broadband, video, mobile, cloud, networking
TRAI's new spectrum prices may favour large players

The regulator cuts prices 37-60%, suggests lower usage charges and spectrum trading

After the government's attempts (twice) to auction 2G spectrum in the 1,800-MHz band received poor response - in some key circles, no response - the Telecom Regulatory Authority of India (TRAI) has proposed a 37 per cent reduction in base price, from Rs 23.79 billion (Rs.2379 crores) to Rs 14.96 billion per MHz of pan-Indian spectrum.

And while the regulator rejected the demand by incumbent operators to reserve at least 2.5 MHz spectrum in the 900-MHz band, it sharply lowered the base price for this band, too - by about 60 per cent - in Mumbai, Delhi and Kolkata, the three cities where licenses are coming for renewal.

Under the earlier formula, the base price for 900-MHz spectrum was fixed at twice the 1,800-MHz rate. The new rate would be 20% lower than that, and 70% lower than the 3G auction price, despite the fact that this band is considered three times more efficient than the 2,100-MHz band.

It has also been suggested that trading could be allowed for spectrum obtained through auction or for which market value was paid

The TRAI recommendations have come after the empowered group of ministers on telecom sought its views on the reserve price of spectrum to be auctioned in the 1,800-MHz, 900-MHz and 800-MHz bands.

Trai has also recommended that a flat spectrum usage charges (SUC) of three per cent of gross revenue should be levied, instead of the existing range of two-eight per cent. Analysts say, based on normal revenue growth, this would mean a benefit of Rs 600 billion to Rs 800 billion for telcos over a 20-year period. It will also help the incumbent players, which have more spectrum, because they had to pay a higher SUC under the earlier formula.

The move is also expected to attract the telcos that had kept away from the earlier spectrum auctions in key circles like Mumbai, Delhi and Karnataka, citing high base price. The regulator has cut the reserve price by 54 per cent to Rs 1.75 billion in Delhi, by 56 per cent to Rs 1.65 billion in Mumbai and by 32 per cent to Rs 1.24 billion in Karnataka.

Cellular Operators Association of India (COAI) Director-General Rajan Mathew says: "Surely, it has reduced the base price substantially. But based on our market price study, we think the reserve price should have been around Rs 50 billion for 5 MHz of pan-Indian spectrum. However, by pegging it at Rs 75 billion, they have made the base price almost equivalent to what we think should be the market price." Mathew also says incumbent players are disappointed that some spectrum in the 900-MHz band has not been reserved.

There also are some serious concerns, especially from the CDMA players. "By not recommending anything on the base price for the 800-MHz band, the regulator has ensured that companies using this technology have no spectrum or growth path for the future." says a top executive of a company that offers CDMA services.

Some telcos say the move will only benefit some of large incumbent players. For instance, they will now get 900-MHz spectrum at a price lower than 3G, and much lower than that earlier stipulated. "The 900-MHz spectrum is valuable. It can be used for 3G services. And it has now been given on a platter to incumbent players," says the CEO of a new telco.

They also argue that it will be a bonanza for incumbent players with large presence, as the base price for spectrum in Delhi and Mumbai, for instance, is much less than what new operators in the earlier auction paid for circles like Tamil Nadu and Maharashtra .

In Delhi and Mumbai, the reserve prices for the 1,800-MHz band are at a 35 per cent discount on the price discovered in the previous auction, for even the Tamil Nadu circle.

Matthew acknowledges this could be a contentious issue: "The government has to take a call on whether they will refund the money if the final price of spectrum is lower than that paid in the same circle."

Neeraj Jain, senior director, Deloitte in India, says: "At an overall level, TRAI is thinking and pointing in the right direction. But the recommendations could have been tighter. While DoT is asked to provide a clear road map for spectrum quantum and timeline for various auctions in future, Trai has not specified a time horizon."

In November 2012, the government earned Rs 94 billion by auctioning 1,800-MHz spectrum. Though it had auctioned 176 blocks (1.25 MHz each) of the 198 blocks, it recorded bidders for just 101 blocks. Due to the high reserve price, Mumbai, Delhi, Karnataka, and Rajasthan did not record any bidder. For the auction in March, the government reduced the base price for these circles 30%. It had also cut the base price of the 800-MHz spectrum 50%, after it failed to attract bidders during the auction in November.

In March, only Sistema Shyam Teleservices bid for spectrum in the 800-MHz band, for select circles.

Based on story in Business Standard

india telecom reports
Indiatel provides detailed, customized reports on India-telecom-related topics, using published, available unpublished or field sources.

Illustrative topics:
# India's mobile telecom services business
# India's international & domestic bandwidth business
# India's long-distance telecom business
# India's cable TV equipment market and competition
# India's handset business
# India's telecom carrier equipment business

To get in touch with us click here