The Curious Case of Spectrum Auctions in India

By |2019-10-06T10:25:23+00:00October 6th, 2019|World|

This article has been republished, with permission, from EcoTalker, HERE.

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WHAT IS 5G

Today’s mobile users want faster data speeds and more reliable service. The next generation of wireless networks—5G—promises to deliver that, and much more. With 5G, users should be able to download a high-definition film in under a second (a task that could take 10 minutes on 4G LTE). Moreover, these networks will boost the development of other new technologies, too, such as autonomous vehicles, virtual reality, and the Internet of Things.

But what exactly is 5G?

Brace yourself for some technical jargon –
5G is the coming fifth-generation wireless broadband technology based on the IEEE 802.11ac standard. 5G will provide better speeds and coverage than the current 4G. 5G operates with a 5 GHz signal and is set to offer speeds of up to 1 Gb/s for tens of connections or tens of Mb/s for tens of thousands of connections. 

So does this mean that 5G is basically a faster 4G?

Well not really, We classify the impact of new technologies, leveraging the Henderson-Clark model as follows:

  • Minor changes at both the node and architectural levels These are called evolutions in the design.
  • Disruptive changes in the design of a class of network nodes. These are called component changes.
  • Disruptive changes in system architecture. These are called architectural changes.
  • Disruptive changes that have an impact at both the node and architecture levels. These are called radical changes.

5G defers significantly from 4G because-

  • Operating in a different wavelength, popularly called the mmWave realm.
  •  2G-3G-4G cellular networks were built under the design premise of having complete control at the infrastructure side.
  •  5G will be designed to support a variety of applications such as the IoT, connected wearables, augmented reality and immersive gaming. 5G network will offer the ability to handle a plethora of connected devices and a myriad of traffic types, unlike 4G.
  • Native support for machine-to-machine (M2M) communication will allow us to leverage Internet-of-Things (IoT) like never before.

AUCTIONS

You will be surprised at the bounty that is often for sale at auctions- it is not limited to works of art or itty-bitty mementos of the rich and famous; majestic empires of the past have also found themselves in the hands of the highest bidders (literally) : in 193 AD, the Praetorian Guard (the Romans’ version of a secret police) put the entire Roman Empire up for sale after killing the emperor, Pertinax. It sold for a grand total of 6,250 drachmas (an ancient currency used in Greece, with, needless to say, a long and complicated history until it was finally replaced by the Euro in 2001) to Didius Julianus. In this case, however, to be the highest bidder was no guarantee of possession; soon after the auction, a civil war emerged, and Didius was beheaded.

Disclaimer: No matter what you read moving forward into this article, don’t close our tab believing that all auctions have unhappy endings. Just look up the cutest auction chant done by an “almost” three-year-old, and that should help brighten your view of auctions.

Now let’s move onto some important questions-  why do people conduct auctions instead of simply putting items up for sale for a fixed price, and will you ever have to buy your daily use moisturizer in one? The answer to the first is rather straightforward- auctions are conducted as a method of price discovery. They are conducted when one doesn’t have a clear idea of how much potential buyers will be willing to pay for an item. Since companies can probably make enough quantity of your daily moisturizer to meet most of the demand in the market, and they can do this at roughly the same price as before, it’s unlikely that you will have to walk into your local supermarket and compete with fellow residents for a moisturizer, according to Preston McAfee, the chief economist at Microsoft.

Most of our book/newspaper reading or movie watching audience will be familiar with what is the most popular auction format in the world, the English Auction, where the price increases until only one individual are willing to purchase the commodity. Dutch auctions, on the other hand, start with high prices that come down till one buyer is willing to pay the price. Another format is a sealed bid auction when all potential buyers enclose their bids in envelopes and the highest bidder wins. They are most commonly used by governments, and make cheating or collusion harder because of the presence of documentation. Another format of auctioneering, Vickrey auctions, is similar to sealed-bid auctions (the highest bidder wins) but the bidder is not required to pay the amount of their bid. Instead, they are required to pay the amount mentioned in the second-highest bid. This increases the bids by potential buyers because they know that they are bidding an amount that will not have to pay.

