The Telecom Regulatory Authority of India (TRAI) has released a consultation paper (pdf), seeking comments on the valuation & reserve price of spectrum for the 2100 megahertz (MHz) band.
The Department of Telecom (DoT) wants to conduct the auction of spectrum under the 2100 MHz band that is expected to be released by the Defence Department along with the auction of spectrum in the 800/900/1800 MHz bands scheduled for February 2015. This is the reason TRAI had to expedite the process of recommendation on the reserve price of the 2100 MHz band.
This consultation paper addresses key issues like the rollout obligations, spectrum cap, different models for valuation of spectrum & estimation of reserve price of spectrum. Various stakeholders can submit their views by December 15, 2014 and counter-comments by December 19, 2014 to firstname.lastname@example.org. TRAI has also informed that an Open House Discussion will be held on 22nd December, 2014 in New Delhi.
Availability of spectrum in the 2100 MHz band via spectrum release from current Defense allotment
DoT is currently discussing possibilities of the Defence Department releasing spectrum in the 2100 MHz band. Defence might release one block of 5 MHz in the 2100 MHz band in 17 service areas, which would be made available for the auction. Defence had earlier released 4 blocks of 5 MHz each in the 2100 MHz band out of the 5 blocks of 5 MHz allotted to DoT under the MoU with Defence. DoT now wants Defence to release the remaining one block. There is also a possibility that the spectrum in the 2100 MHz band allocated to Defence could be swapped for an equal amount of spectrum in the 1900 MHz band. So, overall Defence might release 5 MHz in 17 service areas plus 3 blocks of 5 MHz each on a pan-India basis by swapping 2100 MHz spectrum for 1900 MHz spectrum.
Telcos that currently have spectrum in the 2100 MHz band:
Keeping in mind rollout obligations & spectrum cap requirements, TRAI has invited comments on these three questions:
– Whether a bidder should be allowed to bid for more than one block of spectrum, in case more than one block of spectrum in specified service areas are made available for the auction?
– Whether the spectrum caps (of 50% of total spectrum in a band/25% of total spectrum assigned across bands) prescribed in recently held auctions in the 800/900/1800 MHz bands should also be prescribed for the upcoming auctions in the 2100 MHz band?
– In case only one block of 5 MHz of spectrum in 2100 MHz is available in a service area, should only those telecom operators be allowed to participate who do not have 2100 MHz spectrum in that service area at present?
Determining 2100 MHz spectrum valuation
TRAI mentions that based on its earlier recommendations reserve price should be fixed at 80% of the average valuation. It has proposed 5 different methods to determine valuation of 2100 MHz. These include:
– Use of 2010 auction determined prices – as it provides a base value over which factors like time elapsed among others can be taken into consideration to arrive at the new reserve price.
– Technical efficiency – because as a general principle a network built around a lower frequency spectrum costs less than a network built around a higher frequency spectrum. This is because the strength of the signal requires fewer cell sites to be built.
– Valuation based on assessing producer surplus on account of additional spectrum in 2100 MHz band – as the value that the telecom operator places on the additional spectrum is approximately equal to the cost savings it expects to achieve by the acquisition.
– Valuation based on growth in data usage – since 2100 MHz spectrum is used for deployment of 3G network, which in turn is mainly used to offer mobile internet/data services, the valuation of spectrum could be based on estimated 3G data revenue a telco is expected to generate after acquiring spectrum in this band.
– Valuation based on a single method vs multiple methods