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  • Bhaskar Vishwajeet

Administrative Assignment of Satellite Spectrum: A Note on Competition

Bhaskar Vishwajeet*


 

I. INTRODUCTION


The Parliament recently passed the Telecommunications Bill, 2023 (“Bill”). Among other improvements from its predecessor, the Bill has included a provision for an administrative process for the allocation of satellite-based spectrum. This is in contrast to the otherwise standard auction-based process for other kinds of spectrum.

 

This piece aims to use one of the Competition Commission of India’s (“CCI”) advocacy ex-ante measures to analyze the proposal for administrative allocation of satellite spectrum. To do so, first, an overview of the Indian satellite communications (“SATCOM”) market is provided, emphasizing the need and the specific focus on SATCOM spectrum. Secondly, the author delves into the specifics of the administrative assignment outlined in Section 4(4) of the Bill, underlining its departure from traditional auction mechanisms and the potential implications for the SATCOM industry. Thirdly, it uses the CCI’s ex ante measure to assess the proposed administrative assignment's impact on competition, focusing on preventing abuse of dominance in a market displaying signs of a potential duopoly and promoting innovation in the industry.


The paper concludes by summarizing key findings and advocating for further clarity on various aspects while stressing the incorporation of global-best standards for effective spectrum assignments in the SATCOM industry. The author contends that with well-thought execution, the proposed method will be relatively better for competition and healthy investment in the SATCOM sector.

 

II. MARKET ANALYSIS AND THE ENTRY OF SATCOM

 

The telecommunications market in India is nearing consolidation, with signs of an upcoming duopoly that is fueled by price-wars and bundling of services. Players that are dominant in this arena are now preparing to make a mark in the satellite market.


According to a market intelligence report, the Indian SATCOM industry is worth $2.3 billion with an estimated 17% annual growth rate. These numbers are healthy but not enough to beat the dominance of cellular services, which are the country’s backbone for telecommunication, to the extent that there is no alternative. Growth in other sectors and a pressing need to penetrate into the hinterland and improve existing telecommunications infrastructure has encouraged the government to pursue SATCOM systems.

 

The SATCOM market is moderately consolidated with mainly five major players. Organic growth activities like collaborations and new services/product launches have further led to two players dominating the domestic setup, i.e., Bharti Airtel and Jio. Earlier this year, Jio received a license to operate satellite-based internet services in partnership with a Luxembourg-based company, making it one of a few domestic parties with the permission to now develop satellite-based services and prepare for spectrum allocation to deploy said services. Additionally, some of these players have been able to avoid coming under the radar of regulators, thereby solidifying their presence.


Despite Reliance's entry into the telecom sector through Jio and its strategy of offering discounted prices, it avoided regulatory scrutiny as Jio did not meet TRAI's Significant Market Power ("SMP") criteria, and, therefore, was not considered 'predatory' by definition.

 

III. DISCUSSING ADMINISTRATIVE ASSIGNMENT

 

Section 4(4) of the Bill states that spectrum will be allocated using an administrative process for entries that are listed in Schedule I of the Bill. Schedule I contains entries like satellite-based spectrum and spectrum for government-owned telecom operators like BSNL. The explanation to the section defines the administrative process as one that does not involve auctions, i.e., a process that is free from bidding.

 

It is usual to deviate from licensed auctions because the Supreme Court, in Natural Resources Allocation, stipulated that auctioning is not the only constitutional requirement to allocate a natural resource like airwaves (spectrum). As such, the administrative assignment of spectrum is not an alien process. The Telecom Regulatory Authority of India has also observed the utility of the method in multiple consultation papers, wherein they stress the idea that the SATCOM industry is fledgling and needs regulatory stimulus to develop further. They propose that an administrative assignment with technical specifications would be an ideal framework to not only encourage market entry but the overall development of the sector per global industrial standards.

 

The Process


An administrative method of assignment is a spectrum management process where the spectrum managing authority, i.e., the government (through its functionaries) decides the manner and method of selecting operators to distribute spectrum. The process is essentially based on providing authorization to use a particular type of telecom/satellite spectrum.

 

Administrative assignment and auctions are two different methods used in the allocation of rights to resources, such as spectrum licenses for telecommunications/satellite services. Administrative assignment involves the state granting a license to any eligible entity upon charging a nominal administrative fee, which is usually sufficient to recoup the actual costs of administering the process.


This method is conceptually different from auctions, where potential licensees bid for the rights to use specific resources in a competitive market, and the highest bidder wins the rights to the resources. The choice between the two methods depends on the specific needs and goals of the regulator and the market.

