lies in the TRAI’s consultation paper itself. In the consultation paper, the TRAI makes the following point:-
“...It follows then if satellite systems are designed to operate on a shared spectrum with low or no rivalry in consumption, the spectrum for satellite-based communication acquires characteristic of a “club good” (Page 90, Clause 3.119)”
By “club good” the TRAI means that a number of satellite players sharing the same block of the spectrum will not experience a significant loss of capacity. This is quite a contrast compared to their terrestrial counterpart, whose capacity will decrease linearly proportionate to the number of players sharing (operating) in the same spectrum. Therefore, the spectrum capacity for satellite services can be considered almost limitless, thereby capable of supporting a large number of players in the same block of spectrum. Hence, the demand for it can never be more than the supply. That is why sharing of airwaves is a mandatory requirement for satellite players quite unlike their terrestrial counterparts. Hence, for the auction to be successful for the satellite spectrum, we need to create “artificial scarcity”, i.e limit the number of bidders (TRAI, clause 3.120(b), page 90). For further understanding please read my earlier note titled — “Satellite Spectrum — Auction or Not”. & “Satellite Spectrum — Auction vs Administrative Assignment (Pros & Cons)”
Limiting Bidders — What is the impact?
If multiple satellite players can operate in the same block of airwaves without a significant loss of capacity, then the question arises — limiting the number of bidders artificially (solely with the purpose of enabling a successful auction) will serve what purpose? Actually nothing, on the contrary, it will be harmful. It will not only limit competition in the market but also prevent the spectrum to be used at its optimal capacity. Neither of the two is in the interest of the consumers.
The market leaders will use this opportunity to block the entry of new players in the market. Both DoT and TRAI will find themselves helpless once the spectrum gets auctioned and the terms of sharing are defined and embedded in the NIA. As they can only intervene once the license expires even when the technology will keeps progressing — making the sharing strategies become better and better and unlocking more capacities within the same chuck of the auctioned spectrum for supporting additional players.
This is the reason why the FCC has been continuously evolving its sharing rules to unlock more capacity with the objective of supporting more players in the market. FCC's latest effort is embedded here and will likely get formalized by end of this month. FCC is empowered to do so as they have not created “private rights” for satellite spectrum by auctioning it in the manner we are trying to. Once the “private rights” are established through the process of auction, it will become extremely difficult to change the rules of the game in between the license period.
What are the other issues?
The issues related to the Satellite spectrum are quite different from those assigned terrestrially. There are virtually no synergies. In the case of the Terrestrial spectrum, the role of the regulator gets significantly limited after assignment, as “one” operator by itself is able to unlock the optimal capacity of the assigned spectrum. Whereas in the case of the satellite spectrum, even multiple operators can’t do so together — and without facilitation, from the regulator, the situation will turn worse in no time.
How? Operators may not converge on sharing strategies to be used between themselves. There could be some serious differences. Also, they need to share information with each other for these sharing strategies to work seamlessly — All this will need handholding and facilitation from the regulator. These strategies can’t be spelled out in advance and will change with time and the evolution of technologies. That is why TRAI tagged it as “Club Goods (TRAI’s consultation — Page 99).
What are the pitfalls of auctioning “Club Goods”?
So if you try to auction “Club Goods” for “exclusive” use then one has to be innovative to figure out a way to do that. Some options are already suggested by the TRAI in its paper. But, none of this will be without severe pitfalls & shortcomings and will compromise the basic tenets of auction. For example — a) We should be ready to keep huge capacities of airwaves lie idle and unused. Why? As we will be artificially limiting the number of players for the auctions to work; b) We should be ready to face the danger of collusion — leading to the blockage of new players in the market. This is also for the reason stated above; c) We should be ready to deal with inflexibility on spectrum management and regulatory intervention due to the creation of “Private Rights” on goods which are by character “common” in nature; d) We should prepare ourselves for possible fragmentation, as the outcome of spectrum auctions — i.e the demand on quantum cannot be predicted in advance; e) Above all, we should be conscious about the need of continuous supervision from the regulator/licensor for facilitating coordination (between players in case of conflict) to enable optimal sharing so that none of the players involved are disadvantaged on their ability to contribute and add value (though it contradicts the point number ©).
Conclusion
Now based on the above discussion, it is safe to conclude the following — If the need for constant supervision (sharing and coordination) can’t be done away with in the case of satellite services, then why do we want to call the assignment of satellite spectrum “exclusive”? Probably we can’t. So in that case, we won’t be able to auction satellite spectrum in the manner we do for terrestrial services? No? This is the dilemma that I mentioned at the beginning of this note that the TRAI will face as it tries to ride on the DoT request of auctioning spectrum for the satellite service in the manner we have done for terrestrial.
Please note, there is nothing wrong with the process of “auction”. It is probably the best approach to assigning resources when demand is more than supply. But if the reverse is true (as in the case of satellite services), then using auctions as a tool for making assignments may not be the correct strategy, that too when and when “sharing” has to be supervised constantly by the regulator for ensuring optimal usage and for the purpose of resolving conflict between the sharing entities.
(Views expressed are my own and do not reflect that of my employer. No help of any AI tool has been used in writing this article)
PS: (1) Find the list of other relevant articles in the embedded link.
