TRAI’s 5G auction guidelines fall short

Opportunity Missed to Shed Legacy Shackles due to inadequate auction sales, low rise of final price over reserve price and poor correlation between bands.

TRAI’s 5G auction guidelines fall short

We are at the threshold of the new 5G era with almost unbelievable benefits of bandwidth and a new digital society. Much will, of course, depend on the adequate availability of appropriate spectrum. The eagerly-awaited regulatory recommendations for spectrum auction, including the all-important 5G spectrum, have just been announced. Are there rejoicings and celebrations everywhere?Unfortunately not; while the recommendations are very good in many respects, a few important aspects have been overlooked and, in the context of India’s need to embrace the digital benefits, this represents huge opportunities missed.

Firstly, the good news
A huge quantum of spectrum in multiple bands—as many as eight bands—is sought to be auctioned. Not only this, the quantum of spectrum recommended for auction is enormous—as much as 8600 MHz! So, effectively, this is a mega auction. The earlier big bang auction of 2016 featured only 2355 MHz or less than 30% of the current recommendation. The availability of such a large quantum of spectrum and so much choice should indeed help, reserve prices being right, to get a rational price discovery in the auction. Apart from the above positive aspect, there is another significant feature—a 42% reduction in valuation and reserve price of the prized 700 MHz spectrum which regrettably featured a complete auction failure earlier. In other bands also, there is a RP reduction ranging from 10% to 40%. On the face of it, this also looks very commendable.

A third and highly laudable recommendation is the introduction of spectrum audits by an independent agency to ensure the efficient usage of this precious resource by all users, both private and public. This is a longstanding need and with air waves being the property of the citizens of India, it is indeed important to audit its usage by an independent expert body.

Why then are we disappointed?
To understand this, one needs to first appreciate that our e-auctions of spectrum since 2010 can, by no stretch of imagination, be termed to have been successful. Quite the opposite: There have been continuing issues with our spectrum pricing that have, unfortunately, not been addressed by TRAI.

The accompanying graphic shows that if one looks at all the 6 auctions held since 2010, only about 62% of the cumulative spectrum has been sold. Of course, there have been a few 100% sale auctions but most of these were due to abnormal pressures like the spectrum roadmap not being clear or licence extension compulsions, etc.

The above view is strongly reinforced when one notes that most of the sold spectrum went at the fixed reserve price or very close to it, namely, there has been very little market discovery of the true value of the spectrum and only a sort of administered or allocated price has been the result invariably. Under such a serious situation, mere price adjustments will not suffice and it needs a radical review of the price valuation fundamentals.

Also, importantly, the value of licensed spectrum is not proportional with the market realities. There is no correlation of value amongst different bands in the same circle or band-wise correlation amongst various circles. In summary, these three characteristics of inadequate auction sales, low rise of final price over reserve price and poor correlation between bands as well as circles, together inarguably constitute the description of unsuccessful auctions and warrant a relook at the complete methodology, especially in the context of an uncertain business case for 5G and, most probably, low margins per unit.
Against the above background, Broadband India Forum (BIF) had formally proposed, to both TRAI and DoT, a practical solution for valuing spectrum linking it to revenue-earning potential. This has regrettably been ignored, and has not been discussed or even acknowledged. We are not claiming that this is the right solution or only solution; what we seek is consideration of a practical solution of this type and the discontinuation of a past practice that has not yielded the desired results.

A 5G price of Rs 492 crores may, in isolation, not seem very high but considering that i) 5G is completely uncharted waters in respect of use cases and business potential and that, ii) even Korea, a far more affluent country and one of the most advanced in the globe for broadband and 5G, auctioned this spectrum for about one-fourth of TRAI’s recommended sum.

TRAI also, very sgnificantly, missed making recommendations for the special framework required for 5G trials. This is extremely important for network operators and their partners to have enough appetite for this project. TRAI could have made recommendations like keeping the trial spectrum free and the mandating of the trial period for at least 6-12 months after the trial setup is ready. Moreover, at the end of the trial, if the operator wishes to continue using the same spectrum, it should have the right of first refusal on matching the later-discovered auction price.Without such a bold and progressive approach, we may not see much headway in the 5G trials because no operator would like a complete spectrum disruption after all the troubles of trials and proving the difficult business case with possibly low and tight margins. Last but not least, since 5G is a national priority, it is important to recommend that a significant part of the heavy funding for trials should be borne by the Centre.

While 3.5 GHz is a good general purpose 5G spectrum, one also needs the specialist ultra-high capacity millimetric wave to be able to architecture the specialist applications that only 5G can serve. While a 28GHz is fraught with difficulties, consideration of 25 GHz is a good possibility. This unfortunately has been not considered. This miss is particularly significant since India is highly deficient in fixed line availability.

All in all, these TRAI recommendations, though good in parts, do not seem to have exploited the excellent possibilities for 5G through bold, far-seeing recommendations. We are continuing with old chains when the promise of the new 5G generation could well justify the discarding of legacy shackles. The 5G tide has started rising elsewhere in full flow, but we seem to be in danger of missing it.

(The auther is the President of Broadband India Forum and honorary fellow, IET (London). Views are personal)

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