2. Executive Summary
Title of the project:
“Issue in Spectrum allocation in Indian Telecom Industry “
Objective Of the project:
The main objective of this project is to identify the problem concerning to the
Indian telecom industry. This project also carried out Overview of the industry and
the performance of the Indian telecom industry.
Scope of the Study:
The scope of the study is limited to the issue in spectrum allocation in Indian
telecom industry.
Limitations of the project:
The data used is secondary data and limited companies were taken into account for
the purpose of study out of huge telecom sector.
Data collected from websites is historical in nature and market conditions and
regulations are subjected to change in the meantime.
Research Methodology
Research includes systemic method, which includes enunciation of problem,
collection of the facts and conclusion in form of solution towards the problem. The
study is based on the facts collected through internet.
Method of data collection
Sources of secondary data:
Internet and websites
Annual report of the sector
Findings:
Growth of Indian telecom sector largely depends on how we manage our
spectrum.
Need for spectrum allocation
Spectrum Assignment & Pricing
Spectrum Related Issues
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4. Introduction
The growth of Indian telecom industry has been very impressive. Indian
telecommunication network has transformed through significant policy reforms,
particularly begin with announcement of NTP 1994 and carried forward under NTP
1999. The Indian telecom sector has witnessed a complete transformation in last
decade.
Current Scenario
Today The Indian telecommunication network comprise of around 621 million
connections which credit it as the world’s third largest network and second largest
wireless network.
The Subscriber Base has increased exponentially registering a growth of 2.36%
over the previous quarter as against 4.69% during the QE Jun-11.This reflects the
growth of 25.39% over the same quarter of last year. The overall Teledensity of
country’s telecom sector has reached 75.48 as on 30 th September 2011.
Subscription in urban and rural areas also has shown growth from 587.94 million to
601.72 million and 298.05 million to 305.51 million respectively. The share of rural
areas in total subscription has been around 33.49% at the end of jun-2011 and the
share of urban area have been 63.52 %
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5. The total revenue of the telecom service sector went up with a growth of 8.69% .
Public sector contribution to the revenue was 20.37 % and private sector
contributed 79.63%
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7. Key Drivers for growth of Indian telecom industry
Large un-banked population base.
Increase in income levels
Large young population.
Rural areas, still does not have access to quality telecommunications
services and therefore it presents significant opportunities for growth."
Some of the major Issues in Indian telecom sector facing are:
Spectrum allocation
Decline in ARPU
Effect of Budget 2012 on Indian Telecom Sector
The budget is seen to have neutral effect on the industry. With the increase in
service tax from 10 % to 12 % costs of mobile bills for customers will increase and
will consequently have negative impact on profits of telecom companies. As parts of
mobiles phones are exempted from custom duty that gives relief to the industry.
Inclusion of infrastructure and various incentives will strengthen rural penetration.
The industry is disappointed as there is no reference in context to broadband
service.
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8. Objective
The objective of this project is to understand the issue of spectrum allocation
concerning to the Indian telecom industry.
Methodology
Research includes systemic method, which includes enunciation of problem,
collection of the facts and conclusion in form of solution towards the problem. The
study is based on the facts collected through internet.
Method of data collection
Sources of secondary data:
Internet and websites
Annual report of the sector
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9. FINDINGS
With the advent of third generation mobile technology, the challenge before
authority is to deliver the benefits of technology more widely to the people
considering spectrum issues in a holistic manner. Being a scarce resource the issue
of sufficient spectrum availability for mobile services is central to the growth of
telecom services in the country.
Need for Spectrum allocation:
Spectrum not only gets consumed upon its usage but also when it is not efficiently
and optimally used. Hence Spectrum allocation is necessary to ensure interference
free operation for each radio service efficiently. As each frequency band is shared
amongst various radio services, the sharing is possible only with the use of similar
systems. Sharing is also possible by way of geographical separation, time-sharing
and through technical solutions like smart antenna and intelligent radio systems.
The issues related with spectrum are as follows:
Spectrum Related Issues
Identification of spectrum bands for commercial usage:
Government should not consider allocation of 2G spectrum same as 3G
spectrum allocation. 3G systems are the next step in the evolution of
mobile cellular communication. 2G systems focus on voice
communication, while 3G systems support increased data communication.
They allow high-speed data of at least 144 kbps, mobile Internet access,
entertainment, and triple-play converged communications services, and
have markedly greater capacity and spectrum efficiency than 2G systems.
The Authority has identified the 450 MHz, 800 MHz, and 2.1 GHz bands
for immediate allocation for 3G services.
