The Department of Telecommunication (DoT) on Monday questioned the TRAI regarding its recommendation of Rs 11,485 crore per MHz for pan India airwaves for the next round of auctions, especially for the newly announced 700 Mhz band which is crucial to 4G adoption in the country, reports The Indian Express. A DoT official told the publication that there were ‘certain questions’ raised regarding the logic behind setting such a high reserve price for spectrum.
The official explained that DoT considers a set of parameters before approving a reserve price for any spectrum band. However, in case of the 700 MHz band, the reserve price was set at four times more than that of the 1,800 MHz band’s discovered auction price. The auction of 700 MHz, 800 MHz, 900 MHz, 1800 MHz, 2100 MHz, 2300 MHz and 2500 MHz has been planned to be held in July, added the official.
TRAI’s reserve price are too high In January TRAI recommended (pdf) a base price of Rs 2,873 crore per MHz for the 1800 MHz frequency band (2G spectrum), which is 31% higher than base price the government fixed in the 2015 auction.
It also stated in the report that the pricing of Rs 11, 485 crore for the 700 Mhz band is the highest reserve price fixed for any band since the auctions began in 2011, and could fetch the government Rs 5.36 lakh crore if frequency is sold at that rate.
It is also worthy to note that last year’s spectrum auction fetched bids worth Rs 1.1 lakh crore for the government, and telcos had requested the TRAI to defer the sale of the 700 MHz spectrum, stating that the ecosystem for this band had not yet developed.
Airtel doubtful against exorbitant reserve pricing: Gopal Vittal, Airtel India CEO said while answering a query from analysts that the price that has been proposed for 700 MHz just makes it ‘very expensive for them’, and that they won’t be able to afford to buy that spectrum at that price. “It has to be balanced with the fact that ecosystem that you have on 700 MHz in terms of devices and chipset is still very nascent,” added Vittal. Note that is one of the top three telecom operator in the country in terms of active connections.
Govt budgeting $25 million for next auction: In March, Brokerage firm Credit Suisse (CS) said the government is likely to budget a $25 billion spectrum sale from the upcoming auctions (2016), out of which approximately 30% of value of spectrum is expected to be sold at TRAI reserve prices. CS further pointed out that that the 700 MHz spectrum will see only a partial success, as TRAI’s recommended price the 700MHz band is 25% higher than CS’s estimates.
The brokerage firm estimates that out of the total $80 billion worth of spectrum, only a partial $10-15 billion in sales would be generated in the upcoming auction, mainly sustained by the:
– Easy availability of financing by the government from telecom players
– Acute shortage of spectrum in the market in light of rapidly growing data volumes
– Operator specific spectrum gaps for most operators.