Now that the Telecom Regulatory Authority of India (TRAI) has come out with its recommendations to auction all available 1800 MHz spectrum, instead of reserving part of it for auction later, this opens up a lucrative opportunity for the finance ministry, both in terms of helping repair the fiscal deficit as well as in attracting more FDI to finance the current account deficit (CAD). The finance ministry can look forward to getting money out of the 1800 MHZ auction later this year, but the lack of enough contiguous spectrum here—parts of it are taken up by the defence ministry—could limit the bids. The greater opportunity lies in the 3G bands that the telcom ministry can now hope to put on auction.
While the Trai under its earlier chairman was in favour of reserving spectrum for refarming, its view now is that telcos can simply rebid for the 900 MHz spectrum when their licences expire—Trai’s earlier proposal was that, once firms like Bharti Airtel and Vodafone gave up their more efficient 900 MHz spectrum on expiry of their licenses, they could be given 1800 MHz spectrum in return. Since no spectrum is to be reserved for the GSM operators in the 900 MHz band, this also means there is no reason to reserve spectrum for the CDMA operators like Reliance and Tata when their 800 MHz licenses come to an end as they too can just bid for it again—the 15 MHz of spectrum reserved for them was in the 1900 MHz band.
If the telecom ministry swaps this spectrum with the defence ministry in return for spectrum in the 2100 MHz band, this helps in two ways. One, the defence ministry will be able to consolidate its spectrum from across 6 different blocks today to just 4 blocks and it also gives the ministry larger chunks of contiguous spectrum. Two, it gives the telecom ministry 3 extra slots of 5MHz each in what is called the 3G band. Given each 3G block of 5MHz fetched $4 billion in the 2010 auction, even assuming a 50% discount to this based on