Pricing out spectrum

All hell's broken loose ever since the Telecom Regulatory Authority of India dished out its recommendations for auctioning spectrum last week. Talk to anyone in the telecom sector these days and everyone is almost unanimous in damning the TRAI.

So what has the telecom regulator said that has upset all the stakeholders in the industry?

The proposals

The 176 page document essentially proposes three things. It says that all spectrum which is or will be acquired though auctions can be used by the operator to offer any technology. Under the current system, spectrum is given out based on technology. The 800 Mhz band is for CDMA, 1800 Mhz is for GSM, 2100 Mhz is for 3G and 2300 Mhz is for 4G. If the TRAI proposal is implemented then operators can technically, for example, use 1800 Mhz for 4G services.

The second thing which the regulator said is that all spectrum should be auctioned at a higher base price. For instance, the 1800 Mhz band, which in 2008 was valued at Rs 1,650 crore for a 4.4 Mhz chunk, will have a base price of Rs 18,000 crore for 5 Mhz.

And the third thing which the regulator has proposed is to refarm 900 Mhz and 800 Mhz frequencies bands so that all players can have equal access. These bands are currently being used by the old mobile operators including Bharti Airtel, Vodafone and Reliance Communication for offering 2G services. TRAI wants these bands to be taken away from these operators and put up for auction.

These proposals, if implemented will have huge ramifications for the operators. One of the reasons the operators are up in arms is the TRAI's proposal to sell only 5 Mhz of spectrum in the 1800 Mhz band when the Government actually has over 500 Mhz of spectrum available. By doing so the regulator has created an artificial squeeze in the bandwidth availability in order to realise a higher valuation. But this will allow only 44 licenses to enter the market, compared to 122 licenses which got cancelled by the Supreme Court order in February 2. Since the auction is open to incumbents also, there could be a possibility that none of the new players get their licences back. And those who win in the auction will have to pay through their nose, which will make the business unviable. This is the immediate worry for the operators.

Focus on refarming

In addition, refarming of 900 MHz band will impact rural revenues of existing operators such as Bharti, Vodafone and Idea because this frequency band has better propagation and hence ideal for village communications. Also, in lieu of the 900 Mhz band, the current owners will be given bandwidth in the comparatively less efficient 1800 Mhz band, which will force the operators to almost double their number of base station and that means more capital.

While the issues related to pricing are more immediate, the biggest long-term concern in the TRAI proposals is that it puts next generation technologies like 3G and 4G out of reach for many operators. The focus on refarming has ignored the possibility of utilisation of key 3G bands like 2100 Mhz which is the low hanging fruit and could have been immediately auctioned. But the TRAI has scheduled the auctions only in 2013 that too with a visibility of just 5 Mhz block. Since the Government has barred 3G players from making roaming deals, a fresh round of auctions would have enabled the players to acquire spectrum in areas where they couldn't get in the 2010 auctions.

For 4G services, TRAI has pushed the auctions in the 700 Mhz band to 2014, that too at an astronomical price tag. The base price for 700 Mhz has been pegged at about Rs 14,500 crore for every megahertz for pan India spectrum. To offer full-fledged 4G services with speeds of 30-40 Mbps, an operator would need at least 20 Mhz of spectrum. At TRAI's price that would amount to a whopping Rs 2.90 lakh crore. The regulator has given the option to use the 1800 Mhz band for 4G services but at the same time has made provisions to auction only 5 Mhz this year. That's like asking a truck to drive on a cycle lane.

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