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Spectrum reserve price: Trai refuses to share its calculation model with DoT

Regulator may now be asked to come out with a long-term calculation methodology.

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For the 3500 MHz, which is a totally new band, Trai has pegged its reserve price to 30% of the price of the 1800 MHz band.

By Kiran Rathee

The Telecom Regulatory Authority of India (Trai) has refused to provide the department of telecommunications (DoT) a detailed methodology adopted by it to calculate the reserve price for spectrum for fresh auctions. Sources told FE that now DoT is left with the only option of asking the regulator to come out with a long-term calculation methodology for which the latter will have to come out with a consultation paper and seek inputs of the stakeholders.

Sources told FE that the DoT, which is currently examining the reserve prices submitted by the Trai in August, wrote to the latter asking to share in detail the methodology used by it to calculate the prices. However, the Trai refused to share any such information by simply replying that it has given everything in its recommendations and it is for the DoT to do further calculations. “We have mentioned in the recommendations about the percentages used to calculate reserve price of various bands. DoT can do the calculation if they want to, why are we supposed to give it?” said a source in Trai.

DoT sources said that their idea in asking for the methodology was to ascertain if there’s any error in reflecting the true market price of spectrum, but since Trai has refused to cooperate they will examine whether it can be asked to come out with a long-term methodology using the consultative process.

It may be noted that last month senior executives of major telecom operators like Bharti Airtel, Vodafone Idea and Reliance Jio had met Trai chairman RS Sharma and pressed their demand to initiate a consultation around valuation methodology for spectrum.

So far, the model used by Trai takes the last bid price as the base for calculating the price for fresh auctions. For instance, in its August recommendations, wherever the last auction price was available, Trai has scaled it up with the inflation index for arriving at the new reserve price.

It has calculated the spectrum price ground up (using models defined by it), then taken a simple average of prices emanating out of these individual models and then reduced the same by 20%. After that, it has compared it with the last reserve price and taken the minimum of the two numbers for arriving at the new reserve price.

For new bands like 700 MHz and 3500 MHz, the price of 1800 MHz has been used as the reference like the previous year (2016). The only difference here is that the multiplying factor for arriving at the reserve price of 700 MHz band has now been reduced from the factor “4” to “2”. Similarly, for the 3500 MHz, which is a totally new band, Trai has pegged its reserve price to 30% of the price of the 1800 MHz band.

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Another problem with the Trai methodology is that it uses mean, instead of median, for aggregating the prices which emanate out of its various models. Ideally, while dealing with numbers which are significantly different, median is the correct statistical tool for aggregation and not mean.

Operators and analysts have, therefore, been demanding of late that Trai come out with a methodology for calculating reserve prices which is not just based on the previous auction prices but reflects the actual dynamics of market and business.

Sources said that it was in this direction that the DoT wanted to get the details from the Trai on its methodology but the regulator refused to cooperate.

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