Assessment of demand for spectrum and its availability:
As it is clear that many competing users and uses are competing for this
scarce spectrum. The Authority must ensure that for the growth of
telecom services, which is mainly concentrated in wireless services, a
clear roadmap for spectrum availability is essential. Thus, the authority
must have certain spectrum management in the Indian context.
Ensuring efficient utilization of available spectrum:
As unlike other natural resources spectrum not only consumed when it is
used but also when it is used in effectively.
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10. Spectrum Assignment & Pricing
Spectrum assignment mechanisms: Some operators may have to wait for
additional spectrum till it is identified in the bands because of its scarcity.
The Authority therefore has to determine the allocation criterion and the
order of allocation for 3G service providers based on spectrum availability
and the quantum of spectrum allocation. The key is first come first serve.
Identify the first lot of telecom service operators and then gradually entry
of the remaining as and when additional spectrum is available.
Spectrum pricing: The blind adoption of the global spectrum allocations
trends may not be feasible for Indian conditions. The Authority does not
wish to burden operators with unviable spectrum acquisition fees. The
objective is to ensure that 3G services are affordable and do not hurt the
operators financially. As the quantum of spectrum is limited, and
effective measures need to be taken to discourage spectrum hoarding,
encourage its efficient use, and recover the Present and future costs of
vacation by incumbent spectrum users.
Various pricing methods are as:
1. Auctioning
2. Beauty contest
3. A Fixed Fee
A hybrid of 1 to 3 above.
Auctioning: It is transparent and an efficient means to allocate spectrum when
demand is greater than supply; it allocate the resource to the provider that values
it the most. However, auctions could result in frenzy.
Beauty Contest: Participants are scored based on parameters set by a judge.
Spectrum allocation through a beauty contest can be used when demand exceeds
supply. The process might not be transparent and could be quarrelsome.
A Fixed Fee: The spectrum is allocated to anyone who pays the predetermined
price. The disadvantage is in the Indian situation and existence of such highly
competitive market may not reflect the real market price.
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11. Analysis
Mobile communications in India has grown immensely during the last couple of
years by adding up to 20 million new subscribers per month, but the influx of new
mobile subscribers dropped to 5-7m per month during the latter part of 2011. The
explosive growth has resulted in a mobile customer base of 870 million (Oct 2011),
translating into a mobile penetration of 73%. However, it varies considerable
between urban and rural areas with a mobile penetration of 160% and 36%
respectively. The average revenue per user is around EUR 2-3 per month, and call
charges are around INR 0.9-1.5 per minute (1.2- 2.2 euro cent).
The Indian mobile operators have access to 10- 15 MHz (downlink) of which 5 MHz
is 3G spectrum, but it differs between service areas and operators. Although 3G
licenses were auctioned in 2010 and networks have been deployed the growth of
3G has so far been limited. India had about 12 million 3G subscribers’ by the end of
2011, representing 1.5% of the total mobile subscribers. The slow start for 3G is,
according to the Industry, explained by the lack of affordable handsets and
smartphones.
The Indian authorities allocated three 3G licenses with 5 MHz per license in most
service areas. But given that there are at least six 2G operators in most service
areas the major operators have entered into roaming agreement, so called intra
circle roaming (ICR) agreements with the holder of 3G licenses, in order to be able
to provide 3G services nationwide. But the Department of Telecommunications
(DoT) has questioned the roaming agreements which initiated legal processes by
the end of 2011. On back of a limited availability of fixed broadband, with a
penetration of 1.1%, 2G data with GPRS and EDGE have been the primarily carriers
for mobile data. But given that non-voice revenues generates 15% of total mobile
revenues, of which SMS makes up around 50%, the revenue stream from the
estimated 347 m mobile internet users have so far been limited.
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12. Source : Operators data and TRAI analysis
Spectrum Holding
The limited availability of spectrum for the Indian operators is explained by that
there are a large number of operators that share a limited amount of spectrum for
commercial use. We focus on ten service areas which altogether cover 42% of the
Indian population and which have between 6 and 10 operators with 2G licenses and
3 operators with 3G licenses. The spectrum holding for the four major operators in
the ten service areas varies from 4.4 MHz to 15 MHz, with an average of 10 MHz. A
detailed table of spectrum holdings for ten service areas shows that the total
amount of spectrum in these areas varies between 50-70 MHz. On back of the
limited availability of spectrum and that there were only three 3G licenses available
in most circles it was a fierce competition on spectrum which resulted in auction
prices that were significantly higher than the reserved price that the authorities had
set. The mobile operators paid the equivalent of EUR 0.27 up to 4.36 per MHz/pop.
License period is 20 years.
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14. Deployment options
Source: Operators data and TRAI analysis
The engineering value of spectrum is calculated as the cost savings provided that
the spectrum band was acquired. Hence, a comparison is made requiring network
deployment options that could be used assuming that the spectrum band of interest
was not acquired.
