The Centre must re-think spectrum reserve prices

| Updated on December 24, 2019 Published on December 23, 2019

An expensive auction could jeopardise India’s digital transformation journey, as it will put pressure on telecom operators to either increase tariffs or halt investments in rolling out new infrastructure

The decision by the Centre to hold the next round of spectrum auction in March 2020 without lowering the reserve price does not augur well for the debt-laden telecom sector and, more importantly, for the propagation of affordable data services in the country. Policymakers appear not to have learnt any lessons from the last round of spectrum auctions, when exorbitant pricing ensured that most of the airwaves went unsold. The auction held in 2016 had ended with a whimper with the Centre receiving bids worth only ₹65,789 crore. The Department of Telecom had invited bids for over 2,000 MHz spectrum worth ₹5.3 lakh crore. Nearly 60 per cent of the airwaves that were put on the block did not find any buyers. There was not even a single bid for the 700 MHz band, ideal for 4G services, due to the high reserve price. Since then, the industry’s revenue and profitability have only worsened. At current tariffs, operators’ revenues are not able to cover their operating costs and network capital expenditure. The operators’ free cash flow is not enough to pay interest on spectrum acquired in the previous auction. Clearly, the operators’ ability to buy more spectrum will be subdued given that there has been no reduction in the reserve price. The regulator had set a base price of ₹492 crore per megahertz for the 3,300-3,600 MHz band, which has been earmarked for 5G services. To offer meaningful 5G services, an operator will have to buy at least 100 MHz bandwidth by paying a minimum of ₹49,200 crore. With a collective debt pile of nearly ₹7 lakh crore, none of the existing operators is in a position to place such an expensive bet.

The Department of Telecom had acknowledged the financial constraints faced by the industry while asking TRAI to review the reserve price. The DoT had said that the demand for spectrum is likely to be subdued due to consolidation in the market, with just three players remaining, and therefore the objective should be to sell the entire spectrum put for auction rather than having a large quantum of spectrum remain unsold. It is surprising that the Centre has chosen to ignore these cues.

The next round of spectrum auctions are crucial, as the Centre will sell not just 4G spectrum but also invite bids for 5G airwaves. The Fifth Generation or 5G mobile technology, with its enhanced capabilities to transmit data more efficiently and at higher speeds, is all set to be a game-changer for the global Internet ecosystem by the end of this year. Other countries such as the US, Japan, and China are gearing up to launch 5G services. An expensive auction could jeopardise India’s digital transformation journey as it will put pressure on telecom operators to either increase tariffs or halt investments in rolling out new infrastructure. India cannot afford to have another round of failed auctions. The Centre should review both the pricing and the timing of the auctions.

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Published on December 23, 2019
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