Spectrum Tug Of War: Satellite Broadband’s Future Hinges On Allocation Versus Auction Debate

Satellite broadband is a direct-to-home (DTH) technology that enables households to directly receive internet signals from a satellite, avoiding the need for a piped last mile connection.

This breakthrough technology delivers internet to households in rural and remote areas where fibre optic cable-based terrestrial broadband players have struggled to profitably serve.

Unlike the DTH television, here internet signals are sent in both directions from the internet service providers (ISP) to the satellites in the sky, from where they are beamed to the households. Elon Musk-promoted Starlink and Amazon Kuiper have already entered this space.

Terrestrial players are not far behind. Sunil Mittal-backed Eutelsat OneWeb has already shown interest in entering India. Mukesh Ambani-backed Jio is soon expected to join the fray.

One of the key issues of contention is the allocation of the Ku band (10.7 to 14.5 GHz) spectrum that will be used for exchanging RF (radio frequency) signals between the satellite and the ISP or homes.

The International Telecommunication Union (ITU) is an institution under the United Nations that is responsible for allocating electromagnetic spectrum to services. Globally, ITU has been promoting a policy of allocation of this spectrum, keeping spectrum efficiency in mind.

Both Starlink and Amazon have batted for the Government of India (GOI) to allocate this spectrum. However, Jio and Airtel have demanded an auction to ensure fairness in competition between terrestrial and satellite broadband players.

Recently, Telecom Minister Jyotiraditya Scindia expressed the policy position of the Narendra Modi government that this spectrum will be allocated in line with global practices. It appears Mittal has since come around and accepted spectrum allocation. However, Jio is still unhappy and may exercise their legal right to take the matter to the Supreme Court of India.

While the final word in this matter rests with the Supreme Court, this article analyses the pros and cons of allocation over auction of this spectrum.

Terrestrial Vs Satellite Broadband Spectrum 

Terrestrial broadband services, including mobile broadband, mostly use the S-band (1.97 to 2.69 GHz) spectrum for 4G services. Some of the 5G networks are using C-band (3.4 to 7.02 GHz). Satellite broadband will be using a much higher frequency, that is, the Ku band spectrum.

Higher frequencies are prone to spectral inefficiency, and hence players need to indulge in various clever practices to achieve desired levels of efficiency.

In terrestrial services, the density of the base transceiver stations (BTS), that is, the towers that communicate with the household devices, can be increased relatively easily (without much constraint) to improve capacity and efficiency. However, satellites cannot be increased that easily, thereby constraining the scale of operation. So, the satellite broadband spectrum is much scarcer and more inefficient compared to the spectrum enjoyed by terrestrial service providers.

Globally, ITU bats for satellite broadband spectrum to be “shared” by the service providers as opposed to “exclusively owning” a spectrum range, as followed by the terrestrial players.

To give an analogy, in terrestrial broadband, players today own dedicated lanes in the highway, which can be used at their discretion.

Obviously, all players would want to maximise traffic in their lane, because more traffic means better utilisation and more money. They can improve utilisation by aggressively expanding their subscriber base, internet usage, and tower density. However, ITU wants satellite broadband players to not own the lane exclusively but rent a ride on the tolled highway.

Why Do We Auction Spectrum?

Regulators worldwide suggest the auction of terrestrial broadband or mobile telecom spectrum because it grants exclusive ownership to the spectrum range.

This limited resource (spectrum) was created by the government (or the likes of the Indian Space Research Organisation and the National Aeronautics and Space Administration), and it needs to be efficiently assigned to the users. Hence, regulators recommend auctioning for its allocation.

However, in the case of satellite broadband, the resource is nonexistent to scarce and is virtually unlimited, that is, limited by how many satellites are going to be put up in the sky for this purpose. What is the point in restricting private players who are going to invest their own capital (without asking for government dollops) to put up satellites in the sky and also be more than willing to share that capacity with all the other players?

Actually, more the merrier! You see, this is not even a toll road that the government has constructed, but one being built by private players in a BOT (build, operate, transfer) model for shared public use. 

Regulators recommend auctioning the terrestrial broadband spectrum because there is otherwise a risk of non-serious and inefficient players hoarding this limited resource. Hence, issuing licenses via the auction ensures fair economic allocation.

This problem does not exist in the satellite broadband spectrum because everyone will or is likely to cooperate and share the spectrum with others. This is because there is no other way to attain the desired spectrum efficiency for their own profitability.

Even if some non-serious or inefficient players enter the market, their usage of the spectrum is not going to have a negative impact on the performance of other efficient players serving the market. Just imagine a few occasional autorickshaws plying in the highway. Hence, there is no need for an entry barrier of high license fees.

Auctions create exclusivity and ownership of spectrum. This works best when the service provider can generate enough demand to efficiently fill the highway with vehicles. If a player is unable to efficiently utilise the resource, he will surrender the license and exit the business in the long run. In the interim, the regulator will have to intervene and mandate sharing of the resource with others in order to promote its efficient utilisation. If the resource is being created by the player and there are enough market-linked incentives for the player to share with others to promote its efficient utilisation. Why unnecessarily load the regulator?

How Should Pricing Be Done Then?

Although allocation over auction is sufficient to ensure an open field for satellite broadband services to grow in rural and remote areas and social welfare to improve, it does not automatically ensure fairness to the terrestrial players. This is where pricing of the allocated spectrum holds the key.

Although the GOI has said that the Telecom Regulatory Authority of India (TRAI) will ensure fair pricing for the allocated spectrum, some principles need to be kept in mind. The pricing should ensure level playing field with the terrestrial players. Although satellite broadband services are targeted at rural and remote area subscribers, their cannibalising the urban or metro subscribers cannot be ruled out.

On quality of service (speed of access), satellite broadband is unlikely to match terrestrial broadband for applications such as online gaming. However, there will be very little difference in latency when it comes to regular browsing and data access. Hence, the spectrum pricing policy should ensure that an urban subscriber is indifferent in his price-quality (P-Q) package between terrestrial and satellite broadband services. Then he or she has a choice based on convenience or other personal factors.

Furthermore, the government should also incentivise the satellite broadband companies from investing in additional capacity because they are serving a market that is currently left out! This incentive has to be factored into the pricing algorithm to ensure continuous innovation and capacity augmentation happen. Because TRAI’s objective has to be social welfare maximisation. 

If TRAI fails to consider these factors when pricing the allocated satellite broadband spectrum, then the playing field is likely to get distorted one way or another, leading to unfairness, litigation, and higher social inequity.

So, it is imperative for TRAI to indulge in a broad-based consultation with all stakeholders before arriving at the pricing formula for this allocated spectrum. If they get the pricing formula wrong, there is definitely a risk of the opposition deservingly throwing a lot of muck at the government.