Satellite Spectrum — Auction or Not
In the past few months, I have written many articles on the satellite spectrum — how it is different from its terrestrial and the pros and cons of following each of the assignment strategies — auction or administrative. On the current note, I plan to cut to the chase by analyzing what compromise the DoT has to make in case it decides to pick one of the two alternatives.
Terrestrial Spectrum
Auction is nothing but the sale of the capacity to carry data. Now in a conventional auction like 5G, the capacity is created by slicing the total available spectrum into various block sizes and each block is assigned individually to winners for exclusive use. The size of these blocks and the total number assigned to the winners remain constant and do not change during the period of the license. And the blocks remaining unsold are put up for auction by DOT subsequently to new players.
Satellite Spectrum
Whereas the satellite spectrum cannot be auctioned based on the above strategy. Due to the following reasons — 1) A single satellite player can’t use the assigned block efficiently, due to highly inefficient frequency reuse capability (only a few Satellites can operate simultaneously over specific geography vs million Base Stations); 2) Because of (1), a large fraction of capacity of airwaves will lie unused; 3) Data speeds will decrease significantly, due to reduced block sizes, if the terrestrial approach to auctioning is adopted. Hence, to mitigate these problems, the full quantum of airwaves has to be sold to each player, and within it, the capacities for individual operators have to be carved out by DOT by defining rules of coordination. These rules will ensure that the winners do not encroach into each other’s territory. And once these rules are defined these cannot be changed within the window period of these licenses — preventing DOT to allow the entry of new operators in the market even when a large chunk of the capacity is still available to be harnessed.
Coordination Rules
These rules define how the satellite players will share the total spectrum available for operation. This is important, as unlike the case of terrestrial, the satellite spectrum can’t be sold by slicing them into smaller pieces. Hence, the auction rules have to state the “rules of coordination” much in advance so that the bidders know exactly what they need to do, or how much they need to invest to avoid interference (emanating from other players operating in the same block of airwaves).
Altering Coordination Rules
Changing the coordination rules will impact the existing players who had paid for the airwaves in the auction. Why? The capacity that they will see will get altered negatively as the coordination rules have to be made more stringent to allow the entry of additional players into the market, even if the new rules are biased in favor of the existing players.
On the other hand, the new players will pay for the same spectrum at an increased rate (auction prices have the legacy of trending upwards), but their capability to use it will be less compared to those who acquired it earlier. This will create significant distortions in the market, by altering the level playing field.
Administrative Assignment
Advantage — Increased DoT’s Flexibility
In case the spectrum is administratively assigned then the flexibility of DoT to change rules of coordination increases significantly. History is a testimony to this fact when WPC kept changing rules of assignment of 2G spectrum based on subscribe-based criteria on a continuous basis for creating additional capacity for new players in the market (The History of Indian Telecom Licensing — A Policy Perspective). If the subscriber-based criteria were kept static then it would have been impossible for the DoT to enable the entry of new players in the market. As once the spectrum is sold via the auction route, the WPC no longer has this flexibility. The same logic applies to the satellite spectrum as well.
Disadvantage — Possibility of Policy Arbitrage
If DoT has the power to change the “rules of coordination” dynamically, then there is always a chance of this power being misused as had happened in the 2G period. The subscribed-based criteria were altered by DoT to a significant disadvantage to those who entered the market first by paying a high price for the 2G license (mapped to the market conditions then). The prices of these licenses were never revalued even though working conditions for those who entered first were made much worse.
Auction Assignment
Advantage — Prevents Policy Arbitrage
Rules once set at the time of auction can’t be changed during the life of the license period. This enables a policy certainty for those who paid market value for spectrum and their business interest gets protected.
Disadvantage — Blocks Entry of New Players
Since the rules of coordination can’t be altered during the period of the license it will be impossible for the DoT to allow the entry of new players into the market. That too when a large capacity lies waste, and can’t be practically exploited by the players who have entered the market through the auction route (reason — due to satellite players' inability to reuse frequencies at par with their terrestrial counterparts).
Way Forward
Given the context, both approaches — auction, and administrative assignment have their own merits and demerits. The auction might be the way to go in case DoT is fine with keeping coordination rules static, and preventing the entry of new players in the market (in the duration of the license) in the spectrum blocks which are assigned through auctions. If not, the only option that is available is to go the administrative route. Here, DoT has to ensure that no one can take undue competitive advantage of their ability to change the rules of coordination during the license period. If this can be ensured then the balance will tilt in favor of administrative assignment given the fact a large capacity will lie unused which can’t be consumed by those who paid for it in the auctions.
(Views expressed are my own and do not reflect that of my employer)
PS: Find the list of other relevant articles in the embedded link.
