Rethinking Spectrum Auction Rules: Fostering Fair Competition and Technological Advancement in India's Telecom Sector
Current Auction Rules hinder Bharti's acquisition of 800 MHz spectrum, allowing incumbents to block by bidding on smaller blocks, thereby skyrocketing Bharti's costs.
Just two days ago, I penned an insightful article discussing Bharti's potential strategy to acquire spectrum in the 800 MHz and 900 MHz bands. This move could enable Bharti to establish a 10 MHz block, essential for deploying Standalone 5G services without waiting for the 600 MHz band availability. The strategy outlined involved a tactical approach to reallocating 4G users, ensuring uninterrupted business operations. However, in today's analysis, I will delve into the considerable challenges Bharti faces in executing this strategy, primarily due to the auction rules. These rules create a distinct disparity between existing bidders, who already possess 800 MHz spectrum in the relevant License Service Area (LSA), and new bidders without such holdings, particularly concerning the minimum number of blocks each can bid for in a given circle. To elucidate this complex issue further, I recorded a video yesterday available for viewing. In this article, I aim to detail these intricacies in writing, offering readers an alternative medium to grasp this pivotal subject comprehensively.
Auction Rules Explained:
The auction rules, which dictate the quantum of spectrum bidders can aim for based on their current holdings, are detailed on pages 58 and 59 of the Notice Inviting Applications (NIA). They are summarised in a key snapshot from the NIA.
In layman's terms, these rules stipulate that if a bidder already holds spectrum in the 800 or 900 MHz bands within a particular License Service Area (LSA), they can bid in smaller increments: 1.25 MHz for the 800 MHz band and 0.2 MHz for the 900 MHz band. Conversely, a bidder without an existing spectrum in the LSA is mandated to bid for a minimum of 5 MHz in either band. The only exception is when less than 5 MHz is available; then, a new entrant must bid for the entire available spectrum and cannot opt for a lesser amount.
This disparity in bidding flexibility carries significant implications for Bharti's strategy to secure the 800 MHz spectrum essential for launching standalone 5G services. But to fully appreciate the impact of these rules, it's vital to delve into the rationale behind their formulation, which we will explore in the subsequent section.
The Rationale Behind These Rules
The underlying rationale for these auction rules is rooted in the technological evolution and deployment strategies of the mobile communication spectrum, particularly in the 800 MHz and 900 MHz bands. Initially designated for 2G services, these bands required minimal blocks of 1.25 MHz in the 800 MHz band and 0.2 MHz in the 900 MHz band to function effectively. However, with the advent and standardization of 3G and later 4G technologies, the operational efficacy of these services is only realized with a minimum spectrum block of 5 MHz.
Therefore, the rules were designed with a nuanced approach: operators already holding spectrum in a specific LSA could enhance their holdings with smaller increments—allowing them to optimize their existing 2G infrastructure or gradually transition to more advanced services. Conversely, new entrants, presumably aiming to deploy modern 3G or 4G technologies, would require a larger spectrum base. Thus, mandating a minimum bid of 5 MHz ensures that new players are equipped with a viable spectrum block to deploy these advanced services effectively.
This distinction aims to balance the competitive landscape, allowing incumbent operators to fine-tune their networks while ensuring new entrants have the necessary resources to establish a robust presence, fostering both competition and innovation within the industry.
Why Are Current Spectrum Bidding Rules Considered Outdated?
The prevailing spectrum bidding rules, especially those dictating the minimum block size, are now seen as antiquated due to their lack of alignment with modern spectrum utilization trends and future demands, as highlighted by RJIO's usage in the 800 MHz band.
RJIO, a dominant force in the 800 MHz spectrum, consistently holds blocks of 10 MHz or more across regions. These blocks, poised to expire in segments of 5 MHz or greater, underscore a shift towards larger spectrum blocks, essential for supporting bandwidth-intensive and advanced telecommunication services.
This shift indicates that RJIO, or any similar operator, would find little advantage in pursuing smaller, less than 5 MHz blocks, misaligned with their broader operational strategies and the industry's move towards higher efficiency in spectrum use, vital for 4G and future 5G deployment.
In instances where RJIO faces the expiration of sub-5 MHz blocks, amalgamating these with nearing-expiry larger blocks or adapting auction rules to reflect the granularity of expiring blocks could enhance service continuity and spectrum efficiency for both 800 & 900 MHz bands.
