With the De­part­ment of Telecom­mu­ni­ca­tions go­ing in for the big­gest-ever spec­trum auc­tion in In­dia in the last week of Septem­ber, Tele­com Sec­re­tary JS Deepak is op­ti­mistic about rais­ing more than the es­ti­mated Rs 5.56 lakh crore (at the re­serve price) in t

Bureaucracy Today - - Inside Information - By An­jana Das

De­spite the In­dian Gov­ern­ment’s move to ease the bid­ding norms, an­a­lysts and in­dus­try do not seem to be much op­ti­mistic about the next month’s spec­trum auc­tion.

On Au­gust 9, while re­leas­ing the No­tice Invit­ing Ap­pli­ca­tions (NIA) for prospec­tive spec­trum auc­tion bid­ders, Tele­com Sec­re­tary JS Deepak said there is enough rea­son to be “hope­ful” that 2,354.55 MHz of air­waves across seven bands will be “sold out com­pletely”.

The Tele­com Sec­re­tary may have his jus­ti­fi­ca­tion to be­lieve so. But whether the Gov­ern­ment has read the mar­ket sce­nario cor­rectly or not will be known on or af­ter Septem­ber 29 when this mega sale takes place. How­ever, for the mo­ment, an­a­lysts and in­dus­try do not seem to be shar­ing his op­ti­mism.

The rea­sons could be many. The fact is that ail­ment is dig­ging this in­dus­try which is still on a growth path. Both an­a­lysts and in­dus­try feel that the most prom­i­nent rea­son that could prove a damp­ener is the ex­or­bi­tantly priced 700 MHz band which has been val­ued at Rs 11,485 crore per 1 MHz. This is the band which is ex­pected to fetch about Rs 4 lakh crore from the to­tal es­ti­mated Rs 5.56 lakh crore. “It’s a top-qual­ity spec­trum. It’s like a beaten gold, and so it’s ex­pen­sive,” said Deepak. And here lies the prob­lem, say the an­a­lysts. The Gov­ern­ment has put on auc­tion seven blocks of the 700 MHz band, each block be­ing of 5 MHz.

Since the 700 MHz spec­trum band may turn out to be the most de­cid­ing fac­tor in this auc­tion, let’s see its back­ground and the pric­ing mech­a­nism.

The Tele­com Reg­u­la­tory Author­ity of In­dia (TRAI) had re­it­er­ated that the en­tire spec­trum avail­able in the 700 MHz band should be auc­tioned as non-util­i­sa­tion would re­sult in an ir­re­versible loss to the Gov­ern­ment. It pro­posed a base price that is four times that of the 1,800 MHz band.


The 700 MHz band is more eco­nom­i­cal and ef­fi­cient for pro­vid­ing tele­phony ser­vices com­pared with other bands like 900 MHz or 1800 MHz. Some of the prospec­tive bid­ders (op­er­a­tors) have said there may not be enough de­mand due to the higher quan­tity of air­waves and also be­cause of tel­cos rolling out their net­works us­ing spec­trum bought in 2014 and 2015, apart from the high price of the 700 MHz band.

The car­ri­ers had re­quested the Tele­com reg­u­la­tor and the Gov­ern­ment to de­fer the sale of 700 MHz spec­trum, say­ing that the ecosys­tem for pro­vid­ing ser­vices in this band was not de­vel­oped and the sale would lead to un­der­util­i­sa­tion of the spec­trum for sev­eral years and block the in­dus­try’s cru­cial funds.

The TRAI has re­it­er­ated its ear­lier rec­om­men­da­tion that “the en­tire avail­able spec­trum (2x35MHz) in the 700 MHz band should be put to auc­tion at the up­com­ing auc­tion.”