When it comes to the 2.6 GHz band to be used for LTE mobile broadband services
one option is to use the 2.1 GHz band and 3G technology in order to provide
additional capacity. This means a denser 3G network and that at least two times
more sites needs to be deployed in order to double the capacity. Taking into
account the higher spectral efficiency of LTE compared to HSPA an even denser
network needs to be deployed. In our calculation we assume four times denser
network in the capacity limited areas. For Hi3G with 10 MHz of 2.6 GHz spectrum
twice the number of sites is needed in order to offer the same capacity as the
operators with 20 MHz of spectrum.
When the 900 MHz band is used for mobile broad band existing 2G and 3G sites
could be re-used. The existing site grid would be sufficient to provide coverage.
However, no operator would be able to allocate 10 MHz needed in order to provide
the same capacity and data rates as in the case with the 10 MHz in the 800 MHz
band. Hi3G just have 5 MHz and the other operators use the 900 MHz band for GSM
voice services. For comparison we can assume that 5 MHz will be used implying
twice the site density in order to provide the same capacity.
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15. Source: Operators data and TRAI analysis
Indian market – value of spectrum
On back of the prices paid at the 3G-auction in 2010 and the intense debate about
2G spectrum and the value of spectrum in India it is interesting to calculate the
marginal value of spectrum for the Indian market. The analysis is explorative as it
is based on a number of assumptions, like the number of cell sites in each service
area and the share of geographical area that the networks in the different service
areas covers. We therefore incorporate a sensitivity analysis of the key parameters
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16. Indian market
Given the high mobile penetration in urban areas in India the major growth
opportunities are in rural areas. This requires extension of networks in order to
extend coverage and capacity calling for more capex. The slow start for 3G
indicates that India is lagging behind within mobile data. But with a limited
availability of fixed broadband mobile is set to be the primary vehicle for digital
access and applications.
This analysis shows that 5 MHz can support a first stage for mobile broadband and
mobile internet. But in order to provide sufficient with capacity for supporting
smartphones as well as dongles driving considerable higher data volumes the
availability of more spectrum are required. The high gearing level for the Indian
operators in combination with extensive capex requirements and high prices for
spectrum will be challenging for the companies. Ultimately, the willingness for the
Indian consumers to pay for mobile data will be pivotal for how this will play out.
Although capex in relation to sales have come down for the Indian operators they
are facing lower growth as the mobile voice market is maturing, and they are
experiencing high cost for capital as their financial flexibility are impacted by the
financial turmoil.
The improvement in the effectiveness of total spectrum utilization has been over a
trillion times in the last 90 years, and a million times in the last 45 years. Of the
million times improvement in the last 45 years, roughly 25 times were the result of
being able to use more spectrum, 5 times can be attributed to the ability to divide
the radio spectrum into narrower slices — frequency division. Modulation
techniques like FM, SSB, time division multiplexing, and various approaches to
spread spectrum can take credit for another 5 times or so. The remaining sixteen
hundred times improvement was the result of confining the area used for individual
conversations to smaller areas, what we call spectrum re-use.
Hence it is the use of small cell that accounts for the largest improvement of
capacity. The increase of spectrum accounts for just 25 times of the 1 million
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17. improvements but it is the bandwidth that is the raw material and makes it possible
to exploit the benefits of the other types of development. The operators can use the
same type of modulation, radio technology and deployment strategy but it is the
amount of bandwidth that makes a clear difference. We can also identify differences
between operators and their different options when it comes to the network
deployment approaches. Network and spectrum sharing (like 3GIS and
Net4Mobility) enables both higher cost efficiency (site re-use) and the possibility to
offer higher data rates. Operators with a large fixed network can to a larger degree
exploit offloading from macrocell networks to private WLAN or femtocell networks
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18. Recommendations
As the subscriber base is increasing exponentially demand for additional spectrum
is also increasing by mobile operators. To serve the need department of
telecommunication has to evolve its guidelines for the allotment of extra spectrum.
And this allotment has to be done on certain justifications and criteria such as
demographic characteristics, average traffic per subscriber, and number of base
stations at a particular location.
Being a scarce resource, its equal allotment for systems using different technologies
can be the solution. Government should try to create a policy for a flexible and
technological neutral regime to allow new technologies have equal access to the
spectrum. It should also enable market mechanism to promote efficient use of
spectrum. The government must permit public and private users to trade spectrum
to allow new users to access spectrum and to provide them option to move to
another frequency bands if possible. And government must make the allotment
procedure more transparent and opened so that this scarce resource can be put to
the optimal use.
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