The Telecom Regulatory Authority of India recently sounded the bugle for what could be the mother of all auctions, which the government may hold by the end of this fiscal.
The Telecom Regulatory Authority of India recently sounded the bugle for what could be the mother of all auctions, which the government may hold by the end of this fiscal. Though there’s not much spectrum in the 800, 900, and 1800 MHz bands for which auctions were held this year in March in which the government netted an amount of R1.09 lakh crore, it is the proposal of addition of the 700 MHz band in the auctions by the regulator that can see prices zooming and, therefore, causing a major concern for the industry.
Operators FE spoke to said they in their response to Trai’s consultation paper would urge the 700 MHz band not be auctioned now. They say it makes sense for the government to auction the 2100 MHz and 2300/2500 MHz bands, which can be used to provide 3G and 4G services.
The 700 MHz band, which is twice as efficient as the 900 MHz band and is best suited for 4G services, could be auctioned later. There are two reasons for it: One, there isn’t an ecosystem for usage of 700 MHz at this stage as there is lack of equipments and handsets. Two, its price will be too high — around Rs 3 lakh crore if it is sold at the auction-determined price of 900 MHz spectrum of March 2015. This would be higher than Rs 2.9 lakh crore that the government has so far netted from five auctions held since 2010.
Trai has said that the government can put 35 MHz spectrum across the 22 circles in the forthcoming auction in the 700 MHz band. For perspective, the 900 MHz spectrum in the March 2015 auction sold at Rs 8,681 crore per MHz, which was a 95.2% premium over the reserve price. In 2012, Trai had recommended the reserve price of the 700 MHz band at twice that of the 900 MHz price. By that account, the government could earn something like Rs 6 lakh crore from the auction of this spectrum, which could throw the entire industry into a debt spiral.
An industry source said that the lack of an ecosystem would make the industry pay through its nose for something which cannot be put to use immediately. It would be something like the auction of 2300 MHz spectrum in 2010, which has only started getting deployed now by the operators.
Even if the government does not auction the 700 MHz spectrum, it stands to gain from auctioning the 2100 MHz and 2300/2500 MHz airwaves. In 2100 MHz it has a minimum of 15 MHz across the 22 circles, which even at March 2015 auctions can net it Rs 56,000 crore. Further, by auctioning 2300/2500 MHz bands, it can get another Rs 60,000 crore assuming there is a 50% escalation in their price compared to 2010 when they were auctioned.
By auctioning 2300/2500 MHz at this stage, the government would also provide a level playing field to all the operators as for this band the spectrum usage charge is 1% versus 5% for spectrum in other bands. Currently, only Reliance Jio and Bharti Airtel have spectrum in this band. An auction would give others a chance to acquire it.
According to industry sources, the other priority of the government should be to harmonise spectrum in a contiguous block of 1800 MHz and auction it so that operators can buy it and deploy it for 4G services. It is the lack of harmonised, contiguous block of spectrum in this band which led Idea Cellular to buy this spectrum from Videocon Telecommunications last week in two circles — Gujarat and Uttar Pradesh (West) — at a 98% premium to the March 2015 auction prices. If it does so, it can garner upwards of Rs 20,000 crore.