The logic for substituting spectrum for civil works and vice versa depends on the price of spectrum. This is sort of like the perennial debate about energy scarcity. One group says we’re running out of oil. But other points out we will never run out of energy because as oil prices increase, more reserves will become visible, more energy sources will become viable. This is the story of shale, the new, new thing in energy. So it’s very difficult to define scarcity independently of price.

The alternative approach was tried by a consulting firm in India few years back. They changed their name a few years back and thus obliterated both names that were stored in my neurons. Their approach was to work some fancy benchmarks based on user numbers, terrain, etc. According to that study, India had a spectrum shortage. But the story is of course different in Lutyens Delhi (most likely there is a shortage) and remote Himachal (most likely not). So the unit of analysis is key to this approach.

So that is why I am skeptical about the statement below:

In a statement, AT&T said that the actions of the Federal Communications Commission and the Department of Justice harmed customers. The cellular giant explained that the American wireless industry is suffering a spectrum shortage, which the merger would have mitigated.

“The AT&T and T-Mobile USA combination would have offered an interim solution to this spectrum shortage. In the absence of such steps, customers will be harmed and needed investment will be stifled,” the company said.

Irrespective of the fate of T Mobile, it would be good to find an answer to the question “what is spectrum shortage”?

Per Mhz spectrum charge has been set on the basis of their market share or ‘market contribution factor’ (MCF) which was previously known as ‘utilisation factor’ in the draft licensing guideline of the BTRC.

According to the policy of the MCF prescribed by the telecom ministry, if an operator has more than 20 percent market share, it will have to pay additionally, while an operator with less than 20 percent share will pay at a reduced rate.

The MCF for Grameenphone now stands at 1.48, Banglalink 1.06, Robi 0.99 and Citycell 0.30.

These numbers have been multiplied by the per megahertz price of Tk 150 crore and the total amount of spectrum used by each operator.

The operators will have to pay 49 percent of their spectrum charges in November when the licences will be renewed, and the rest would be paid in three instalments in May 2012, November 2012 and finally in May 2013.

The key phrase is “if an operator has more than 20 percent market share, it will have to pay additionally, while an operator with less than 20 percent share will pay at a reduced rate.” So the current MCF has been calculated based on mid 2011 data. It creates incentives to shed marginal customers (at least not add new ones). So one could expect the large operators’ market share (defined by number of active SIMs, not revenue) to decrease.

When time comes to pay the 2nd and 3rd instalments in May, they could be expected to ask for a recalculation of what they owe, based on a revised MCF reflecting market shares in 2012, not 2011. Interesting times?

Full report.

But in Bangladesh 20 percent market share is the magic number. And it’s not a rebuttable presumption; nor a screen. You go over 20 percent, you start paying more for the critical input of spectrum. This is the gist of the “Market Competition Factor,” I have described elsewhere as anti-consumer. The MCF for Citycell is 0.3, while it is 1.48 for Grameenphone. That means that Grameenphone pays five times the amount paid by Citycell for one MHz.

The Budget Telecom Network model requires operators to carry as many paid minutes as possible, even if from marginal customers who individually contribute very little revenue. This was the cause of Bangladesh’s spectacular mobile growth, even in the face of growth-retarding measures such as the SIM tax. The result of the illogical MCF is to direct operators away from serving large numbers of low-yield customers to small numbers of high-yield customers. It would not be surprising if those running the smaller operators put in place specific measures to prevent market share from increasing. Is the government actually, intentionally anti-poor? Or it is simply acting out of ignorance?

But that discussion assumes that spectrum charges will be adjusted periodically based on fluid market shares. That is not what the Ministry in its wisdom has recommended. What market share an operator had in June 2011 appears to set the price for spectrum for the next 15 years. So even if Citycell has 44.3 percent and Grameenphone has 2.23 percent of the market in 10 years, Citycell spectrum will still cost 1/5th that of Grameenphone!

This takes the cake for arbitrary and capricious administrative action! Is there an igNobel Prize that can be awarded to the MoPT?

