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
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.
NOT ENOUGH DEMAND
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.
UPFRONT PAYMENT CLAUSE
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.
TELENOR NOT TO PARTICIPATE
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