Spectrum Policy in India Dr. Shamika Ravi Brookings India Speaking at Indian Institute of Technology, Delhi August 2016
Given the pace and nature of Indian growth, we have to significantly rely on technology and digitization for efficiency and inclusion financial and social This is reflected in recent policy announcements Digital India JAM Smart Cities Mobile infrastructure and spectrum capacity are fundamental for achieving these objectives
Severity of spectrum shortage While spectrum availability is a global problem, it is particularly acute in India India s spectrum capacity measured as Hz/ subscriber is one of the lowest in the world
Severity of spectrum shortage Country Current Pipeline Hz/Subscriber USA 608 55 2.1 Australia 478 230 22.8 Brazil 554 0 2.0 China 227 360 0.5 France 555 50 9.3 Germany 615 0 6.2 Italy 540 20 5.9 Japan 500 10 3.3 Spain 540 60 11.8 U.K 353 265 7.9 India 221 10 (est) 0.2
Severity of spectrum shortage Future pipeline for licensed spectrum in India is insignificant in comparison to China and even lesser than developed economies with much higher capacity Indian operators have significantly smaller amounts of spectrum (13MHz on avg) even in comparison to other Asian countries Bangladesh (37.4 MHz) Malaysia (75 MHz)
Severity of spectrum shortage Shortage across all commonly deployed bands
High competition Based on measure of competition (Herfindahl-Hirschman Index) India is one of the most competitive Telecom markets India has lowest market concentration: 0.22 This is great for consumers in the short run! Rate ($)/minute is lowest India: 0.01 Malaysia : 0.07 Australia: 0.06 Second highest usage(minutes)/subscriber/month India:365 China: 392
High costs Such short term benefits to consumers are unsustainable in long run due to: 1. Rising congestion lower quality 2. High fixed costs of the business Compared to several other countries where auctions were held, spectrum in India was nearly 25 times costlier (US, France, Spain, Sweden, Germany ) In the Nov2012 and Mar2013 auctions: much of the spectrum remained unsold Reserve prices were cut sharply (50%) and all remaining spectrum sold price discovery happened Is this a loss to the government? No.
Spectrum auction design for price discovery Simple question: Why not just increase reserve prices, and if market players do not value spectrum above these prices, they simply won t bid? Won t higher reserve prices lead to higher revenue for the government? Not necessarily. Twin aims of auction: Allocative efficiency & raise revenue for govt. Market mechanism (auction) better than admin mechanism (Raja) to achieve both objectives Under most competitive auctions, no conflict between two goals But under natural monopoly, small number of bidders and externalities all features of Telecom- auction design fundamental
Spectrum auction design for price discovery Auction design important because value of spectrum is difficult to gauge due to evolving market and technology Concerns of winner s curse, collusion etc. become real Mistakes in the reserve prices can lead to serious losses to govt. (New Zealand, where bidders paid $6 for licenses worth $100,000) So setting of reserve prices should be scientifically determined; and auctions become a process of price discovery This is required for long term healthy growth of the sector and to maximize consumer surplus
Evolution of market in Telecom 2. High competition + High fixed costs = Narrow profit margins in the Telecom business Fall in innovation and R&D 3. Market evolution would expect some consolidation in sector. M&A must be facilitated, keeping benefits of competition in mind. 4. Spectrum trading must be promoted - will lead to market discovery and more efficient allocation of spectrum 5. Quality of spectrum should be reflected in the prices: fragmented and dis-contiguous spectrum a serious problem in India