The auction has been discussed and planned for more than a year and predates the country’s financial crisis, said the official, a senior administrator at the Hellenic Telecommunications and Post Commission, the regulator holding the auction. He did not want to be identified, citing his agency’s policy. The auction’s goal, the official said, was to level the playing field in Greece among the three operators going forward as they introduce faster third- and fourth-generation mobile services.

Vodafone and Wind already hold licenses for 900-megahertz spectrum, and Cosmote uses the 1.8-gigahertz band. The higher frequency, however, requires Cosmote to operate three times as many cellphone base stations in the country to provide the same coverage its rivals can.

Under the government’s plan, Vodafone and Wind, whose licenses for 900-megahertz spectrum expire next year, would have to give up some of that prime spectrum to Cosmote so that the three operators would have roughly equal amounts as they face the future.

According to the definition of the MCF prescribed by the telecom ministry, if an operator has more than 20 percent market share, it will have to pay additionally, while an operator with less than 20 percent share will pay at a reduced rate.

The MCF for Grameenphone now stands at 1.48, Banglalink 1.06, Robi 0.99 and Citycell 0.30.

These numbers will be multiplied by the per megahertz price of Tk 150 crore and the total amount of spectrum used by each operator.

So Grameenphone, which is using 14.6 Mhz, will pay Tk 3,241 crore.

Thus Banglalink (with 12.4 Mhz) will pay Tk 1,971 crore, Robi (with 12.8 Mhz) Tk 1,900 crore, and Citycell (with 10 Mhz) Tk 450 crore.

The “market competition factor,” as presented, penalises operators with more customers. It creates a disincentive to add low-revenue customers and, indeed, an incentive to shed marginal customers. This is harmful to the poor, those currently connected as well as those wishing to be connected.

Market shares change over time, especially in intensely competitive markets. The above analysis indicated that the announced formula will cause big operators to drop marginal customers and reduce market share (not revenue share). In addition, the cost advantages now offered to small operators should cause them to increase their shares. Will the “market competition factor” be recalculated periodically in light of the enhanced fluidity of market shares?

These problems can be solved and a tragic denouement avoided. Eliminate the “market competition factor.” Market competition, and thereby the consumer, are best served by ending this drama now, freeing the players to commence a new and more productive drama: Digital Bangladesh.

The government yesterday finalised the process of how it will charge four mobile operators — Grameen-phone, Banglalink, Robi and Citycell — for renewing their licences for the next 15 years.

A high-profile meeting presided over by Prime Minister Sheikh Hasina decided that the operators will pay at the rate of Tk 150 crore for per megahertz of airwave, which will be multiplied by the total allocated spectrum and a ‘market competition factor’.

The meeting held at the Prime Minister’s Office also decided to give 3G (third generation) technology licences through auction.

The per-MHz amount has been set arbitrarily. But let us not dispute that. The operators can use as much frequencies as fit their business plans, returning some if the overall cost is too much. So that is also excluded from discussion. Now what remains is the “market competition factor.” What is this and why is it being included in the computation?

Telecom Secretary Sunil Kanti Bose said the operators will have to pay Tk 150 crore for per megahertz of spectrum and the amount will be finalised on the basis of their market share.

Now an operator with a big subscriber base will pay higher than a low-subscriber operator, he said.

“Otherwise some of the operators will be affected and won’t survive.”

Now Grameenphone will have to pay higher than its nearest peers; Banglalink and Robi will be in the middle, while Citycell will pay less, on the basis of the calculation — Tk 150 crore/ per megahertz of spectrum multiplied by the total amount of spectrum and the market competition factor.

The rate for all bands of spectrum — including GSM 1800 Mhz, 900 Mhz and CDMA 800 Mhz — will be the same: Tk 150 crore.

Before we get to the main point, look at the last line. The per MHz price of frequencies in three bands with different characteristics are the same. What are these characteristics that have a bearing on arguments based on the “level playing field” metaphor?

Most handsets in the market are designed for GSM 900 and 1800 bands. Network and customer equipment that can be used in these bands are quite cheap, because they are the foundation on which the mobile boom was built. The propagation characteristics of 900 are “superior” to 1800 in terms of distance, making it somewhat more attractive in low-population-density rural areas. But in densely populated urban areas, 1800 has advantages. Therefore, most operators like to work with a mix. No big problem about pricing 900 and 1800 the same, as long as all operators have a mix.

