No auction without adequate spectrum

Written by fe Bureau | New Delhi | Updated: Oct 16 2014, 06:36am hrs
TraiTRAI said auctions should be held simultaneously for spectrum in the 800, 900, 1800 and 2100 MHz bands and a clear timeline for auctioning the 700 MHz should be specified. (Reuters)
The Telecom Regulatory Authority of India on Wednesday virtually stymied the governments plan to hold auctions of 900 and 1800 MHz band spectrum in February, stating that no auctions should be held unless sufficient spectrum is made available. While submitting the reserve price for auction of spectrum in the two bands in response to a reference from the department of telecommunications, the regulator said auctions should be held simultaneously for spectrum in the 800, 900, 1800 and 2100 MHz bands and a clear timeline for auctioning the 700 MHz should be specified.

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The message from Trai to DoT in short reads: There should be no auctions unless the finance, defence and telecom ministers sit together and hold a dialogue to resolve the issues of vacation of more spectrum from defence forces so that theres no supply-side crisis.

Trai has warned in its over 100-page recommendations that if the government does not heed the regulators counsel, there would be a serious crisis in the country where mobile services in 18 of the 22 telecom circles (broadly contiguous with the states) could get disrupted.

For the government the choice seems to be simple act fast on releasing more spectrum for commercial services or postpone the auctions, in which case its budgeted Rs 27,000 crore from auctions in the current fiscal goes haywire.

Though telecom minister Ravi Shankar Prasad declined to comment on Trais recommendations on Friday, in an interview to FE earlier this month he had said that the government would resolve all spectrum related issues by the end of the year.

The problem, as brought out by Trai, is that in the upcoming auction in the 900 MHz band, only the spectrum held by the operators whose licences are expiring is available. These licensees will have to win back this spectrum to ensure business continuity or else their investment could be impacted. This is because unlike the February 2014 auctions there is not enough spectrum in the alternative 1800 MHz band as a backup. In fact, the spectrum in the 1800 MHz band at 104 MHz is less than the 184 MHz in the 900 MHz band and further, all of it is not contiguous.

Trai chairman Rahul Khullar told FE that the situation is alarming and could see prices hitting the roof as the incumbents rivals know the situation. The choice for the incumbents is either to win back their 900 MHz spectrum by bidding aggressively, in which case they would not be left with much to invest later, or lose the airwaves and shut down operations, in which case all the money invested so far goes down the drain. Consumers stand to suffer because there would be disruption in services as any new operator that enters the market would take time to roll out services. All industrial rivals know this, which is why even a non-serious bidder is potentially in a position to push up the final auction price, Khullar said.

However, Trai has offered a solution to the government, which is to create a supply of more spectrum in the 900 MHz band by taking back a portion of it from BSNL in all its 18 circles. Creation of an e-GSM band by utilising the 800 MHz band is also an option. More spectrum in the 1800 MHz band can be made available by asking the defence forces to vacate it wherever they are holding more than 20 MHz. Similarly, the entire 60 MHz of spectrum in the 2100 MHz (3G) band should be released for commercial services against 25 MHz currently, the regulator suggested. The defence ministry can be compensated with 1900 MHz band which was earlier reserved for the growth of CDMA operators but since this segment has no further traction, its reservation is of no purpose.

Meanwhile, Trai has suggested a reserve price of Rs 2,138 crore per MHz of 1800 MHz spectrum on a pan-India basis, which is around 10% higher than the reserve price fixed for the February 2014 auctions. In the 900 MHz band, the reserve price for the 18 circle adds up to Rs 3,004 crore, roughly 1.5 times the price of 1800 MHz. The 10% increase in the 1800 MHz band is due to the exponential growth (100%) in data services in the last one year. Operators data revenue has shot up from 7.3% of overall revenues to 15.3% in the last one year. Trai has assumed a growth of 20% for coming out with a 10% increase in base price.