Trai Sticks to Base Price for Auction
Regulator opposes DoT view that the 700 MHz band be auctioned in 2 parts, says all available spectrum should be sold at one go
New Delhi: The telecom regulator has stuck to its base price recommendations for the 700 MHz band — termed expensive by the industry — but offered an easier payment structure to reduce the financial burden of carriers.
The Telecom Regulatory Authority of India (Trai) on Monday also opposed a view of the telecom department that the 700 MHz band — the most efficient for 4G — be auctioned in two parts and reiterated that all available spectrum in the band be sold.
Trai had suggested a reserve price of .₹ 11,485 crore a unit of pan-India airwaves in the 700 MHz band. A telco bidding for 5 MHz of pan-India bandwidth in this band would have to pay over .₹ 57,000 crore, more than half the entire proceeds of the 2015 auctions.
To ease the burden for carriers, the regulator said they should be allowed to pay10% of the winning bid initially for any spectrum in an auction. The balance, including interest, could be spread across the next 18 years through equal annual instalments. The regulator also proposed that companies be allowed to pre-pay the entire balance or part of it, apart from paying the total amount upfront.
“The liberal terms of payment, in the form of reduced upfront payment and longer payment schedule, will result in a situation where bidders would find themselves in ‘pay as you earn’ situation and will not be burdened by payments in the initial years,” Trai said in its recommendations.
Currently, an auction winner can choose to pay the entire money upfront or 25% or 33% of the total initially, depending on the band purchased. The remainder can be paid in 10 equal instalments after a two-year moratorium.
If Trai’s latest suggestions are accepted by the Department of Telecommunications (DoT), operators would get a 19-year payment period over the 20 years for which they have the right to use the airwaves.
While agreeing that it would ease financing, Rajan Mathews, director general of the Cellular Operators’ Association of India (COAI), said the 700 MHz pricing still remains expensive.
“Even if I have X number of years to pay for the Rolls Royce I have bought, I still have to pay the entire price. It doesn’t alter the price of the car. It is still expensive,” said Mathews. COAI represents GSM operators such as
Bharti Airtel, Vodafone and Idea Cellular, besides newcomer Reliance Jio Infocomm. Trai’s recommendation was made as part of its response to the Telecom Commission’s queries on the reserve price and quantum of airwaves to be offered in the auction scheduled for July.
The authority said while the payment terms for telcos would be libe- ralised, there would be no loss to the exchequer because the instalment would include interest. “At the same time, there may be larger participation of the telecom service providers in the auction as they get some leverage in making payment over a longer-time horizon,” it said.
The move, while easing pressure on cash flows, won’t lead to higher demand during auctions, said Hemant Joshi, a partner at Deloitte Haskins & Sells. “It won’t solve a telco’s debt challenges if it is compelled to bid at the high prices suggested by Trai, especially for 4G airwaves in the 700 MHz band,” Joshi said.
The telecom regulator also stuck to its stand that DoT must harmonise spectrum in the1800 MHz and 800 MHz bands and auction the additional 201 MHz and 26.25 MHz, respectively, freed up as a result. Harmonisation makes spectrum in any band contiguous or continuous at zero incremental cost, in turn, making the airwaves more efficient for data services and valuable as a resource for auction.