 

Rules Governing the Process

 

The Radio Regulations, an international treaty signed by India and other member states of the International Telecommunication Union (ITU), governs the use of, among others, satellite-orbits and spectrum at the global level. The Regulations split the world into three regions for frequency allocations, of which India lies in ‘Region 3’.

 

Administrative assignments can range from assignment of spectrum bands for public use to generic licensing wherein a user can access the spectrum if they abide by the prescribed technical specifications. The process and mode of assignment (licensing etc.) is mostly underlined in domestic administrative rules released by spectrum managing authorities and accompanied with application forms, like the administrative rules for the 3700-3800 MHz band released by Germany’s Federal Network Agency. Like most authorities, the Federal Network Agency’s administrative rules, require applicants to abide by spectrum usage conditions that require specific physical infrastructure and technical adjustments to be successfully assigned spectrum.

 

Accordingly, the Radio Regulations is the foundational text used for drawing up India’s National Frequency Allocation Plans (“NFAP”), which include the central policy for future spectrum usage in the country. The passage of the Bill signals a need for upgrading the NFAP as the current version is from 2022. It is yet to be seen what mode and methodology for satellite spectrum assignments is incorporated in the upcoming NFAP.

 

IV. A COMPETITION ASSESSMENT OF PROPOSED LEGISLATION


The administrative provision must be viewed through the lens of the Competition Commission of India (Competition Assessment of Economic Legislations and Policies) Guidelines, 2017 (“2017 Guidelines”). As advocacy ex-ante, the guidelines assess legislations from a competition perspective to see if proposed acts/omissions may lead to, among other effects, an appreciable adverse effect in the relevant market or restrict the freedom of market participants. Previously, the 2017 Guidelines have helped conduct a competition review for Niti Aayog.

 

Administrative Assignment tames Abuse of Dominance

Being dominant is not a concern for competition regulators. It is the abuse of dominance where the scrutiny begins. Section 4 of the Competition Act, 2002 (“Act”) discusses the abuse of a dominant position. The qualitative factors constituting abuse are mentioned in Section 4(2), of which two factors, i.e., denial of market access and leveraging are relevant to this analysis. Additionally, the 2017 Guidelines specify criteria that assess whether a legislative provision encroaches upon the features of a competitive market or restricts consumer choices.

 

Denial of Market Access

The nature of the telecom market in India requires scrutiny of the most prominent players based on these two factors and the 2017 Guidelines. The market has signs of a duopoly as, of the six active operators listed by TRAI, only two are truly dominant. Their ability to influence markets and engage in price wars is well documented in a market study of the telecom sector by the CCI. The CCI observed that operators may gain a competitive advantage due to spectrum ownership.


This may enable them to increase their operational efficiency, furthering dominance in the market. In the recently concluded first tranche of auctions for the 5G spectrum, Jio turned out to be the sole buyer of the coveted 700 MHz spectrum, a move that is touted to give them a head start to deploy 5G services across states. The incentives to maintain such advantages are plenty, which is why market leaders engage in revamping their service offerings and launching new products.


Auctions are generally considered efficient in the price discovery process because competitive bidding for a license is based on a reserve price set by the auctioning authority. Reserve prices are determined by a minimum price expectation by the government. Factors such as past prices, the novelty of the technology, its use cases, utility to the bidder’s infrastructure etc. are key factors in the determination.


The first reason why the traditional auction process will not help maintain competition for SATCOM is because auctions cannot help in price discovery for a nascent market. Price discovery is essential in the auction process because it determines the equilibrium price at which buyers and sellers can agree, facilitating the most efficient allocation of resources. This helps unlocking the fundamental value of what is being transacted. 


The SATCOM market is not fully developed in India, and, as such, the demand for infrastructure cannot be pre-determined. Conducting an auction would only enable existing participants in the telecom space to formulate artificial barriers to entry to ensure their positions are not harmed when they eventually launch SATCOM services. This may lead to denial of market access.


Telecom operators have previously been investigated by the CCI for creating barriers to entry in the form of ultra-low pricing and free access to apps through their digital stores. Thus, administrators must be wary of choosing the auction route for identifying the fundamental value and demand for SATCOM.

 

Administrative assignment will help address the problem with spectrum assignment in an underdeveloped market like SATCOM. We have previously seen, in Jio’s acquisition of the 700 MHz telecom spectrum, that spectrum auctions result in the exclusion of other players when a successful bidder is identified. Auctioning of spectrum is therefore rivalrous and exclusionary. SATCOM spectrum, however, is technically non-rivalrous. This means the technology can be shared through the allocation of licenses to everyone.