The TRAI had priced it four times that of the 1,800 MHz band as both are pri­mar­ily used for LTE ser­vices. The Gov­ern­ment had sold spec­trum worth Rs 1.1 lakh crore at the pre­vi­ous auc­tion which closed in March last year

An­a­lysts feel that no op­er­a­tor would jump into the band­wagon. Bid­ding is not go­ing to be a dis­play event. Rather shrewd mar­ket dy­nam­ics would de­cide whether spec­trum in par­tic­u­lar band is needed or not. It may be re­called that most in­cum­bent op­er­a­tors have not yet re­cov­ered their in­vest­ments made on 3G. They are in the midst of ex­pand­ing their 3G ser­vices across the coun­try. “So ad­e­quate cau­tion can be seen in their urge for buy­ing 4G spec­trum at this junc­ture,” says an an­a­lyst.

The NIA spelt out norms for the auc­tion of spec­trum in seven bands – 700 MHz, 800 MHz, 900 MHz, 1,800 MHz, 2,100 MHz, 2,300 MHz and 2,500 MHz. It re­laxed the rules for an eq­uity lock-in pe­riod by re­duc­ing it from three years to one year. It al­lowed quicker al­lo­ca­tion of spec­trum to suc­cess­ful bid­ders by re­duc­ing the pe­riod to 30 days from the ear­lier four to five months and per­mit­ted eas­ier roll­out obli­ga­tions. The re­laxed eq­uity lockin pe­riod will free a com­pany, whose net worth has been used to pro­cure spec­trum. The com­pany can exit in one year as against three years pre­scribed ear­lier.

The eas­ier roll­out obli­ga­tions will see that a suc­cess­ful bid­der is al­lowed to self- cer­tify the net­work roll­out up to 90 per cent while 10 per cent will be left for ver­i­fi­ca­tion by the De­part­ment of Tele­com. It has also re­duced the in­ter­est on the pay­ment of in­stal­ments to 9.3 per cent from about 10 per cent ear­lier.


It, how­ever, raised the up­front pay­ment clause for spec­trum above 1GHz – 1,800 MHz, 2,100

MHz, 2,300 MHz and 2,500 MHz-- to 50 per­cent as against the 33 per­cent stip­u­lated ear­lier. The Spec­trum Us­age Charge (SUC)s will now be 3 per cent as against the 5 per cent at the last auc­tion.

But an­a­lysts feel that all this may well be short of Gov­ern­ment ef­forts to sell the air­waves like hot prop­erty. They say the Gov­ern­ment has not fac­tored in the price fac­tor—a high re­serve price for the 700 MHz band, thought to be one of the most ef­fi­cient ones for 4G ser­vices.

For the first time, the 700 MHz band fre­quency will be auc­tioned this year. Tele­com De­part­ment of­fi­cials say the cost of de­liv­er­ing mo­bile ser­vice in the 700 MHz band is about one-third of the cost of ser­vice cov­ered un­der the 2,100 MHz band and has a bet­ter in­door ca­pac­ity. It has a lower fre­quency and a wider cov­er­age thereby re­duc­ing the num­ber of tow­ers re­quired to set up a long-term evo­lu­tion (LTE) net­work which cuts down cap­i­tal ex­pen­di­ture for set­ting a 4G net­work.

But its pos­i­tiv­i­ties are blurred in the face of a stag­ger­ing Rs 11,485 crore per MHz. An in­dus­try reel­ing un­der the bur­den of a Rs 3 tril­lion debt is highly un­likely to go af­ter 700 MHz band which can cost about a whop­ping Rs 57,000 crore for a five mega­hertz quan­tum.

Prashant Sing­hal of EY In­dia com­pany, a global telecom­mu­ni­ca­tions leader, tells Bu­reau­cracy To­day that the Septem­ber 29 auc­tion is likely to fetch just about 10 to 15 per cent of the en­tire ex­pected amount.