SPECTRUM AUCTIONS IN INDIA

This information should help shed some insight into why the Supreme Court, in a 2012 order, directed the government to auction spectrum for the future, and not administratively assign it. During the assignment of spectrum for 2G services in 2008, the Indian government’s model for spectrum assignment was similar to a command and control model (a.k.a a beauty contest in auction terms because applicants are judged on predetermined criteria), and led to the ‘2G Scam’. The criteria for applicants was changed several times, and a skewed First Come First Served (FCFS) policy was followed at 2001 prices as opposed to 2008 prices.

This pivot towards auctions is guided in rationality; auctions are more transparent than administrative assignments and ensure that those who can most efficiently use the commodity are given access to it. They are, however, not independent of factors such as market power, collusion by buyers and asymmetric information between the potential buyers and the sellers. The format that Indian spectrum auctions follow is known as Simultaneous Multiple Round Ascending (SMRA) auctions, where multiple items are for sale simultaneously with multiple bidders, and potential buyers bid on a given number of items individually within each round. The auction ends when there is a round without a new bid, and the items go to the highest bidder. India has witnessed fluctuating outcomes in terms of spectrum auctions over the past few years.

These fluctuating outcomes can be attributed to different factors. The high cost of acquisition has increased the financial stress on operators and this has the potential to dampen their risk appetite in terms of investing in the new spectrum. Spectrum auctions have also potentially led to consolidation in the sector, with the number of operators going down to 5 from 12.  The reserve prices set by the TRAI (Telecom Regulatory Authority of India) tend to be very high and there are discrepancies in the methods that are used to calculate these prices. TRAI places immense focus on the bid prices of previous auctions, and these do not take into consideration dynamic conditions in the market or in operators. A recent paper by the Indian Council for Research on International Economic Relations (ICRIER) details these problems and endorses a different approach towards spectrum auctions in India, moving forward. It stipulates the need for Indian auctions to find a balance between transparency and revenue collection, and also take a closer look at other formats of spectrum auctions, such as Combinatorial Clock Auctions (CCA). These, however, it cautions, comes with their own set of strengths and weaknesses.

IMPACT ON THE ECONOMY

According to the MIT Technology Review, the shift to 5G from its predecessors is “akin to the shift from typewriter to computer”. To someone who does not completely understand technology, this might come as a surprise, but a review of reports surrounding 5G appears to confirm this outlook.

According to IHS Markit, 5G has the capability to throw open the doors to $12.3 trillion worth of revenue for different industries, and it will push forward both growth and innovation. While 5G, like almost every new version of wireless technology, will be faster and with less latency than the previous versions, it will also have the capacity to support services that are not currently offered, encouraging the growth and development of new industries.

While the impact of 4G was user-centric, in terms of faster speeds, increased accessibility, lower latency, etc. the impact of 5G is going to be on the industry. The use cases for 5G allow for huge surges in technology adoption from prototype stages to actually being deployed because of the lower latency, device-to-device (D2D) communication, etc.

The use cases of 5G can be bucketed into 3 major categories –

1.Enhanced Mobile Broadband (EMBB): Extending cellular coverage, and improved capacity to handle a significantly larger number of devices using higher volumes of data

2.Massive Internet of Things (MIoT): The improved low power requirements and native D2D support will drive down costs within MIoT settings, allowing the scaling up of MIoT

3.Mission Critical Services (MCS): This is a new market opportunity for mobile technology. This can be tapped into because of the high reliability and ultra-low latency

However, the benefits of 5G adoption are not limited to the industry. Higher internet speeds and reliability can mean that the shift to cloud computing for individuals is now more feasible. This means that instead of having your phone or computers do heavy processing tasks, you could upload them to a powerful server, and download the finished results. This can lead to faster work and devices with longer battery life since the burden of computation is transferred to an online server.

These benefits, however, are contingent on the ability to have a successful roll-out of the technology. Initial estimates, however, suggest that this will require massive infrastructural investment, because 5G towers will only be able to deliver service for 1,000 feet, as opposed to the 10 miles that 4G service towers currently offer.

All these factors make clear the need for smoother spectrum auctions in the country. If India is to reap the benefits of 5G, the terms (especially the reserve prices) set by TRAI have to be in line with international standards and take into account the current economic climate in the country, which, we regret to say, is not looking very bright.

 

Photo by socialmediasl444 on Flickr.

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