Spectrum Trading Might Mean Less Demand for Additional Spectrum

Mobile service providers typically have several ways to solve any particular business problem. Consider spectrum or capacity resources. They can reduce cell diameters, which effectively increases frequency reuse opportunities.

They can use more-effective radios, offload traffic or acquire new spectrum. They also can shape retail prices to encourage more-efficient usage on the part of consumers, or shift to newer and more bandwidth-efficient networks.

The newest tool is spectrum sharing, in a number of potential forms. At the simplest level, mobile operators can agree, where lawful, to share use of spectrum resources. As always, use of any one of the tools reduces the need to use additional tools, to some extent.

If mobile service providers trade spectrum, they may not have to acquire so much new spectrum, which in turn should lower demand for new spectrum in upcoming spectrum auctions in India, according to credit rating agency Fitch Ratings .

That is, of course, if the firms do not run afoul of government rules about the maximum amount of spectrum any single provider can lease.

Fitch Ratings believes the top three telecom operators--Bharti Airtel, Vodafone and Idea Cellular--will acquire additional spectrum from smaller telcos.

Reliance Communications and Reliance Jio, the latest entrant in the mobile market, appear to have agreed to widely share 800-MHz spectrum in most of India’s markets.

Spectrum trading might also be the triggering event for market exits by smaller firms, as trading rules seem to allow smaller firms to transfer spectrum licenses to other mobile operators.

That might include Tata Telecom, Videocon Telecom and Aircel Limited.

Bharat Sanchar Nigam Limited and Mahanagar Telephone Nigam Limited might be able to raise revenues, as they own rights to 900-MHz spectrum.

On the other hand, rationalizing the spectrum market will be limited in some significant ways.

The rules prevent any mobile operator from use of  more than 25 percent of available spectrum in any one circle (market).

Also, the business model must incorporate new additional taxes on the revenue derived from traded spectrum,  over and above the existing spectrum charges.

Spectrum sellers also will have to pay an additional one percent  fee on the traded spectrum's market value.

The other issue is the necessity of paying “market value” for any traded spectrum acquired at below-market cost prior to 2010.