5.1. Value, as a function of frequency and time, can be assigned based on a measure of the economic impact of a communication technology utilising a particular set of 'Windows' in a band in the frequency spectrum. The time varying nature of Value results from the time varying nature of the technologies. At the same time, different technologies with different economic impacts may contend for the same windows/bands. The choice of the technologies and applications are so made that the total value of the entire utilisable electro-magnetic spectrum is maximised.

5.2. The purely economic value based maximisation of the spectrum does not consider the contention between technologies and applications which have distinct and direct economic impact and those which do not have such impact. The most important example of the latter is national security related requirements of the spectrum. Other important examples are universal service functions like rural communication, long term research and development and other social requirements whose impact on the economy cannot be quantified in the short or medium term either distinctly or directly. As there are two distinct types of contentions, one quantifiable and another non-quantifiable, a common objective function for the two types cannot be defined and hence cannot be optimised. It is for this reason that the requirement of Defence, Police, promotional rural communication, promotional projects of national importance etc., are segregated a-priori on the basis of national security threat perceptions, internal security threat perceptions, policies on equitable development among others. As the threat perceptions and such other factors change with time and the technologies can be progressively upgraded for meeting the same more efficiently, Defence, Police, etc. would require additional windows/ bands or may vacate previously occupied windows/bands.

5.3. Alternatively, the concept of occupation and vacation of windows/bands in the various frequencies can be substituted by principles of co-existence, accommodation and coordination. In this alternative, instead of talking about the vacation of bands, the co-existence of several applications and operators is accepted with only the occupation or vacation of windows for specified durations. This brings in considerable flexibility in the allocation of the spectrum thereby increasing the efficiency of the spectrum.

5.4. For several decades, economists have pointed out that the electro-magnetic spectrum channels are scarce and, consequently, they are subject to the same forces of supply and demand as in other resources. In order to benefit from the efficiency and flexibility of market allocation, it was argued that private property rights in the spectrum should be defined and free transferability of such rights be permitted. On the other hand, specialists of electro-magnetic spectrum resisted this line of logic by pointing to the difficulties in defining property rights to a resource which has several complex dimensions, e.g., defining and controlling interference, time varying correlation between the bands and technologies. This limited the opportunity for transferring frequency from one use to another as technology evolved. It is pointed out that the spectrum does not exist as a natural resource capable of being divided up into discrete pieces and that one can regard only relationships of electro-magnetic compatibility (or non-compatibility) between radio transmitters and receivers. Spectrum allocation is best described, not as a resource management, but as a procedure for specifying compatibility standards which clear out the functional communication channels between specific types of equipment and which protect them from interference.

5.5. However, there are applications where, in effect, 'fences' can be built around electro-magnetic 'spaces'. By so controlling both the performance characteristics and placement/operation of radio equipment, the concept of the spectrum, as an economic resource, can be conceived similar to real estate - it is occupied, but not consumed or depleted by its users. Scarcity results from the occupation of a channel/band/window by one operator by preventing others from using the same channel/band/window at the same time. As in real estates, the usable quantity of the resources can be expanded with additional capital investment like sky-scrappers creating more space on a given part of the land - through such methods as channel splitting, innovative modulation techniques, spread spectrum, etc. Viewed in terms of this limited analogy, equipment standards are analogous to architecture and separation rules with power limits are analogous to 'fences' separating the parts of the land. Further, the fungibility and transferability of radio channels are confined to certain geographical and spectral ranges. In the electro-magnetic spectrum, as in real estates, considerations of contiguousness are important for large scale development and planning. For example, in the case of Cellular, windows/ chunks of about 0.6 MHz each would be required to be allocated. For a given application, separation of these windows/chunks has to be minimal consistent with other approved or occupied contending applications. If expansion of the number of channels or band-width of an electromagnetic system becomes necessary, incorporating contiguous windows/chunks in the spectrum is cheaper and more convenient than skipping to assemble the requisite band-width. Creation of market in radio spectrum therefore, creates not only the promises, but also the problems associated with large scale real estate development in urban areas.

5.6. Property rights in electromagnetic spectrum are defined by technical standards governing the design, performance, location and operation of the electromagnetic equipment. This factor has important implication for the introduction of market forces into radio frequency allocation. It makes it clear that the market forces cannot be introduced into the process by simply auctioning of licences as long as technical parameters and uses of the licence are fixed administratively. Within a context of administrative allocations, auctions cannot shift frequencies from one use to another in accordance with supply and demand. Only when and where the right to use electromagnetic channels is defined with adequate flexibility to allow frequencies devoted to one service to be easily converted to another use, can we speak of a 'market' for radio frequencies.

