Foreign firms poised to gain as satellite spectrum allocated, not auctioned

In July this year, a curious situation emerged in the telecom auctions. There was no bid for a spectrum band that is commonly referred to as millimetre wave (mm Wave). This would not have been curious only if the reserve price set by the sector regulator, Telecom Regulatory Authority of India (TRAI), was perceived as too high.

While there was no bid, domestic telecom service providers (TSP) like Reliance Jio and Bharti Airtel instead asked TRAI to make more such mm Waves available for auction.

Technically speaking, mm Waves help to clear traffic when airwaves get congested. 5G networks are therefore veering towards these waves typically in the approximately 30 Ghz wavelength. The auction was for the adjacent 26 Ghz band.

However, these wavelengths are also the same as those projected to be offered as satellite space spectrum by the government of India. Those services will be largely for fixed line services, unlike the 5G services for mobile devices.

This technical aspect has also been noted by TRAI which has recently issued a consultation paper. The paper discusses how these waves can be productively used to offer satellite-based telecom services in the country.

Based on its recommendations, the Department of Telecom (DoT) has decided that there will be no auctions for these new categories of services. Instead, the government will allocate those, but at a price.

Telecom Minister Jyotiraditya Scindia has said satellite spectrum would be allocated administratively. His rationale is clear. “Satellite spectrum across the world is allocated administratively. India is not doing anything different from the rest of the world. If you do decide on auctioning, then you will be doing something that is different from the rest of the world,” he noted at an industry event this month.

The minister also made it clear that there will be a price, but that the allocation rules shall be set administratively by TRAI.

For the likes of mostly foreign companies like Elon Musk’s Starlink and Amazon’s Project Kuiper, this is good news, and they have made their happiness known. In a post on X (formerly Twitter), Musk responded: “Much appreciated! We will do our best to serve the people of India with Starlink.”

Consequently – after a long period of stasis – the telecom sector in India is now in the thick of public policy arguments. Large interest groups are ranged on both sides and the government will have to balance all options.

Business opportunity
As things stand, for a similar set of waves, technology offers the prospect of offering two types of services – fixed and mobile. Indian telecom service providers (TSP) have bet on offering the latter as 5G services and have settled on the auction route. Their revenue will come from mostly urban areas. Their competitors plan on offering fixed satellite services, whose uptake will be mostly in the semi-urban and rural areas, although it will be available to all users. This is the heart of the problem.

“These waves can be used as shared services, which further reduces their prices,” said Mahesh Uppal, telecommunications consultant and director, ComFirst (India) Pvt Limited.

“There are large swathes of our geography where the benefits of digital services like UPI are thin. That is because the wireless telecom bandwidth is patchy in those areas. The government has to step in and satellite-based commercial services provide the right option,” he said.

Reliance Jio, for instance, has written to TRAI that “…further availability of 5G spectrum will aid in the proliferation of the 5G network”. Airtel has concurred. “The availability of these new bands which are also classified as mm Wave spectrum…will enable the further expansion of 5G\FWA services in the country”.

Both companies, smelling a business opportunity, are hungry for the mm Waves. They are keen that spectrum in the 40-42.5 Ghz range should also be put in the auction bucket. In other words, if the price is right and adequate band waves are available, they will bid.

The discovered price for mm Wave was roughly Rs 14,000 crore for the 26 GHz band, a conservative price by global standards. As the US government’s GSA report notes, in 2021, six mm Wave auctions designed to support 5G deployment were completed- in Chile, Slovenia, Denmark, Australia, Croatia and Brazil. “In 2022, there has only been one such auction so far, in India for the 26 GHz range. This brings the total number of countries to have licensed millimetre-wave spectrum to 24”.

Domestic telecom companies, having bought the barest minimum spectrum at Rs 14,000 crore, will not want to see lower prices for the administratively-allocated spectrum. New investors, that is foreign companies, would, because they will depend on the puny market size of at most 35 million or so fixed line users (as per TRAI data).

“Even with the best of estimates of revenue per user (ARPUs), the growth multiple for these companies will be limited. Once one adds on telecom levies like SUC charges and licence fees, the appetite to pay large upfront fees through auction will be muted,” said Parag Kar, a telecom industry specialist, who specialises in strategies for spectrum management.

Kar’s estimate of the satellite broadband market reaching a business size of about $1.2 billion by 2032 is far more conservative than a Deloitte forecast, which notes that India’s satellite broadband market will expand at an annual rate of 36 per cent, potentially reaching a business size of $1.9 billion by 2030.

What the law says
Beyond the numbers, in deciding on the administrative route, however, the government may have law on its side. Since the so-called ‘2G scam’ of 2012, the Indian government has preferred the safety of auctions in handing out telecom bands. The scam was about the alleged loss to the exchequer of Rs 30,984 crore and a presumptive loss of Rs 1.76 trillion in the allocation of 122-odd 2G licences given to telecom service companies. But as Deepak Maheshwari, senior policy advisor at the Centre for Social and Economic Progress, points out, the SATCOM policy of 1997 and the Telecom Policy of 1999 both give the government leeway to decide how to allocate spectrum for space-based services.

For instance, on usage of satellites, Maheshwari points out that “(the) Telecom Policy only mandated that spectrum allocation should follow the rules and principles of the International Telecommunications Union”. The policy also required telecommunications companies in India to pay spectrum usage charge (SUC) to the government and allowed spectrum users, that is, telecom companies, to use the spectrum for any mobile service.

“Even in the 2G case verdict, the Supreme Court did not say the auctions were the only route (for allocation). It is the preferred route. The same position was also upheld by the report on natural resources, written under the chairmanship of former finance secretary, Ashok Chawla,” Maheshwari points out. Business Standard