Biggest spectrum auction to begin on September 29; industry skeptical

By: | Published: August 8, 2016 11:34 PM

Government is looking at raising as much as Rs 5.63 lakh crore from the auction of mobile phone airwaves in the nation's biggest-ever spectrum auction that begins on September 29.

The government has modified method of calculating spectrum cap in a circle in a way that will allow companies to hold more spectrum compared to earlier levels. (Source: Reuters)The government has modified method of calculating spectrum cap in a circle in a way that will allow companies to hold more spectrum compared to earlier levels. (Source: Reuters)

Government is looking at raising as much as Rs 5.63 lakh crore from the auction of mobile phone airwaves in the nation’s biggest-ever spectrum auction that begins on September 29.

“Large chunk of spectrum is being put for auction which aims to address issue of fragmentation, improve quality of service, and rules have been made bidder friendly,” Telecom Secretary J S Deepak said while releasing the bid document called the Notice Inviting Application (NIA).

The government will put a total of 2,354.55 megahertz of mobile airwaves frequencies for auction in all band — 700 Mhz, 800 Mhz, 900 Mhz, 1800 Mhz, 2100 Mhz, 2300 Mhz and 2500 MHz. All the airwaves being put for auction can be used for high speed 4G services.

This is the first time airwaves in 700 Mhz band will be put up for auction. The airwaves in this band are considered premium among all, as cost of providing service in it is one-third of 3G service in 2100 Mhz band.

“Quantum of spectrum is favourable. There are positives including the fact that contiguous spectrum is now available in all bands, and lock in period has been reduced to one year,” Industry body COAI Director General Rajan S Mathews said.

But pricing of 700 Mhz is a concern, he said. “We see relatively good demand for 1800 Mhz band, some demand for 2100 and 2300 Mhz band. Limited demand for 700, 800 and 900 Mhz bands. I will be surprised if there are any takers for 2500 Mhz band,” Mathews added.

While Norway’s Telenor has already announced its decision not to participate in the spectrum sale, there are doubts if some of the leading domestic player may bid very aggressively after they bought airwaves in inter-company trade this year.

The 700 Mhz band alone has potential to fetch bids worth Rs 4 lakh crore if all spectrum in it gets sold at the base price. Bidder interested in buying spectrum in 700 Mhz band will have to at least a block of 5MHz amounting to around Rs 55,000 crore.

“700 MHz is the top quality spectrum. It has beaten gold so it is expensive. We will wait for the auctions to see what the response is,” Deepak said.

The government expects to raise at leasts Rs 64,000 crore from the spectrum auction this fiscal. To attract bidders, it has for the first time promised to assign spectrum within 30 days of making upfront payment by successful bidders.

It has also reduced interest on instalments to 9.3 per cent from about 10 per cent earlier.

The government has relaxed equity lock-in period. This will free company, whose networth has been used to procure spectrum, to exit from the company in one year as against year years prescribed earlier.

“The roll out obligation will be considered complete if the district headquarters and block headquarters are covered by use of any technology in any band. In the sense that if a district headquarter is covered through one technology it does not have to be done by other technology,” Deepak said.

Successful bidder will be allowed to self certify network roll out to the tune of 90 per cent while 10 per cent will be left for verification by Department of Telecom’s (DoT) monitoring arm.

Telecom companies winning spectrum in 700, 800 and 900 Mhz band will have to pay at least 25 per cent of the bid amount initially in around 10 days after the auction ends. Rest of the payment will have to be made in 10 annual instalments after two years of moratorium.

For rest of the bands, at least 50 per cent of payment will have to made. Interested bidders will have to submit application for participating in auction by September 13.

In 2015 auctions, among the firms that aggressively bought airwaves were Bharti Airtel Ltd, Idea Cellular, Reliance Jio. Telecom operators had to bid in 2015 auction for continuing operation as their airwaves was put for sale.

“In the upcoming spectrum auction, the spectrum is not for renewal and therefore the operators are unlikely to bid aggressively as they would buy spectrum for new services or augment their spectrum holding,” Hemant Joshi, Partner, Deloitte Haskins & Sells LLP said.

The government has modified method of calculating spectrum cap in a circle in a way that will allow companies to hold more spectrum compared to earlier levels.

“The spectrum surrendered has also been included in calculation of spectrum cap apart from spectrum put to auction and assigned spectrum. The spectrum cap shall not be reduced in case spectrum is allocated for non-commercial use after auctions,” as per the NIA.

The DoT will hold pre-bid conference on clarification over NIA on August 13.

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