5.7. There are, however, certain past and present international practices which can guide the proper choice of the method of spectrum utilisation and band/window allocations:

(a) Free Spectrum for Special Usages. In most countries this was common practice in the past. "Special" services were assigned spectrum free of charge. Commonly this applies to the military, to the police, to ambulance services, and other "essential" services. The practice of providing free spectrum to other government agencies other than such essential services resulted in the user in some cases using the spectrum inefficiently and placing no value on the resource. The unused, or inefficiently used spectrum could not be used by others, leading to unnecessary shortage for some and hence a higher scarcity rent value for the spectrum which is available. The distortion is quite clear. Some countries like India provide spectrum free of charge to all government departments. This system of differential rent valuation, (and hence spectrum pricing), has ceased in all but a very few countries. It is worthy of note also that in democratic societies, politicians and their electorate are increasingly insisting that they should know the real cost of providing spectrum to non essential government services so that they can take rational economic and budgetary choices.

(b) A Uniform Spectrum Value. A uniform spectrum tariff per KHz of band-width assigned for all users has the merit of simplicity, but suffers from several major deficiencies, including no recognition of the differential value of different parts of the spectrum. This leads to all assignees wanting the same spectrum for a given service, and creating an un-fair advantage and windfall profits for those users who are assigned the best economic spectrum slots. While this system has been practised by some countries in the past it is no longer in use.

(c) Formulae for Differential Value. The most widely practiced spectrum pricing structures are based on formulae which attempt to attribute an economic utility value to spectrum based on the value that they derive from its use. Suffice to say that while differential pricing by formulae is by far the most common practice, there is little in common with the formulae used themselves and there are as many variations as there are countries. There are however some which work better than others and they all have the following merits: They are simple and clear and easily understood by licensees. They are perceived to be fair. They result in the opportunity for equal competition. They are easy to use by the licensing authority with a minimum of interpretation, argument, computation, and time. Finally, they reward efficient use of the spectrum.

(d) Auctions to Establish Value. The market place pursuits would have us believe that the best way to ascertain the price to be charged for spectrum rental is through a competitive bidding- or auction - process. Recent experiences have shown that auction is a less than perfect arbitrator of the value of the spectrum. There were one or two over-night millionaires in New Zealand from the first round of auctions for VHF FM spectrum due to under bidding, while in USA, there were bankruptcies and near bankruptcies due to over bidding. There was considerable enthusiasm for auctioning the spectrum as a mechanism for directly ascertaining and collecting the market price value of the spectrum. But a more cautious wait - and - see policy now prevails, with most countries waiting for the more adventurous few to find the pitfalls and develop workable solutions. For developing countries like India, it is prudent to adopt such a wait-and-see policy for the next five years .

(e) In the context of past experience and the economic, social and security environment prevalent in India, the method at 5.7(c) above is considered to be the best alternative.

5.8 A number of technical and regulatory procedures need to be implemented for the spectrum management system to be effective. The key for this implementation is to obtain adequate financial resources for the entire spectrum management process which has multi-dimension and multi-facets encompassing international and national activities. Spectrum pricing is essential element for supporting all aspects of spectrum management process. Spectrum and associated satellite orbits have economic value and use of radio frequency spectrum is inextricably linked to the spectrum pricing. Nevertheless, security, safety and social commitments have to be appropriately taken care of. For efficient utilisation of spectrum and other related factors it is essential that every user should pay for spectrum on non discriminatory basis. However, for obvious reasons defence should not be subjected to such charging.

5.9. Spectrum pricing should be determined taking into account, inter-alia, the following factors :-

(a) Technical factors involved in utilisation of spectrum.

(b) Commercial potentiality.

(c) Premium bands (spectrum location, application and geographical area dependent).

(d) Safety, security and similar usage.

(e) Location of spectrum. (e.g. VHF, UHF)

(f) Service (e.g. FS, FSS, BSS).

(g) Application (e.g. CMTS, Basic)

5.10. Spectrum pricing should be so developed that it appropriately compares with cost of equipment and other available means of communications so that there is no imbalance and there is no undue demand on the spectrum. It is felt that a Group be formed on a regular basis, for evolving appropriate spectrum pricing policy and its review from time to time.

5.11. It is well recognised that relocation and transitional arrangement are essential features of spectrum management system. Frequency License is issued for a specific frequency spot with specific bandwidth related technical and operational parameters for a specific purpose, for a specific service and for a specific location for a specified period of time. The License is renewed generally on yearly basis on payment of spectrum charges. The License can be revoked on breach of any of the licensing conditions or on non-payment of spectrum charges. These are required to be done on case by case basis as a continuous process. Compensation for relocation in government as well as private sectors is important ingredient of such a process. For such compensation, following methodologies could be used :-