DoT plans 2-stage bid for spectrum auction, prices to hit the roof

DoT plans to auction just 800/900/1800 MHz spectrum bands in Feb and not the vital 2100 MHz band spectrum...

New Delhi | Published: November 19, 2014 2:15 pm

Bids in the February 2015 spectrum auction are likely to skyrocket as the department of telecommunications (DoT) plans to auction just 800/900/1800 MHz spectrum bands, and not the vital 2100 MHz band spectrum that telcos were hoping for. Auctions for spectrum in the 2100 MHz band will take place only in May, and with no certainty about how much 2100 MHz spectrum would be available in the May auction, telcos will have no option but to bid very aggressively to retain their 900 MHz spectrum in February.

It is unclear if the bidding parameters will change after telecom minister Ravi Shankar Prasad’s meeting with defence minister Manohar Parrikar on Monday, but it is significant that Prasad’s ministry has been in talks for swapping spectrum with the defence ministry in the 2100 MHz band, vital for data services, and a substitute for telcos whose 900 MHz spectrum licences expire next year — auctions for these will be held in February 2015.

While the Telecom Regulatory Authority of India (Trai) has recommended postponing the spectrum auction if there isn’t enough spectrum in all bands — it has also recommended a defence-DoT spectrum swap to free up 15 MHz in the 2100 MHz spectrum band — this was rejected by the Telecom Commission on November 7.

 

DOT-auctionTrai will reply to the Telecom Commission next fortnight, but Trai chairman Rahul Khullar has given media interviews reiterating his stance that not auctioning all spectrum together will prove disastrous for the industry, subscribers as well as the government. This stand of Trai’s has also been endorsed by the country’s top four mobile operators in a joint letter to Prasad and Prime Minister Narendra Modi.

Five days after the Telecom Commission rejected Trai’s recommendation, in a presentation to Prasad on November 12, DoT talked of a two-stage bid and merely mentioned that talks with the defence ministry to release 15 MHz of 2100 MHz frequency spectrum through a swap was under way along with the release of 5 MHz in 17 circles.

That it was hopeful of only the latter materialising was evident when it said “it has also been proposed to add Rs 5,000 crore as receipt for Auction of 5 MHz block in 2100 MHz band, subject to vacation of the same by Defence”.

The crux of the problem is that while in February 2014 roughly 90% of the spectrum auctioned was brand new, things will be the exact opposite in the February 2015 auction when just 10-15% of the spectrum will be new. A good example of what this will do in Maharashtra, to take one example, is that Vodafone could well see its business shut down in the state. Right now, Vodafone has 6.2 MHz of spectrum in the 900 MHz frequency band where its licence is running out later this year. If it is not able to win this back in the auction, its only fallback is 1800 MHz spectrum. But it has only 1.25 MHz of this spectrum and only another 2 MHz is available for auction. So Vodafone will bid whatever it takes for it to retain the 900 MHz spectrum, but it requires just one other telco to take the price higher and higher. Such examples can be multiplied manifold across various other telcos as well as licence circles.

According to DoT officials, the reason for holding a two-stage auction rather than go by Trai’s recommendation to hold it at one go, even if it means delaying the entire process, is because the government wants to balance its budget while taking into account the interests of the operators. While spectrum is available in 800, 1800 and 900 MHz, DoT is in talks with the defence ministry for vacation of 3G spectrum in the 2100 MHz band.

There are two components of its negotiations with the defence. The first relates to getting vacated 5 MHz spectrum in each of the 17 circles and the second is a swap proposal — take from defence 15 MHz in the 2100 MHz band and in lieu of it give it an equal amount in the 1900 MHz band. The resolution of this would take time — according to DoT’s timeline, this should be done by the end of December 2014. In such a scenario, holding auctions at one go in February would not be possible and deferring the entire process to the next fiscal would mean foregoing the receipts estimated in this year’s Budget.

 

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