October 2012

India’s government has confirmed plans to make mobile operators including Bharti Airtel and Vodafone pay a one-time “spectrum charge” that could amount to as much as $4.24 billion, dealing a further blow to the debt-strapped industry.

A ministerial group meeting in New Delhi confirmed moves to charge for so-called “excess spectrum” owned by operators in certain areas. Government estimates have previously suggested this charge could raise as much as Rs226bn ($4.24 billion). The move is the latest blow to an industry which was once viewed as an emblem of the economic dynamism of Asia’s third-largest economy, but has since become increasingly known for incompetent regulation, fierce price competition, stagnant revenues and ballooning debts. It also follows a second move, in which regulators recommended that some operators should be forced to rebid for their highest-quality spectrum, in a process known as spectrum “refarming”.

The House Commerce Committee issued its third quarter report on the committee's progress, and incentive auctions were high on the list of Communications Subcommittee achievements, as well as some Federal Communications Commission reforms that failed to pass the Senate and a focus on cybersecurity, though legislation on that issue has also failed to crack the partisan divide. The spectrum auctions were part of a must-pass tax bill, but the specific legislation to compensate broadcasters for giving up spectrum was the handiwork of Communications Subcommittee leadership as well as the Senate Commerce Committee.

A key Federal Communications Commission official in charge of helping to implement incentive auction legislation downplayed initial estimates about how much spectrum could come out of the process. During a speech at the Media Institute, Gary Epstein, a senior adviser and co-leader of the FCC's incentive auction task force, discussed the FCC's proposal to implement the incentive auction authority provided by Congress as part of payroll tax legislation passed in February.

The incentive auctions are aimed at enticing broadcasters to give up some of their spectrum or agree to share spectrum with another TV station. That spectrum would then be auctioned to wireless providers, who say they need more spectrum to meet the nation's growing demand for wireless technologies. When asked whether FCC officials were backing away from the agency’s 120 megahertz goal, Epstein said that he was "not in the business of estimating" how much spectrum the process would yield. "It's a market-based decision," he said. "Our real job is to make the reverse auction understandable and make it easier for folks to participate."

[Commentary] In the past month, to the complete surprise of just about every analyst and industry watcher, foreign investors spent the equivalent of $25 billion to invest in competing carriers T-Mobile and to acquire control of Sprint and ClearWire. AT&T has announced a whole bunch of network upgrades such as repurposing its 2G spectrum, clearing up the interference in the WCS band, and a seemingly endless stream of license acquisitions. While the last is perhaps not so unusual, U.S. Cellular has likewise been spending money to cobble together a broader footprint using the less—than—stellar—but—better—than–nothing 700 MHz A block. Quite a turnaround from the start of 2011, when the industry appeared on a glide-path for a duopoly. So what happened?

The Department of Justice (DOJ) and the Federal Communications Commission (FCC) have made clear over the last two years that (a) we will have 4 national carriers, and (b) the FCC cares about ensuring enough spectrum access to keep Sprint and T-Mobile (and hopefully other competitors) viable. Contrary to all conventional wisdom, two years of FCC regulation like data roaming and special access reform, combined with antitrust enforcement around AT&T/T-Mo and Verizon/SpectrumCo, stimulates investment in the wireless industry and forces companies like AT&T and Verizon to get serious about developing the spectrum they need and ditching the spectrum they don’t need on the secondary market.