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ISSUES IN SPECTRUM MANAGEMENTTAKING EVIDENCE BASED RESEARCH TO POLICYMAKING

PAYAL MALIK, Advisor, Economics, Competition Commission of India⃰

★Views expressed here are personal and cannot be attributed to CCI

Background• Impact studies establishing link between communications

and economic growth• Wireless broadband 10 percentage increaseIncrease in GDP 1.11 percent, by 2015Additional 5 MHz of 3G spectrum, broadband penetration

rate would likely increase 3.3 percentan additional 3.3 percent growth in GDP by 2015

Analysys Mason 2010

Putting things in perspective• Growth in high-speed Internet access in OECD countries

from wireless broadband• New wireless broadband subscriptions maintained double

digit growth, rising by 14% from the last half of 2010. • Fixed wired broadband subscriptions increased by 2.25%

between December 2010 and June 2011 (5.83% year-on-year), down from 3.5% in the last half of 2010.

• Korea (99.3), Sweden (93.6), Japan (80.0) and Finland (79.1) are the leading countries in wireless broadband penetration, some of them nearly doubling the OECD average of 47.9.

Can this be replicated in India?• Could wireless BB really be a substitute to the FTTH or

any other fiber centric policies?• Wireless is considered by many to be ideal in South Asia,

which is without legacy wired networks• However, in India About 86% of 12.83 million broadband

connections are provided using DSL technology and 2.85% using wireless

• If DSL remains the predominant technology, only 22.2 million broadband connections by 2014

Targets for Internet & Broadband Penetration in India (Broadband Policy 2004 and NTP 2012)

Year Ending Internet Subscribers (in million)

Broadband Subscribers(in million)

2005 6 3

2007 18 9

2010 40 20

2012 - 75

2014 - 160

2017 - 175

2020 - 600

Dec. 2012 (Actual) 35 15

Things are changing (e.g.India)• 42.79% of total wireless subscribers base are capable of

accessing data services/Internet (374 million, However, 2g)

• High growth of data subscribers, capable of using Internet through mobile devices, makes available a ready population which could adopt broadband

•Mobile is an alternative but it needs spectrum

Things are changing (e.g.India)• 42.79% of total wireless subscribers base are capable of

accessing data services/Internet (374 million, However, 2g)

• High growth of data subscribers, capable of using Internet through mobile devices, makes available a ready population which could adopt broadband

• TRAI : Contribution of wireless broadband technologies by the year end 2012 and 2014 is expected to be 26.5 million subscribers and 59.6 million subscribers respectively

India in average have access to just around 2 x 15 MHz

What are the best spectrum management practices?

• Spectrum Management policies critical to diffusionThe decisions on technology standardsthe choice of spectrum band the method to award licenses• Simple: Correct polices can increase the speed of

diffusion whereas flawed policies can hinder growth• Moinul Zaber (2012), Telecommunications Policy

Does mandating a single technology standard help?

• Converge to single standard (LTE advanced)? Avoid inertia while consumers wait to see which

technology will dominate Global roaming• ConsAvoid premature adoption of inferior technologyTechnological competition can lead to lower price and

innovation

Mandating single spectrum standard

Mandating Specific Spectrum Band• Mandatingforces the operators to go through the spectrum award

process to introduce new technology might be capable of reusing their existing spectrum• Not mandating allow spectrum holders to optimise spectrum usage by

refarming certain portions of the 900/1800 MHz for more efficient 3G/4G services

Mandating Specific Spectrum Band

Limiting 3G to a single frequency band promotes faster roll out(approx 7 to 8 months) , but in the long run can slow down thegrowth

Auctions and Myths

Reasons

Formal demonstration I: Procedure

Formal demonstration II: Payoffs

Handing out licences cheap mean consumers enjoy lower tariffs?•Erroneous claim!! What Economic theory tells us?• Prices paid by customers of telecom services depend,

among other things, on the nature of demand for telecom services, the “variable” costs of the telecom companies and the extent of competition in the market — but NOT on the licence fees that are already sunk

• Pricing decisions of a rational firm will NOT depend on the amount of licence fee paid in the past

What do empirical results tell us about the award process and diffusion?

Auctions and Diffussion• Park, Lee, Choi (2011, Information Economics and Policy)• Test for potential problems that auctions may causehigh licensing feeshigh consumer priceslower incentive to invest in infrastructureconcerns about market concentration• Despite the higher average fees for the auctioned

spectrum, there is no evidence that auctions have led to an increase in consumer prices

• Roll out delays a function of the country spectrum; less available greater is the time for service launch

Average 3G per 100 pop world wide (auction vs. non auction)

Further evidence: Auctions are good but..• Comparing 28 mobile telephone marketslarger quantities of spectrumas well as more intense competitiveness (measured by

the Herfindahl-Hirschman Indexstrongly associated with lower pricesauction rules intended to increase license rent extraction

by restricting spectrum access are not welfare enhancing

Comparative Revenue

Policy challenges arising from “wireless broadband revolution”

• Allocating sufficient spectrum to maintain the current level of competition appears infeasible

Should spectrum be allowed to shared between operatorsIf so then does it impede competition• What are the solutions?Role of Spectrum Trading

Development of Secondary markets• Importance of secondary markets in maintaining efficient spectrum and

wireless marketsshort-run fluctuations and long-run shifts create significant valuation differences between an initial licensee and a

prospective future user of that spectrum• as demand and supply shift, spectrum will migrate • more efficient uses, including those by parties outside of the initial

allocation.• Secondary market could emerge and reinforce the efficiencies created

through the auctionscountries with the most liberalized spectrum policies (including broad

enabling rights to secondary spectrum markets) generate lower prices for spectrum

value reduction due to the increased competition that a more liberalized spectrum trading rights create

Conclusions• Time to move away from “Mother May I” approach to

spectrum usage• Statement of Chairman William Kennard, Federal

Communications Commission (2000)• ‘‘the spectrum resource can be seen more as a

commodity that can move freely in the marketplace, because that’s how spectrum can best meet the market demands of today and of the future.”

• Initial allocation of spectrum should not be allowed to ossified

Spectrum sharing, MVNOs, real time spectrum auctions

Further questions..• Question: Is it possible to allocate sufficient additional

spectrum and maintain the current level of competition under the current industry structure?

• Spectral Efficiency vs. competition• What business models and network architecture can

achieve the best trade off?

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Thank you

payal.malik@gmail.com