DoT itself foresees muted response to spectrum auction

With telecom service providers anticipating muted response to the spectrum auctions proposed to begin on 29 from 29 September, the Department of Telecommunications (DoT) itself has gone through the numbers to arrive at an estimate of what the exchequer could make from the sale of airwaves – and the DoT's estimate also fails to inject any optimism to the exercise, reports The Indian Express.

According to internal estimates of the DoT, spectrum worth just 50 per cent of the base price is expected to be picked up by the operators in this year's auctions.

The report cites a senior DoT official as saying that that spectrum worth Rs2,74,800 crore is likely to be bought by telecom companies this year against a reserve price of Rs5,56,000 crore as approved by the ministry based on the recommendations of the sector regulator.

Of this, spectrum only in the premium 700 MHz band has a base price of over Rs4,00,000 crore, of which, the DoT official cited above said, it was estimated that companies could pick up close to Rs1,50,000 crore worth.

Operators and analysts alike have criticised the high reserve price of the 700 MHz band, which is deemed best for deploying 4G services, particularly due to the relatively immature handset and equipment ecosystem for the frequency.

While all the airwaves being put for auction can be used to deploy 4G services, due to the high propagation characteristics, the spectrum in the 700 MHz band is considered premium. The cost of providing service in it is one-third of 3G service in 2100 MHz band.

The government will put under the hammer 2,354.55 MHz of airwaves for sale in seven bands – 700 MHz, 800 MHz, 900 MHz, 1800 MHz, 2100 MHz, 2300 MHz and 2500 MHz - with a reserve price of Rs 5.56 lakh crore, compared with 470.75 MHz in the previous round that saw bids worth Rs1.10 lakh crore.

Moreover, analysts expect that in other bands as well, operators are expected to pick up spectrum only based on their needs, which this time around would be to fill gaps in their 3G and 4G mobile internet services.

''The September 2016 auction will be the first in the past three years without material 'renewal' spectrum on offer - not a 'gun on the head' auction for most operators, in our view,'' brokerage firm Kotak Institutional Equities said. ''To this end, this auction is a critical test of the operators' rationality; an auction where operators need to guard against getting swayed by competitive spirits and bid with long-term interests in mind; no self-goal, in other words,'' it added.

Director general of industry body Cellular Operators Association of India (COAI) Rajan S Mathews said that while the quantum put up for auction was favourable the demand was expected to be different band-wise. ''We see relatively good demand for 1800 MHz band, some demand for 2100 MHz and 2300 MHz band. Limited demand for 700 MHz, 800 MHz and 900 MHz bands. I will be surprised if there are any takers for 2500 MHz band,'' Mathews said.

On Friday, Mathews also said that the Telecom Regulatory Authority of India's move to bring out a consultation on interconnect usage charges shortly before the spectrum auction dates being announced raised some ''red flags'' and the exercise could potentially throw in uncertainty to the auction process.