Analysis of Telcos Requesting Spectrum Auction for Direct-to-Mobile Services (D2M) and Its Impacts
Analysis for Layman
Indian telecom companies (telcos) have requested the government to auction spectrum in the 526-582 MHz frequency range for potential use in Direct-to-Mobile (D2M) video services. Let’s break down some key concepts:
It’s a technology that allows consumers to receive TV broadcasting directly on their mobile phones without needing a cellular or WiFi data connection.
IMT (International Mobile Telecommunications)
This is a global standard for mobile broadband connectivity.
This is a market-based mechanism where limited natural resources like spectrum are allocated to the highest bidder, allowing a fair price discovery process.
Telcos are proposing that this spectrum be allocated through a competitive, technology-neutral auction. This means that companies would bid for the rights to use this spectrum for either D2M or 5G services, depending on their business viability. This is in contrast to the government’s initial plan of reserving this spectrum exclusively for publicly-owned D2M services. Telcos argue that this approach would lead to better spectrum utilization and a seamless video experience for subscribers.
Impact on Retail Investors
For retail equity investors, the telcos’ request for spectrum auction could have mixed implications. On one hand, participating in the D2M segment would require additional investments by companies like Airtel and Jio, which could impact profitability.
However, in the long term, if D2M-cellular networks help reduce data traffic management costs due to the increasing demand for video, this could offset the initial investments. Being an early mover in D2M applications could also attract higher Average Revenue Per User (ARPU) subscribers for telecom companies. Moreover, spectrum acquired through auctions typically involves lower regulatory uncertainty compared to administrative allotment.
Overall, investors should monitor whether the business case for telcos justifies their involvement in D2M and assess whether it poses a threat or an opportunity to wireless broadband services. There may not be an immediate impact on share prices, but it’s prudent to keep an eye on spectrum acquisition strategies going forward.
Impact on Industries
A competitive D2M spectrum auction could enable broadcasting, media, and entertainment companies to secure capacity directly, rather than relying on leasing telco networks. This means companies like Zee or Sun TV could consider operating D2M channels themselves, similar to how Tata Sky operates its satellite TV infrastructure.
Allowing for neutral deployment also gives cellular operators the flexibility to collaborate with broadcast and over-the-top (OTT) giants and bundle D2M channels with 5G plans, much like they offer Netflix or Prime Video through data streaming today. This opens up possibilities for alliances between telecom companies and platforms like Disney-Hotstar and SonyLIV if they decide to compete in hybrid broadcasting.
Device manufacturers would need to develop compatible chipsets and smartphones, while infrastructure vendors would play a role in enabling converged networks. Therefore, an open D2M spectrum policy encourages cross-industry convergence.
Long Term Benefits & Negatives
In the long term, integrating broadcast capabilities into 5G networks can maximize spectral efficiency by dynamically using capacity for unicast or multicast video needs. The ability to seamlessly switch between data streaming and broadcast modes can enhance the quality of user experiences.
However, the viability of D2M as a business model remains speculative at this stage, with continued pressure on Average Revenue Per User (ARPU) in the wireless services sector. Overinvesting in an untested segment can be risky if monetization lags behind. Telcos have faced challenges in previous ventures into areas like media and content, so caution is warranted regarding the commercial potential of D2M.
Additionally, privatization of this spectrum reduces access for public broadcasters to reach citizens directly. It’s essential to conduct a thorough impact analysis before commercial spectrum allocation decisions are made.
Short Term Impact – Positives & Negatives
In the short term, there may not be any significant impact since the technology itself is still under development, and its viability hasn’t been proven. Telco participation in D2M would depend on clarity regarding whether standalone D2M business has a sufficiently large target segment or mainly complements 5G services.
Nonetheless, the lobbying efforts by telco body COAI signal their interest in exploring alternative revenue channels using broadcast-enabled mobility networks, leveraging their scale. A confined pilot testing this capability can provide valuable data points for evaluating commercial potential before large investments are made. Insisting on spectrum auctions is a pragmatic approach before irreversible policy decisions are finalized.
Companies Impacted by Potential D2M Spectrum Auction
The debate over how to allocate spectrum for Direct-to-Mobile (D2M) services in India could impact various companies:
Indian Companies Likely to Gain:
- Reliance Jio Infocomm Ltd.: Strong voice for spectrum auction aligns with their plans for integrated mobile and broadcasting services. Potential spectrum gain could boost network capacity and competitiveness.
- Bharti Airtel Ltd.: Similar to Jio, advocating for auction allows them to utilize spectrum for both mobile and D2M, potentially improving video delivery and network efficiency.
- Vodafone Idea Ltd.: Gaining access to additional spectrum through auction could help them improve network performance and potentially attract new customers.
- Tower Infrastructure Providers: Increased data and video consumption driven by D2M services could lead to higher demand for tower infrastructure and services from companies like Indus Towers and Bharti Infratel.
- Mobile Device Manufacturers: Potential integration of D2M with mobile networks could boost demand for smartphones and smart devices capable of receiving these services, benefiting companies like Micromax, Lava, and Samsung India.
Indian Companies that may Lose:
- Broadcasters: If spectrum is primarily allocated for mobile, existing players like Zee Entertainment and Sun TV might face challenges in transitioning to digital broadcasting and competing with telcos for airwaves.
- D2M Technology Providers: Companies developing and investing in specific D2M technologies might be at a disadvantage if the government opt for broader technology neutrality in spectrum allocation.
Global Companies Likely to Gain:
- Technology Providers: Global equipment manufacturers like Ericsson, Nokia, and Huawei could benefit from increased network activity and potential demand for mobile broadband infrastructure related to D2M.
- Content Providers: Global media giants like Netflix and Disney+ could see increased viewership in India if D2M makes video content more accessible to mobile users.
Global Companies that may Lose:
- Mobile Network Operators in Other Countries: If technology neutrality prevails and D2M services become successful in India, similar models could be adopted in other countries, potentially impacting existing mobile operators.
- The news of a potential spectrum auction could boost sentiment towards Indian telecom companies with the financial strength and infrastructure to participate.
- Companies directly involved in D2M technology development might face some initial uncertainty until the government’s final decision is known.
- Global technology and content providers could see positive sentiment if the D2M market shows strong growth potential in India.
Remember, this is an analysis based on the provided information. The actual impact on individual companies and the market will depend on various factors beyond the scope of this article.
ET Bureau, “Telcos Call for Auction of Waves for Direct-to-Mobile Services,” ET Bureau, Dec 27, 2023.