With the defence ministry finally accepting the telecom ministry’s proposal to swap 15MHz of spectrum in the critical 2100MHz frequency band, as FE reported on Thursday, the decks are finally cleared for a big-bang auction in February. Given the severe spectrum shortage, the Telecom Regulatory Authority of India (Trai) has been batting for this for months. For some reason, however, the telecom ministry was comfortable with the idea of two auctions, one for 2G spectrum (900/1800MHz spectrum frequency bands) in February and another for 3G spectrum (2100MHz spectrum frequency band) in May. Given incumbent operators with licences expiring in the 900MHz frequency band have no option but to win them back, this would have increased the auction price dramatically. These operators have 184MHz of spectrum between them in 18 circles, so that’s around 10MHz in each circle. So with just one more bidder, say a Reliance Jio, the bids will skyrocket.
A good way to understand this is to look at the results of the last few auctions. In the auctions in 2010, firms were scrambling for spectrum, so in the 2100MHz spectrum frequency band, they paid 4.8 times the base price in the auction. In the auctions held earlier this year, however, with enough 1800MHz spectrum as a back-up in case firms didn’t win back their 900MHz spectrum, they paid 1.2 times the base price for the 900MHz spectrum and 1.28 times for the 1800MHz spectrum frequency band. With the defence ministry now agreeing to the swap of 15MHz in the 2100MHz frequency band, this means there will be 270MHz—15MHz into 18 circles—of additional spectrum in the next auction. With enough spectrum, there will be no mad rush for spectrum this time around and firms will bid only at economically viable levels.
But, the argument may still be, what if the defence doesn’t actually vacate the 2100MHz spectrum on time, what if this is a few months late? The budget needs the money desperately, so the government cannot possibly take a chance and must have a two-stage auction. While that sounds logical, there are two problems with it. One, if bids get to astronomical levels, telcos will simply jack up tariff levels and hapless consumers will have no option but to bear with this. Two, there is nothing which says the government has to have the spectrum at the time of the auctions. In the 700MHz spectrum frequency band auctions in the US in 2008, the spectrum was given to telcos only towards the end of 2009; and in the current AWS spectrum auctions in the US, telcos know they will not get the spectrum for another 1-2 years. Indeed, in the 2010 auctions of 2100MHz spectrum in India, the government’s bid document itself said the spectrum would be released only after a few months. And in the case of the February 2014 auctions, the government has still not completely released the spectrum won by the firms. In the same manner, the February 2015 auctions can bid out 2100MHz spectrum even without the telecom ministry actually having the spectrum in hand—in any case, firms bidding to win back their 900MHz licences don’t need the 2100MHz spectrum till October next year which is when the first batch of licences start expiring. There is really no excuse for not conducting a big-bang spectrum auction.