He says: “It is go­ing to be just a frac­tion of the en­tire amount, i.e, 10-15 per cent of Rs 5.63 lakh crore. This is be­cause of the de­mand sup­ply sit­u­a­tion as there is ac­tu­ally no press­ing rea­son for the op­er­a­tors to go in for this auc­tion . There is no com­pul­sion. I don’t see any ac­tiv­ity. The spec­trum auc­tion has be­come an an­nual rou­tine af­fair. So when the ex­pan­sion of 3G ser­vices is also hap­pen­ing, op­er­a­tors would not like to block a large chunk of their funds into buy­ing 4G spec­trum (700 MHz) due to the high price of the band. Of their ex­pected Rs 5,63,000-crore wind­fall, 700 MHz spec­trum could alone be pegged to con­trib­ute over Rs 4,00,000 crores if all fre­quen­cies are sold at the pan-In­dia base price. But the sale of 700 MHz is likely to be very very muted. Maybe in some cir­cles some bid­ding may hap­pen. Voda­fone and TTSL have yet to have a sig­nif­i­cant pres­ence in 4G spec­trum across the coun­try. So they may go in for some spec­trum but surely 700 MHz would not be their op­tion.”

Sing­hal is of the opin­ion that if the DoT priced the spec­trum band 50 per cent lower

An auc­tion of the Septem­ber 29 mag­ni­tude has user­friendly rules. There is go­ing to be im­mense in­ter­est all over. I am sure.

It (700 MHz) is a topqual­ity spec­trum. It is like a beaten gold, and so it is ex­pen­sive. JS DeepAk, Sec­re­tary, Tele­com

The car­ri­ers had re­quested the Govt to de­fer the sale of 700 MHz spec­trum, say­ing that the ecosys­tem for pro­vid­ing ser­vices in this band was not de­vel­oped and the sale would lead to un­der­util­i­sa­tion of the spec­trum & block the in­dus­try’s cru­cial funds.

than that of the cur­rent price of Rs 11,485 crore of 1 MHz, there could have been a bet­ter re­sponse. He says that the 4G can also be of­fered by the 2,300 and 2,500 MHz bands which are much cheaper. “The 2,300 and 2,500 MHz bands may see some bid­ding at the auc­tion,” he adds.

Some of the an­a­lysts say on con­di­tion on anonymity that Reliance Jio may also not be in­ter­ested in the 700 MHz band as it bought 4G spec­trum at the 2010 auc­tion.


Nor­way’s Telenor has al­ready an­nounced its de­ci­sion not to par­tic­i­pate in the In­dian spec­trum auc­tion. Global in­vest­ment bank and eq­uity re­search firm Gold­man Sachs in its re­port on the Septem­ber 29 spec­trum sale has also stated that there would be a “muted” re­sponse to the auc­tion.

It said, “Op­er­a­tors will look to fill gaps; bid­ding to stay muted. The up­com­ing auc­tion is cru­cial for the Idea and Voda­fone com­pa­nies as they still have a large amount of 3G/4G gaps, and they will look to fill those. The Bharti and Reliance Jio have very few cir­cles with­out 3G/4G, and will try to bol­ster their data spec­trum hold­ing. We do not fore­see mean­ing­ful par­tic­i­pa­tion by other smaller tel­cos, given their stretched bal­ancesheets.”

An op­er­a­tor says, “We ex­pect the Idea to have the high­est amount of spec­trum re­lated outgo, given its 3G/4G gaps in metro ser­vice ar­eas”.

A lead­ing op­er­a­tor opines, “Two is­sues arise here. The pro­posed sale is un­timely as it could have been de­ferred for de­mand to pick up and the price tag of a new band (700 Mhz) is high, though it is ef­fi­cient. Given the debt of each tele­com com­pany and an un­der­de­vel­oped ecosys­tem for 4G, the Septem­ber 29 auc­tion may play a spoil­sport.”

So it is left to the 1,800 MHz, 2,100 MHz and 2,300 MHz bands for re­viv­ing de­mand. Some play­ers say even the sale of 2,500 MHz is doubt­ful as it is an untested band and doesn’t have an ad­e­quate ecosys­tem. “An auc­tion of the Septem­ber 29 mag­ni­tude has user­friendly rules. There is go­ing to be im­mense in­ter­est all over. I am sure,” says Tele­com Sec­re­tary Deepak.

Manoj Sinha, Min­is­ter of State for Com­mu­ni­ca­tions

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