Pray for spectrum auction failure: Only then will base prices for critical 700MHz be cut

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New Delhi | August 9, 2016 9:33 PM

Given the changed up-front payment rules for auctions – 50% of the bid has to be paid immediately as opposed to 33% earlier – the government is certain to meet its budget target of Rs 90,000 crore from the auctions as well as annual license/spectrum charges.

None of this means telcos don’t need data spectrum, especially with RJio coming in soon, but the best spectrum is the 700MHz one which is priced at almost double the 800MHz one – there is very little spectrum left in the 900MHz frequency. None of this means telcos don’t need data spectrum, especially with RJio coming in soon, but the best spectrum is the 700MHz one which is priced at almost double the 800MHz one – there is very little spectrum left in the 900MHz frequency.

Given the changed up-front payment rules for auctions – 50% of the bid has to be paid immediately as opposed to 33% earlier – the government is certain to meet its budget target of Rs 90,000 crore from the auctions as well as annual license/spectrum charges. Though the 2,353 MHz of spectrum on auction across seven frequency bands is worth Rs 5.6 lakh crore at just the floor prices, few will bid for anything near this. Indeed, the big change is that India is moving to an era of spectrum glut from one of spectrum scarcity even a year ago, a direct result of which will be more reasonable bidding in September especially since, this time around, telcos know there is plenty more spectrum available. In 2010, when bids first reached astronomical levels, telcos were bidding for 3G spectrum considered to be a game-changer and, in 2015, they had no option but to bid madly since their 900MHz licenses were expiring and just had to be renewed. This time around, it is true top telcos have to complete their 3G and 4G networks, or add to their capacity, but the industry is already reeling under Rs 3.5 lakh crore of debt, the subscriber response to 4G has been muted, indeed the growth in data usage is slowing.

None of this means telcos don’t need data spectrum, especially with RJio coming in soon, but the best spectrum is the 700MHz one which is priced at almost double the 800MHz one – there is very little spectrum left in the 900MHz frequency. There is no rational reason for this, indeed 800MHz is better since there is already equipment and handsets in the market that work on this unlike for 700MHz. Indeed, as FE has pointed out (Column: What’s Trai playing at?), Trai used totally incorrect assumptions while doing this. Also, given there are six circles where contiguous 5MHz blocks of 800MHz frequency spectrum are available, this will also dampen the demand for 700MHz. The best option, from the industry’s point of view, will be a failed 700MHz auction after which the government will cut the base price as happened in 800MHz. In 2012, while Trai recommended 800MHz be priced at 2 times the 1800MHz price, the Cabinet lowered this to 1.3 times – when the auction still failed, the reserve price was further cut by half in 2013. If 700MHz prices are lowered to reasonable levels, this will be a big relief for industry and will also fetch the government more funds.

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