Govt faces spectrum shortage ahead of auction next year

There's plenty of spectrum available, but much of it is with the armed forces, and there are obstacles in the way of reallocating it

For leading telecom operators like Bharti Airtel, Vodafone and Idea Cellular, the proposed auction of spectrum next year could be a make-or-break situation. Part of the spectrum that was allotted to them 20 years ago has to be surrendered and they need to buy it afresh. The problem is that the Department of Telecommunications, or DoT, which plans to auction airwaves in the 900 MHz, 1800 MHz and 2100 MHz bands, may not have enough spectrum to meet the demand of the telecom companies. As a result, there is likely to be aggressive bidding. For the industry, which is still saddled with the debt it had taken for the 3G-spectrum auction in 2010, this could prove to be a recipe for disaster. Those who don't bid aggressively could lose subscribers.

Paradoxically, there is no shortage of spectrum - but much of it is not available for auction. Telecom companies say that a large chunk of the spectrum needed for commercial use is still with the armed forces - about 40 MHz in the 2100 MHz band and some in the 1800 MHz- which could prove crucial to the upcoming auction. But the armed forces are locked in a turf battle with DoT and want it to demarcate a "defence band" as well as a "defence interest zone" as was agreed in 2009. It is only after this has been done that they will swap their airwaves with spectrum in the 1900 MHz band. But DoT has its reservations because this will mean it will lose its exclusive power to assign spectrum in all bands. DoT has also said that the defence ministry's replies on the exclusive band were only received on August 20 and they are under examination. It has instead requested the armed forces to release 5MHz which it had promised to give (it had already given 20 MHz for the 3G auction) five years ago. In return, DoT had agreed to build an optic fibre network for the armed forces. DoT has said that the network is now more or less in place and therefore the armed forces can release the spectrum.

Tough choice
If the armed forces agree to release 15 MHz of spectrum, it will be enough to accommodate three bidders (5 MHz each) in each of the 22 telecom circles. If the matter isn't resolved, there could be trouble. Here's why. The spectrum that incumbent operators have to surrender is 184 MHz in the 900 MHz band. This is the most lucrative band, and can be used for 2G, 3G and even 4G services. The Telecom Regulatory Authority, or Trai, has said that it can take over another 1.2 MHz of spectrum available in the 18 circles that will be up for grabs with BSNL in the same band and add it to the kitty. As the adjoining table shows, none of the circles has more than three slots in the 900 MHz band; most have either two or just one slot.

That won't be enough. The two incumbent operators in each of the 18 circles will have to win back the spectrum in order to protect their business and ensure that their services aren't disrupted. After that, there will be no spectrum left for the other bidders. And new players are sure to join the race for spectrum, especially companies that want to offer high-speed data services to their subscribers. "We expect at least five operators to bid for 900 MHz, yet except for a handful of circles, none of the circles has more than two slots in this band. With such a huge gap between demand and supply, prices will shoot through the roof and the industry will again be in jeopardy," says Rajan Mathews, director general of Cellular Operators Association of India.

This is why it is crucial for the armed forces to release at least 15 MHz spectrum in the 2100 MHz band. The pressure would have eased for the telecom companies if there was enough contiguous spectrum available in 1800 MHz which can be used for high-speed data services and not just 2G services. But the problem is that not even one slot of 5 MHz is available in many of the key circles including Karnataka, Maharashtra and Kerala. In fact, over 60 per cent of the 104 MHz spectrum in the band is available in less-lucrative circles (from the business point of view), with the exception of Tamil Nadu.

New solution
The choice therefore boils down to a proposal mooted by the GSM telecom operators and now supported by Trai that the armed forces should swap at least 15 MHz in the 2100 MHz band in each circle with a similar spectrum in the 1900 MHz band. That would open up three additional slots and change the auction scenario: there could be up to five slots (of 5 MHz each) up for grabs in each circle. This would result in non-aggressive bids and save the industry from decimation.

A major stumbling block to such a spectrum swap was that Trai had opined that 1900 MHz spectrum should be reserved for the migration of the operators in the 800 MHs band. However, earlier this month, the regulator overturned its decision and said that "its earlier recommendations for reserving 1900 MHz for re-farming of 800 MHz spectrum are no longer relevant" and recommended that the entire 60MHz (20 MHz has already been given in 3G auction) in the 2100 MHz band be made available for commercial use. So the roadblock for DoT to push through the swap has now been removed. Trai's change of heart has resulted from fears, just like those harboured by the telecom operators, that lack of spectrum might lead to a bidding war and, in the process, bleed the industry. Trai has said "there is an obvious and compelling need to make additional spectrum available for the conduct of a fair and equitable auction" because "there is a very real risk that bidding could lead to an escalation of auction prices far beyond any reasonable value".