72 GHz of spectrum for 20-year period: Cabinet nod to 5G auction; telcos may go slow on bids

No price reduction by Cabinet contentious issue for operators, initial rollout may see patchy services

While the operators would bid to some extent for 3,300-3,670 MHz band where the reduction in price was 36% compared to what was prescribed in 2018; there's every chance that the premium 700 Mhz band spectrum may go unsold once again. If this happens, it would be the third consecutive auctions in which this band would remain unsold.
While the operators would bid to some extent for 3,300-3,670 MHz band where the reduction in price was 36% compared to what was prescribed in 2018; there's every chance that the premium 700 Mhz band spectrum may go unsold once again. If this happens, it would be the third consecutive auctions in which this band would remain unsold.

The much-awaited 5G spectrum auctions will commence from July 26, the department of telecommunications said on Wednesday after the Union Cabinet gave its approval to the sale process. However, with the government sticking to the reserve price recommended by the Telecom Regulatory Authority of India (Trai), a muted response from the telecom operators is expected, which is likely to result in patchy 5G services in the first few years.

While the operators would bid to some extent for 3,300-3,670 MHz band where the reduction in price was 36% compared to what was prescribed in 2018; there’s every chance that the premium 700 MHz band spectrum may go unsold once again. If this happens, it would be the third consecutive auctions in which this band would remain unsold.

Industry executives told FE that the absence of 700 MHz band in their portfolio would mean that standalone networks offering both voice and data services would get impacted, which would lead to patchy 5G services.

The Cabinet has gone fully with the Trai recommendations on almost all the aspects with slight tweaks with regard to some clauses. For instance, on the contentious issue of direct allocation of spectrum to enterprises for building private networks, it has given its approval but with a proviso. It has said that the same would become operational once the government has assessed the demand from the industry after which Trai would be asked to come out with the details relating to assignment.

The Cabinet has also reduced the lease of the spectrum to 20 years against 30 years decided by it last year. Though the operators had demanded spectrum for a 30-year period, the 20-year tenure would work out to their benefit in the sense that Trai had said that for a 30-year lease, the price would go up by 1.5 times of the 20-year price.

As recommended by Trai, the government has accepted easy payment terms where no upfront payment is required by the operators and they are free to pay in equal installments spread over a 20-year period. As decided by the government earlier, there would be no spectrum usage charge on the airwaves bought in the auctions. Also, operators can surrender the spectrum bought by them after 10 years if they don’t find a business case for it.

Still, the sticky point would be the price where operators had wanted a reduction of around 90%.

With this not happening, only that much of buying may happen which is just sufficient for providing very basic 5G services and operators may wait for prices to come down further after a year or so. It is because of this reason that operators are likely to give a miss to 700 MHz spectrum. Though the price here has been reduced by 40% at Rs 3,927 crore per MHz compared to the 2021 auctions, for buying 5 MHz on a pan-India level, telcos would still have to shell out Rs 20,000 crore for a 20-year period.

As is known, even after the Trai reducing the reserve price by around 36% in the main 5G band of 3,300-3,670 MHz at Rs 317 crore per MHz , and fixing the price of 24.25-28.5 GHz spectrum band, referred to as millimetre band, at Rs 6.99 crore per MHz, to buy a combination of these two, operators would have to fork out Rs 37,292 crore for pan-India level. If they spend another Rs 20,000 crore on 700 MHz, their total spend would go up to Rs 57,292 crore, which would be quite high combined with their existing outgo on spectrum bought in previous auctions.

Some of the operators FE spoke to said that since spectrum in the 3,300-3,670 MHz and 24.25-28.5 MHz are for data purposes, the core of 5G, it makes sense for them to first buy these bands. “We can wait longer to buy 700 Mhz. The prices for it have been brought down twice in the past and maybe it would be lowered again next year, so one can buy it then,” said an industry executive.

A total of 72 GHz spectrum would be put up for auction in spectrum bands of 600 MHz, 700 MHz, 800 MHz, 900 MHz, 1800 MHz, 2100 MHz, 2300 MHz, mid (3300 MHz) and high (26 GHz) frequency bands.

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