Issues in Spectrum Management Taking Evidence Based Research to Policymaking

1. 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

2. Background • Impact studies establishing link between communications and economic growth • Wireless broadband 10 percentage increase • Increase in GDP 1.11 percent, by 2015 • Additional 5 MHz of 3G spectrum, broadband penetration rate would likely increase 3.3 percent • an additional 3.3 percent growth in GDP by 2015 Analysys Mason 2010

3. 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.

4. 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

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

6. 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

7. 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

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

9. What are the best spectrum management practices? • Spectrum Management policies critical to diffusion • The decisions on technology standards • the choice of spectrum band • the method to award licenses • Simple: Correct polices can increase the speed of diffusion whereas flawed policies can hinder growth • MoinulZaber (2012), Telecommunications Policy

10. 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 • Cons • Avoid premature adoption of inferior technology • Technological competition can lead to lower price and innovation

11. Mandating single spectrum standard

12. Mandating Specific Spectrum Band • Mandating • forces 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

13. 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 the growth

14. Auctions and Myths

15. Reasons

16. Formal demonstration I: Procedure

17. Formal demonstration II: Payoffs

18. 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 Handing out licences cheap mean consumers enjoy lower tariffs?

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

20. Auctions and Diffussion • Park, Lee, Choi (2011, Information Economics and Policy) • Test for potential problems that auctions may cause • high licensing fees • high consumer prices • lower incentive to invest in infrastructure • concerns 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

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

22. Further evidence: Auctions are good but.. • Comparing 28 mobile telephone markets • larger quantities of spectrum • as well as more intense competitiveness (measured by the Herfindahl-Hirschman Index • strongly associated with lower prices • auction rules intended to increase license rent extraction by restricting spectrum access are not welfare enhancing

23. Comparative Revenue

24. 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 operators • If so then does it impede competition • What are the solutions? • Role of Spectrum Trading

25. Development of Secondary markets • Importance of secondary markets in maintaining efficient spectrum and wireless markets • short-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 auctions • countries 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

26. 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

27. 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?

28. Thank you payal.malik@gmail.com