Spectrum auction likely in July; base price ‘too high’
02 May 2016
The Telecom Commission (TC) has cleared the way for the largest ever spectrum auctions likely in July, including a debut for 4G airwaves in the 700 Mhz band at a base price of Rs11,485 crore a unit as suggested by the Telecom Regulatory Authority of India.
The rates have been criticized by the industry and analysts as too expensive, which could derail the sale.
"All spectrum will be auctioned, at the same prices recommended by Trai, even in the 700 MHz band," a senior official said on Saturday, asking not to be named, adding that the operators who will bid for 700 MHz have the capacity to pay, according to an Economic Times report.
The official added that harmonisation of spectrum will be done before the auctions begin which will add another 200 Mhz to the 2,142 Mhz that has been already cleared for sale, making it highest ever quantum of airwaves put on auction.
The TC, the highest decision making body in the Department of Telecommunications, (DoT), however deferred a crucial decision on levying a uniform spectrum usage charge (SUC) across all bands for auctioned or non-auctioned bandwidth, sending a report by its technical panel for legal opinion by the Attorney General of India.
Another person familiar with the matter said that DoT backs a flat SUC levy at 4.5 per cent, which it feels is revenue-neutral, compared with the current structure involving multiple rates depending whether the spectrum is auctioned or not, mainly on grounds that segregation of revenue based on multiple spectrum bands for delivering 4G-LTE services would be a huge challenge.
Technologies like carrier aggregation allow simultaneous usage of multiple rates depending whether the spectrum is auctioned or not, mainly on grounds that segregation of revenue based on multiple spectrum bands for delivering 4G-LTE services would be a huge challenge. Technologies like carrier aggregation allow simultaneous usage of multiple spectrum bands.
The flat SUC levy though has been opposed by Reliance Jio Infocomm which says such segregation can easily be done. Besides, any such change for already allocated/auctioned spectrum would result in windfall gains to existing operators and cause huge losses to the national exchequer, Jio claims.
"The final decision on SUC will be taken before the July auctions," the person added.
No easy payments
In other important decisions, the TC rejected the Telecom Regulatory Authority of India's (Trai) recommendations on an easier payment structure aimed at reducing the financial burden of carriers.
In fact, it made it tougher for winners of airwaves in bands above 1 Ghz - 1800 Mhz, 2100 Mhz, 2300 Mhz and 2500 Mhz - mandating an upfront payment of 50 per cent of the winning bids, compared with 33 per cent earlier, with the balance to paid over 10 equal annual instalments after a moratorium of two years after the initial payment.
Telenor for one has asked the Department of Telecommunications (DoT) to retain the option of deferred payment suggested by the Telecom Regulatory Authority of India (Trai), saying it would help reduce the burden on the industry. But apparently this is not to be. (See: Telenor urges DoT to go for deferred spectrum payment)
Payment terms for winners of sub 1 Ghz bands - 700 Mhz, 800 Mhz and 900 Mhz bands - remained the same at 25 per cent upfront with the rest to paid in similar terms as other bands, the person said.
The TC's decisions will need to be cleared by the cabinet.
At base prices, the auction of 4G bands of 700 MHz, 800 MHz, 1800 MHz, 2300 MHz and 2500 MHz bands, and 3G airwaves in the 2100 MHz band can generate almost Rs544,000 crore for the government, or about five times the amount raised at the previous sale in 2015, if all spectrum on offer is sold. Just the 700 Mhz band can contribute over Rs400,000 crore at starting price.
The government needs funds to bridge its fiscal deficit after volatile market conditions curbed plans to sell stakes in state-owned companies. It has budgeted over Rs160,000 crore from the auction, of which it has factored in roughly Rs50,000 crore as upfront payment this year, which started on 1 April. But experts say the government will fall far short of its estimates as the auctions are likely to evoke a lukewarm response at current prices, and given that there are ample airwaves in the market and no business continuity challenges.
"Clearly, the reserve price for 700 MHz band is too steep. The quantum of spectrum of 700 MHz and pricing are not the principle issues, it was rather keeping auction of this band in abeyance for 2 years or so," said Rajan Mathews, director general, Cellular Operators Association of India (COAI). "If we're going ahead, then the immediate price points become a matter of serious concern."
At this price, it won't be a "blockbuster auction" because there won't be a high degree of participation, he said. COAI represents India's biggest telcos such as Bharti Airtel, Vodafone and Idea Cellular besides newcomer Reliance Jio Infocomm.
"There may be a one-off that someone may buy 700 Mhz in a few circles which they believe are not that expensive, but pan-India buying of 5 Mhz block does not seem realistic," Rajan added.
Raising the upfront payment to 50 per cent for above 1 GHz bands does not make too much sense either, experts said.
"It is these bands where spectrum is in higher demand. It's a way for the government to get more revenue without considering the financial condition of the industry," Rajan said.