In purely technical terms, one could argue that CDMA is superior to GSM, in that one can easily operate a CDMA network on 2.5 MHz, whereas GSM requires around 5-7.5 MHz minimum. However, as evidenced by worldwide market share of GSM and the decision of Reliance and Tata in India to cease to be solely CDMA operators, suggests on balance that GSM may have the edge. Of course, 3G and 4G will over time make the CDMA-GSM competition irrelevant.

What the relative efficiency of CDMA means for the renewal pricing debate is that Citycell, the sole CDMA operator appears to benefit from the decision to equalize spectrum charges in the three bands, given it can function with less frequencies than GSM operators. But this may be offset by the possible lower prices for GSM network equipment.

Now we come to the nub of the problem, Secretary Bose’s justification for charging operators with more customers a higher per-MHz price than those with fewer customers. The smaller operators will not survive, unless we do this he says.

So let us look at an analogy. Let’s assume Bangladesh has five manufacturers of bottled water, with the following market shares: A has 50% of the market; B has 20%; C, D, and E have 10% each. The government controls and sets the price for the input which is “raw” or unprocessed water. If a unit of raw water is priced identically to all manufacturers, A will pay 5 times what C,D,E pay and 2.5 times what B will pay.

Should the government include a market competition factor into the pricing and make A pay more than 5 times what C,D and E pay, and more than 2.5 times what B pays?

Seems illogical.

Now take the analogy further. By being more efficient (e.g., collecting rain water, reducing waste in processing, etc.), A manages to supply 50% of the bottled water market, but without taking 5 times the raw water as C, D and E. The market competition factor is derived from market share, not from how much raw water is used.

Will this pricing formula cause A to drop marginal customers, in order to reduce market share and thereby reduce the market competition factor? Will it cause it to invest more in efficiency in order to reduce the use of government water?

The former is a bad thing, in light of Bangladesh being the pioneer of the Budget Telecom Network business model that has enabled it to offer the lowest prices for voice in the world. The latter is not a bad thing per se, but given the way networks are operated, could have negative effects on quality of service. If the objective is that of conserving the scarce input (raw water or spectrum), would it not be better to have “slab pricing” for the input: x per unit for units 1-10 for example; x+y per unit for units 10-20; and so on.

So the government decision is peculiar, indeed.

And a last question. It is well known that market shares change over time. The above analysis indicated that the big players will now be incented to drop marginal customers and reduce market share (not revenue share). So the question then is whether the market competition factor will be recalculated periodically and the price per MHz adjusted accordingly? How exactly will the pricing scheme work in light of the fluidity of market shares?

The telecom survey was conducted in seven countries including Bangladesh, India, Pakistan, Philippines, Sri Lanka and Thailand.

The survey systematically captures the perception of operators, vendors and public interest groups at top management level.

The survey was done on a five point scale, with five as excellent and one being bad. A score of three was regarded as average.

“We said three is the threshold and Sri Lanka has had trouble over the years making the threshold,” said Rohan Samarajiva, chief executive of LIRNEasia.

“This year not one single score was above three, while last year there was one that reached three. So Sri Lanka generally is a very poor performer.”

In the 2010/11 perception survey Sri Lanka was fighting for the bottom place with Bangladesh, Thailand and Indonesia.

The Sri Lankan regulator had scored very low for anti-competitive practices and access to resources.

“The regulation of anticompetitive practices in mobile and fixed sectors is scored at 2.2 out of five, which is the lowest score given to anything,” Samarajiva said.

As smartphones and tablets proliferate, so too have apps like one by Facebook that draw in ever-rising amounts of data. Monday’s letters cite AT&T’s contention that the T-Mobile deal will allow the carrier to expand its nascent 4G network to cover 97 percent of the country and an additional 55 million Americans.

“The access aspect of this is so, so important,” Fred Humphries, Microsoft’s vice president for United States government affairs, said by telephone. “We quickly came to the conclusion that this is a good merger.”

Promod Haque, a managing partner of Norwest Venture Partners, said in a telephone interview that constraints on network capacity were harming new mobile applications and offerings.

