Blow for telcos as just 5MHz of 3G in auction

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New Delhi | Updated: January 6, 2015 2:16:30 AM

15MHz of spectrum swapped by defence to be sold later

The Telecom Commission is expected to take up the matter on Wednesday.The Telecom Commission is expected to take up the matter on Wednesday.

In a major setback for mobile operators, the Union Cabinet on Monday decided to put only 5 MHz of 3G spectrum in the 2100 MHz band along with 2G bands (800, 900 and 1800 MHz) in the auctions planned towards the end of next month.

This 5 MHz of 3G spectrum is what the department of telecommunications will get in 17 of the 22 telecom circles from the defence ministry as per the terms of memorandum of understanding signed in 2009. The 15 MHz of spectrum that the defence ministry had agreed to swap with the telecom ministry in the 2100 MHz frequency band is to be auctioned later.

This means that prices in the February 2015 auction will skyrocket in the 900 MHz and 2100 MHz frequency bands as incumbent operators, whose licences in the 900 MHz frequency are going to expire will have no option but to bid astronomical sums. In 2010, when spectrum was in short supply, telcos bid R16,751 crore per 5MHz of 2100 MHz spectrum compared with the base price of R3500 crore – in February 2014, when spectrum was not in such short supply, telcos paid R4,446 crore per 5 MHz as against the base price of R3,705 crore.

The pricing of this spectrum will be decided by the Cabinet later because the Telecom Regulatory Authority of India has recommended the reserve price for it only last week and the Telecom Commission needs to first approve it.

The Telecom Commission is expected to take up the matter on Wednesday.

spectrum-graph

Monday’s Cabinet’s decision on spectrum, however, runs contrary to the recommendation of Trai, which had said that auction of 15 MHz of 3G spectrum should be done simultaneously with 2G to tide over spectrum scarcity. The regulator had said that this was possible because the defence ministry had agreed to a swap proposal by which 15 MHz of spectrum in the 2100 MHz band would be released for commercial services.

However, the government has decided that at this stage it would go ahead by auctioning only 5 MHz of 3G spectrum and conduct the auctions for the balance 15 MHz later, sometime in May.

This would come as a major blow to the operators because the problem of spectrum crunch does not get solved by the Cabinet’s decision to split the 3G auctions. This is because there is only 184 MHz of spectrum in the 900 MHz band, the amount that is currently held by operators whose licences are up for renewal in 2015-16. Further, there isn’t enough 1800 MHz (only 104 MHz) spectrum as a back-up as was the case in last year’s auctions held in February. In such a scenario, if the operators fail to win back their 900 MHz spectrum they will have no option but to close down their services. Even if they win back, it would be at a huge price and won’t be able to invest further in services and network. If a new player enters in lieu of the incumbents, it would take time to start services, so there would be disruption in services.

The Cabinet also approved the reserve price for auction of 2G spectrum in the 800, 900 and 1800 MHz bands. Earlier the telecom commission had approved the rates at Rs 3,646 crore, Rs 3,695 crore and Rs 2,191 crore per megahertz for these bands. At these rates the government expects to mop up around Rs 64,840 crore.

Since the operators opt for a deferred payment option, which includes a third of the actual amount, the actual revenue accruing to the government would be much lesser. The government has thus set a very modest target of garnering Rs 9,355 crore from 2G spectrum and Rs 5,000 crore from the auction of 3G spectrum.

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