At Rs 2,685 crore per MHz, the reserve price is 18.3% higher than final auction price of Rs 2,270 crore for 1,800 MHz, which is used by GSM operators (See table). Compared to the last reserve price announced by the government for CDMA auction in March 2013, which saw only one operator buying spectrum, the reserve price now is 50% higher.
Providing the rationale for the reserve price, the Trai said the methodology is the same as for 1,800/900 MHz earlier, using the bottom-up approach and also factoring in the current prices discovered in the auctions. The reserve price has been pegged at 80% of the valuation of spectrum.
The Trai said the 800 MHz spectrum is no more only for CDMA and EVDO services, but also for newer generation services like HSPA and LTE. The CDMA operators were clearly upset with the reserve price, calling it high, and stating that it would dissuade them from buying spectrum.
Though none of them offered an official response stating that they need time to study the recommendations, their informal comment was that the 800 MHz spectrum is less popular for services like HSPA and LTE.
The recommendations for 800 MHz comes after protracted differences between the Trai and the department of telecommunications. On September 9, when the regulator submitted its recommendations to the government, it proposed auctions only for 1,800 MHz and 900 MHz band, stating that there were no takers for 800 MHz in the previous two auctions and the ecosystem was dying with a fall in subscribers. It stuck to its stand when the DoT asked it to reconsider its decision.
The Trais stand was that 800 MHz auction should not be done at this stage and instead the government should explore the possibilities of creating an e-GSM band, which would find more takers.
The DoT finally sent a fresh communication to the Trai in December 2013, seeking reserve price for auction for 800 MHz spectrum. Since the government rejected the recommendation of exploring the possibility of creating an e-GSM band, the Trai has now closed that option.
In March 2013, Sistema Shyam was the only bidder for the CDMA spectrum and won radiowaves to operate in eight circles for Rs 3,639 crore. Trai has imposed a condition that the government carve out a contiguous block of 5 MHz frequencies before conducting the auction.
Currently, contiguous blocks are available only in five out of 22 service areas nationwide. They are Mumbai, Maharashtra, Madhya Pradesh, Assam and North-East.
Trai has maintained a balance to arrive at the reserve price. Allocating all available spectrum for auction, recognising the need for contiguous spectrum and not restraining existing spectrum holders in any way are positive for the sector. The reserve price at Rs 2,685 crore per MHz, based on recent auctions and longer term potential of 800 MHz band for HSPA and LTE services, may appear on the higher side from the current Indian market and ecosystem perspective, said Jaideep Ghosh, partner, KPMG.
Trai has recommended that the entire CDMA spectrum held by MTNL be put up for auction as it is underutilised. The regulator has also suggested that government should take back of CDMA spectrum held by BSNL for auction, except one block of frequency in Jammu and Kashmir, Assam and North-East service area.
Trai has also recommended that the auction be conducted in blocks of 1.25 MHz and it should be mandatory for new entrants to win at least 5 MHz of spectrum, especially in the contiguous blocks.
However, an existing operator having some spectrum holding in the 800 MHz band should be permitted to bid for a minimum one block (1.25 MHz) of spectrum. New entrants must be assigned the earmarked contiguous carriers only, Trai said.
It has recommended that DoT should put up the entire available spectrum in 800 MHz, including that to be taken back from public sector telecom firms, for auction.