India: Spectrum Sharing – Game Changing Reform

Last Updated: 7 October 2015
Article by Rahul Dutt and Harsh Walia

Background

The Department of Telecommunications (DoT) issued guidelines for sharing of access spectrum on 24 September 2015 (Guidelines).

It may be useful to step back and understand the developments that had taken place earlier in this area. The issue of spectrum sharing was considered by the Telecom Regulatory Authority of India (TRAI) in its consultation paper in 2009 and recommendations were issued in 2010. TRAI re-examined its recommendations in view of DoT's reference back and modified its recommendations on spectrum sharing in November 2011. Based on the revised recommendations of TRAI, DoT through a Press Statement in 2012 issued broad guidelines for sharing of 2G spectrum.

In 2014, TRAI recommended working guidelines on spectrum sharing in which it recommended that all access spectrum be sharable, provided that both the telecom service providers (TSPs) concerned have spectrum in the same band. DoT referred back many of these recommendations for reconsideration following which TRAI finalized its responses in May 2015. The Union Cabinet approved DoT's proposal on guidelines for spectrum sharing arising from the recommendations of TRAI on 12 August 2015, pursuant to which the Guidelines have been issued by DoT.

Highlights of Spectrum Sharing

Meaning:

Spectrum sharing is generally understood as an arrangement between two access licensees / TSPs in a Licensed Service Area (LSA) where both TSPs have access spectrum in the same band, under which they pool their respective spectrums in that LSA. The basic objective of spectrum sharing is to provide an opportunity to TSPs to pool their spectrum holdings to enhance spectral efficiency.

The Guidelines permit all access spectrum, including traded spectrum, to be shared, provided that both the TSPs have spectrum in the same band. This means that a TSP can sell the right to use the spectrum to a buyer (trading of spectrum) and later, the buyer could share the same spectrum with the seller provided seller still has spectrum in that band.

Duration:

TRAI had earlier, in one of its recommendations suggested that spectrum sharing should be permitted initially for a period of 5 years only. However, the Guidelines permit spectrum sharing for the remaining period of the TSP's telecommunication license or till the expiry of the period of right to use the spectrum, whichever is earlier. This is likely to provide flexibility to TSPs to enter into long term spectrum sharing agreements.

Spectrum sharing for various types of spectrum allocated:

Spectrum sharing is permitted where both the TSPs possess spectrum for which market price has been paid. However, in case of spectrum in the 800 MHz band acquired in the auction held in March 2013, sharing of spectrum shall be permitted only if differential of latest auction price and the March 2013 auction price (on pro-rata basis for the balance period of right of use) is paid.

Spectrum can also be shared by two TSPs where both of them have administratively allotted spectrum, provided that, they have paid the one time spectrum charge for respective spectrum holdings above 4.4 MHz (GSM)/ 2.5 MHz (CDMA) based on the reserve price / auction determined price.

If one TSP has acquired spectrum through the auction or has liberalized spectrum and the other TSP has spectrum allotted administratively, sharing will be permitted only after spectrum charges for liberalizing the administratively allocated spectrum have been paid. In case the spectrum in the 800 MHz band is acquired in the auction held in March 2013, sharing of spectrum shall be permitted only if differential of the latest auction price and the March 2013 auction price (on pro-rata basis for the balance period of right to use) is also paid.

Financial Implications:

Spectrum Usage Charges (SUC) rates of each TSP post-sharing will increase by 0.5 percent of the aggregate gross revenue of the TSP. For the purpose of charging SUC it shall be considered that TSPs are sharing their entire spectrum holding in a particular band in the entire LSA; and even if the spectrum is shared for a part of a month, full month charges will be applicable.

A non-refundable processing fee of INR 50,000 is payable by each TSP for each LSA to the Government.

Cap on Spectrum Holding:

There is a cap on the total spectrum holding permitted for an individual TSP. At present, the M&A guidelines stipulate that the total spectrum held by a TSP in an LSA shall not exceed 25% of the total spectrum assigned for access services and shall not be more than 50% of the spectrum in a band.

The prescribed spectrum cap will continue to be applicable to both TSPs individually. Spectrum holding of each TSP post sharing shall be counted after adding 50% of the spectrum held by the other TSP in the band being shared.

Compliance for Spectrum Sharing:

The right to share spectrum shall be subject to fulfilment of relevant license terms and conditions and the use of technology will depend on the terms and conditions of the license and Notice Inviting Application (NIA). The NIA contains terms and conditions to be agreed upon at the time of participating in a spectrum auction by a TSP. This means that there will be restrictions on the use of shared spectrum with respect to the technology to be deployed.

Comment

Permission to share spectrum is definitely a welcome step as it provides an opportunity to TSPs whose networks are congested to utilize the spectrum of another TSP without waiting for an auction. This might also help in improving customer experience given that TSPs have often blamed the lack of spectrum as one of the reasons for call drops. Sharing spectrum may help larger players preparing to offer 4G services as the provision of such 4G services would require a minimum 5MHz block of contiguous spectrum.

Unlike in spectrum trading, where there would be an outright transfer of spectrum usage rights, a spectrum sharing arrangement will involve continued cooperation between the sharing TSPs. Any disputes between TSPs may bring with them risks and challenges, and concomitant instability to the services of the TSPs.

According to media reports, the industry is keener on spectrum trading compared to spectrum sharing because the former provides an outright transfer of ownership in spectrum usage rights and there is no collective use of the spectrum. Further, since the spectrum cap in case of sharing is considered by adding 50% of the spectrum held by other TSP, sometimes it may become difficult for big TSPs in some circles to enter into a spectrum sharing agreement without breaching the permitted caps.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at legalalerts@khaitanco.com

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