“The lack of adequate spectrum is killing the quality of users’ experience,” he said.

Broadcasters, however, are furious with the plan, setting the stage for an old media vs. new media lobbying battle with cellphone companies and the government.

Broadcasters, however, are furious with the plan, setting the stage for an old media vs. new media lobbying battle with cellphone companies and the government.

“We’re in full battle mode to protect broadcasters from being forced to give up spectrum,“ said Gordon H. Smith, president of the National Association of Broadcasters and a former United States senator, addressing his members at their meeting here last week. The CTIA, the lobbying group for the wireless industry, quickly fired back, accusing broadcasters of “desperate and inaccurate stall tactics,” said Steve Largent, the group’s president, who is a former Oklahoma congressman and member of the Pro Football Hall of Fame.

The government will want to squeeze as much revenue as it can from the sell-off, but it must also preserve competition in a consolidating industry. The recent merger of Orange and T-Mobile has left Britain with four mobile-phone operators: Everything Everywhere (the imperious name for the newly merged company), Vodafone, O2 and Three. That is a healthy number compared with some countries, such as America, where AT&T’s proposed acquisition of T-Mobile USA would create what some regard as, in effect, a duopoly. But Three warns that it would struggle in an unrestrained bidding war with its larger rivals for the new spectrum. Without 4G services, it might be forced out of the market, cutting the number of operators to three.

Ed Richards, head of Ofcom, the telecommunications regulator, appears to share this concern. The draft auction rules surprised many in the industry by explicitly aiming to preserve four providers. Ofcom plans to do this by capping how much spectrum any one company can buy, and by forcing the auction to be repeated if four separate bids are not successful.

Prices of radio spectrum laid out in the complex licence renewal guideline have baffled telecom operators. The charges are too high and different for different operators.

According to the draft 2G licence renewal guideline, radio spectrum prices per megahertz (MHz) are set at Tk 300 crore for the 900 MHz band, Tk 150 crore for the 1,800 MHz band of GSM technology, and Tk 150 crore for the 850 MHz band of CDMA technology.

The actual charges to be paid by the mobile operators are much higher, when the spectrum utilisation factor is taken into account.

In fact, four mobile operators will have to pay a total of Tk 12,118 crore in spectrum fees. Grameenphone will have to pay the highest — Tk 5,504 crore, Banglalink Tk 2,994 crore, Robi Tk 3,000 crore, and Citycell Tk 620 crore, although their renewable radio spectrum volumes are not much different.

The market should determine the number of suppliers in a market, not government officials. This requires two things: (1) and orderly policy on market exit, whereby, for example, suppliers have clear rules on what can be done about the assigned spectrum, existing customers, and so on; and (2) transparent license and renewal procedures that allow for an many licenses to be issued as possible within the constraints of spectrum.

Most developing countries lack both elements. Some like to issue licenses without addressing the need to allow for orderly market exit if the market cannot sustain the higher number of suppliers.

Rohan Samarajiva, an expert on telecom policy in South Asia, has studied the mobile-phone market in Bangladesh. There, too, investigations revealed hundreds of cases of spectrum sold and resold in “non-transparent” transactions. Nevertheless, Bangladesh has nearly 100% phone coverage and some of the lowest prices in the world. “How the [phone market] entry was created has not harmed it,” Samarajiva says. “The effects are not really in that industry.”‘

Partha Mukhopadhyay, LIRNEasia International Advisory Board Member and Senior Fellow at the Center for Policy Research, India, was also quoted.

A better policy would, for example, unbundle spectrum in cities and villages to encourage carriers to reach underserved rural areas. Increasing the price paid for spectrum (which is, in any case, passed on to consumers) without improving policy “would be a failure,” Mukhopadhyay says. “The fear is, we will not take the lessons from this particular deal and improve the way spectrum is allocated.”

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The Federal Communications Commission approved a proposal on Thursday that would open vast amounts of unused broadcast television airwaves for high-speed wireless broadband networks and other unlicensed applications.

The change in available airwaves, which were freed up by the conversion of television signals from analog to digital, constitutes the first significant block of spectrum made available for unlicensed use by the F.C.C. in 20 years.

Full story.