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  1. Spectrum auction 2016: A great outcome on holdings; here’s why

Spectrum auction 2016: A great outcome on holdings; here’s why

India has never before witnessed a bigger or more complex auction (this was for 2355 MHz) nor such a varied set of spectral offerings (as many as seven different bands). It had appropriately been termed by...

By: | New Delhi | Published: October 11, 2016 6:12 AM
As regards 700 MHz, viewed dispassionately, it is indeed excellent that this sub-auction did not succeed and operators should be relieved on this count. As regards 700 MHz, viewed dispassionately, it is indeed excellent that this sub-auction did not succeed and operators should be relieved on this count.

India has never before witnessed a bigger or more complex auction (this was for 2355 MHz) nor such a varied set of spectral offerings (as many as seven different bands). It had appropriately been termed by experts as India’s first “big-bang auction”. Although analysts and industry experts are unfairly critical of the auction design and results, especially as regards the 700MHz, and term the entire event a failure, the auction went on expected lines and has not only been successful in the most sought after 1800 MHz band, but has also given the best possible outcome as regards 700 MHz. It has also provided other valuable lessons for the way forward. Even top industry captains are on record expressing overall satisfaction with the outcome with comments like “has resolved one of the largest issues that the industry faced—inadequate spectrum—and was not a failure, “will give pan-India mobile broadband footprint” and “will provide capacity for a decade”.

As regards 700 MHz, viewed dispassionately, it is indeed excellent that this sub-auction did not succeed and operators should be relieved on this count. Industry definitely did not want this band and for over two years now, was shouting hoarse from rooftops that the requisite ecosystem is not yet available and, hence, auction of this should be deferred. If the reserve price had been more reasonable, they would have been forced to pick up some of this spectrum and that would have unacceptably strained their already severely-stretched financials. Hence, if this sub-auction had succeeded, network roll-out would have suffered and affordable range of handsets would not have been available for the customers. Less ongoing government revenues and a lose-lose for all.

spectrum-graph

The 700 MHz band has the coverage characteristics of 800 MHz and ecosystem similar to 2300 MHz. The reserve price for 700 MHz could have been an average of the prices of those two bands instead of the inappropriate four times multiple of 1800 MHz price. This correction would not have been possible earlier, without other implications/risks. The current failed auction of this provides a sound basis for a robust re-consultation on this by Trai. Undoubtedly a good outcome.

Secondly, while in theory there were seven bands—700, 800, 900, 1800, 2100, 2300 and 2500 MHz—put up for auction, the 900 MHz aspect has to be completely discounted since there was too little spectrum in too few Circles—9.4 MHz in four circles—and this also in extremely fragmented pieces. In the case of 800 MHz also, there was only about 71 MHz spread over 19 Circles but even this is too little to excite significant interest and only about 21% or 15 MHz got picked up by one operator in four circles. Thus, Lesson No.1 from the auction is that it is wasteful of the process to conduct an auction with too little and fragmented spectrum. One must have at least one carrier of 5 MHz of spectrum for auction per circle. This takes us to the next aspect of harmonisation.

There is a massive endorsement, in this auction, of the rich benefits of harmonisation of spectrum.

The government had, in the last several months, very creditably pursued and achieved the decade-long pending harmonisation of spectrum in 1800 MHz band. Thanks to this, we had more meaningful quantum of total spectrum available in this band and, consequently, a sale of 60% of the offered quantity resulted. If one deems an auction as successful if at least 50% of the offered quantity is cleared, then, in this “big-bang auction”, the 1800 MHz auction was a clear success.

Without harmonisation, it could have ended quite differently. Thus Lesson No 2 is that it is essential to have harmonised spectrum to achieve a more successful auction. Government wrote this lesson and achieved success.

The government had, moreover, declared that the harmonisation process would be continued by them on an ongoing basis and in all bands. This was a big confidence booster which also led to operators picking up some additional carriers of 5 MHz in the (3G) 2100 MHz band, although all the operators would need to harmonise these to create real value as 10 MHz carriers in many circles.

However, despite the above, 2100 MHz auction was (thankfully!) not a success because of another important reason. There was great demand for 2100 MHz spectrum, one year ago, when all the operators wanted to enhance their data capability through more of 3G spectrum. But, the environmental dynamics have changed significantly since then, with operators picking up harmonised 1800 MHz for 4G data capability. Obviously, the attraction and value of 3G has fallen sharply. The same lot of 2100 MHz was available last year and if it had been auctioned then, the operators would, in all likelihood, have grabbed all of it for a good price. Thus Lesson No 3 is that technology and market dynamics change quite rapidly, and often, and in order to realise optimal prices and benefits to customer and operator, it is essential to auction the spectrum when there is an evident demand for it.

It is indeed fortunate that the 2100 MHz spectrum had not been sold earlier since then most operators would have spent huge monies and been further committed on 3G. Customers would have lost out on the move to 4G, government would have lost out on 1800 MHz auction proceeds and ongoing data revenues and the incumbent operators also would have been poorly placed with respect to the new entrant, the powerful 4G operator. Competition vibrancy would have been the casualty.

A great outcome of the auction is that at least the top operators now have spectrum holdings on par with or more than the global average of about 50 MHz, including adequate 1800 MHz, which should help provide improved data service and 4G to customers. However, it is disappointing that nothing was acquired in the sub-1GHz bands (except by one operator) and this means that customers may not see significant relief as regards in-building coverage or in call drops indoors.

Summing up, in the rather unique Indian situation, it was a difficult mega-auction with a happy outcome for all—the customers, the industry and the government. Like Alice in Wonderland said,

“Everybody has won, and all must have prizes.”

The author is president, Broadband India Forum and honorary fellow of IET (London). Views are personal

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