The SatCom Industry Association of India, in a response to a previous version of the Bill, mentioned that auctions would inevitably lead to a fragmentation of the satellite spectrum, creating exclusive domains of operation, thereby leading to a loss of satellite capacity. This view was reiterated by Airtel in a response to the consultation paper on the proposal for administrative assignment. They mentioned that auctioning would fragment satellite spectrum to the extent that exclusive ownership of spectrum would not only hamper optimum satellite efficiency but also create black spots in coverage.


The government is yet to come out with a framework for the mode of assignment, however, it can be said that administrative assignment (as opposed to auctions) will provide a better channel to prevent exclusive procurement of satellite technology in the first place, thereby ensuring a higher likelihood that no one gets enough to abuse their position.

 

Leveraging

In a market study of the telecom sector, the CCI noted that dominant operators were engaging in the bundling of services, i.e., selling multiple services as one package. This is demonstrated by what the CCI terms as ‘quad play’, where dominant operators are offering fixed line, mobile, internet and television services under one package. The same study also notes that bundling must be scrutinized strictly as some instances have led to consumers getting locked-in in seemingly open systems. Locked-in consumers prefer to pay because switching seems onerous, thereby fueling dominance. This is where the leverage theory comes in.

 

Leverage theory or leveraging, describes a scenario where a dominant enterprise mobilizes its dominance in one market to protect/or gain an advantage in another market. Section 4(2)(e) of the Act prevents such actions. We have already established that dominant telecom operators are planning to enter the SATCOM market. In the likely event that a dominant operator gets exclusive SATCOM spectrum through an auction, the chances of them bundling SATCOM-based services with the extant telecom bundles is highly probable.


Google’s leveraging of its dominance in the mobile operating system market to protect its position in the Android in-app payments processing market was previously condemned by the CCI. The non-rivalrous distribution of spectrum licenses through administrative assignment, for instance, could help prevent such an event.

 

Lastly, the nature of the telecommunications industry signals that despite Airtel and Jio dominating consumer choice, competitive restraints like mobile-number portability and multi-SIMing exist. This was noted  in an order by the CCI to Airtel for its acquisition of Tata Teleservices. They mentioned that the acquisition would not have an appreciable adverse effect on competition in the market as, on closing the acquisition, consumers would still have at least four other existing operators to choose from. There is currently no evidence to indicate that the SATCOM market has similar market restraints and one can only bank on a technically guided assignment process to ensure an equitable procurement process that does not hinder technological innovation.

 

V. ASSIGNMENT AS A TOOL FOR ECONOMIC DEVELOPMENT AND INNOVATION

 

Global SATCOM players, including Amazon, Starlink, and Airtel, voiced concerns that the auction process might limit market access, especially in underserved areas, hindering consumers' access to innovative SATCOM services and creating exclusivity that could stunt the economic potential of the SATCOM ecosystem in the country.


 An important criterion in the 2017 Guidelines concerns Section 19(3) of the Act, that requires the CCI to, inter alia, consider the technical and economic aspects of an agreement that is alleged to have an appreciable adverse effect on competition. For example, agreements that may be found collusive are subject to lenient penalties if the economic aspects require so. This logic was applied by the CCI in Eastern Railway, where cartelists were subjected to reduced fines because of their MSME status and low economic turnovers.

 

Some operators vying for SATCOM spectrum have indicated a preference for partnership agreements to build initial capacity. The Jio-SES joint venture for SATCOM services is an example. The government can prescribe technical requirements and entry-caps to promote SATCOM by encouraging collaboration with existing operators. To prevent anti-competitive issues, these assignments must include clear parameters for partnerships and market entry in SATCOM.

 

VI. CONCLUSION

 

While the provision for assignment appears to satisfy a competition assessment under the 2017 Guidelines, further clarity is necessary on multiple grounds. To begin with, the government is relying on a positive response from the Supreme Court in so far as permission for an administrative assignment of airwaves is concerned. The government’s primary claim is that it is not techno-economically feasible to auction certain airwaves, an understanding that is in line with our competition assessment.

 

Lastly, the government must incorporate, reasonably, global-best requirements and standards in the upcoming NFAP for such spectrum assignments. As discussed previously, liberalizing market entry in the SATCOM industry must be qualified by proper technical specifications that are not only cognizant of the entrant’s expertise and potential but the overall feasibility and demographic-fit of the product or service.


† Bhaskar Vishwajeet is a final year student Jindal Global Law School

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