Persisting with the option for incumbents to bid for minimum blocks as small as 1.25 MHz in the 800 MHz band does not resonate with current technological or operational realities, potentially hampering spectrum optimization and competitive fairness. It could inadvertently provide incumbents with undue advantage, stifling market entry or expansion during crucial auctions. The subsequent section delves deeper into these implications.
Current Auction Rules: How They Favor Incumbents and Hinder Competitor Access
Consider a scenario where Bharti aims to secure a 10 MHz spectrum in the Andhra Pradesh region within the 800 MHz band, crucial for their 5G Standalone network rollout. Acquiring less than this amount would not align with their strategic goals for effective 5G deployment. In this context, RJIO can disrupt Bharti's acquisition strategy by bidding for just 1.25 MHz. The cost for RJIO to initiate this blocking strategy would be merely Rs 365 crore, whereas Bharti needs to commit Rs 2920 crore initially, with amounts escalating in subsequent rounds. If the bidding progresses with Bharti and RJIO targeting 10 MHz and 1.25 MHz respectively, by the 10th round, Bharti's bid would surge to Rs 3225 crore compared to RJIO's Rs 410 crore. One can easily extrapolate the cost impact for RJIO for blocking Bharti for all 22 circles, and this would be nothing but marginal.
Thus, RJIO could feasibly secure this smaller block at a relatively low cost, a strategic move to impede Bharti's 5G capabilities and maintain its competitive edge. This tactic not only affects Bharti but also impacts consumer choice and the broader national interests, as it constrains the advancement and competitive balance within the 5G infrastructure.
With the absence of the 600 MHz band auction, leveraging the 800 MHz band becomes pivotal for Bharti to enhance its 5G offerings, highlighting why current auction rules, which permit such strategic blockades, need reassessment for the industry's equitable progress and national benefit.
Historical Instances of Auction Rules Influencing Spectrum Acquisition
Historical precedents underscore the significant impact of current auction rules on the dynamics of spectrum acquisition, particularly illustrating the strategic interplay between incumbents and new entrants. A notable instance occurred during the 2015 spectrum auction, where the existing bidding framework allowed Tata to obstruct RJIO's attempts to secure spectrum in key circles like Andhra Pradesh, Delhi, and Maharashtra. This interference wasn't confined to the 800 MHz band alone; the ripple effects of RJIO's thwarted efforts in these regions prompted a strategic shift in their bidding focus towards the 900 MHz band in Rajasthan, Uttar Pradesh (East), and Uttar Pradesh (West).
The strategic blockage not only escalated the spectrum prices in these redirected circles but also imposed a substantial financial burden on operators like Bharti, Vodafone, and Idea. These companies faced a collective loss of approximately Rs 10,000 crore, a consequence of their need to aggressively bid to retain their expiring licenses and ensure uninterrupted service continuity. Watch my video on YouTube for insights.
This scenario highlights the broader implications of the auction rules, influencing not only the immediate bidding strategies and outcomes but also the competitive landscape, financial health of the operators, and ultimately, the service quality and innovation within the telecom sector. Such historical insights underscore the necessity for a thorough reassessment of auction rules to foster a more equitable and progressive telecom ecosystem.
Conclusion
The nuanced exploration of India's spectrum auction rules reveals an urgent need for reform, aligning these regulations with the evolving technological landscape and market dynamics of the telecommunications industry. Bharti's strategic imperative to acquire substantial spectrum blocks for 5G deployment juxtaposed with RJIO's potential to disrupt this through minimal bids highlights a critical flaw in the current system. These rules, initially designed to balance the playing field, now inadvertently favour incumbents, stifling competition and innovation.
The historical instance from the 2015 auction, where tactical bidding significantly impacted spectrum allocation and financial outcomes for major players, underscores the tangible consequences of these outdated policies. Such strategic blockades not only affect the companies involved but also have broader repercussions on consumer choice, service quality, wastage of spectrum, loss to the exchequer, and hinder national technological advancement.
Revising these rules to reflect the needs of contemporary and future spectrum usage is imperative. Such reforms should ensure equitable access, foster healthy competition, and support the strategic objectives of all stakeholders, ultimately benefiting the industry and the country. The evolving narrative of spectrum auctions demands a framework that is robust, transparent, and responsive to the pace of technological change and market needs, ensuring that India's telecom infrastructure remains competitive and cutting-edge on the global stage.