Telecom regulator TRAI today proposed a steep minimum price for auction of 2G telecom spectrum,setting off fears of a hike in mobile phone tariffs which are at present among the cheapest in the world.
The regulator,whose recommendations are not binding on the government,valued 2G spectrum at about Rs 7 lakh crore,nearly seven times more than Rs 1.04 lakh crore that the government had received through auction of 3G spectrum in 2010.
The Telecom Regulatory Authority of India (TRAI) proposed a minimum or base price of Rs 3,622.18 crore for every mega Hertz of spectrum in the 1800 MHz band,where radio airwaves have been freed after the Supreme Court cancelled all mobile permits issued by the then Telecom Minister A Raja in 2008.
The price set is around 10 times more than what companies such as Unitech Wireless,Swan Telecom and Shyam Telecom paid for at least 4.4 MHz of all-India spectrum in 2008.
A pan-India spectrum in 1800 MHz band will cost Rs 18,000 crore. The reserve price is several times the base price of Rs 3,500 crore for 3G spectrum auction.
TRAI recommended that auction should be open to all companies except those having a more than prescribed limit of spectrum,potentially disqualifying incumbents like Airtel,Vodafone and BSNL.
Telecom operators were naturally not happy with the recommendations with some even mulling legal action on the grounds that the regulator had exceeded its brief.
Expressing concern at TRAI recommendation,Vodafone said: “We believe that several of these recommendations are retrograde and if accepted,will do irreparable harm to the industry.”
Deloitte Haskins & Sells said highe price for spectrum may ultimately lead to upward revision in tariffs.
KPMG said TRAI recommendations were “appropriate steps towards efficient utilisation of spectrum” but added that the high reserve price is likely to strain resources of bidders.
The reserve price for 800 MHz has been fixed at Rs 7,244 crore,TRAI said,adding that spectrum will be offered in blocks of 1.25 MHz,and at least 5 MHz will be offered in the auctions.
The auction is proposed to be open to all eligible companies holding spectrum below a prescribed cap.
Also,spectrum to be assigned through auction shall be liberalised — that is spectrum in any band can be used for deploying any services in any technology.
TRAI said the refarming of spectrum in the 800 MHz and 900 MHz bands should be carried out progressively at an early date but not later than the due date of renewal of the licences.
Also,the spectrum available with service providers in the 900 MHz band should be replaced by spectrum in the 1800 MHz band,which should be charged at the price prevalent at the time of refarming.
The auction should be conducted using Simultaneous Multiple Round Auction (SMRA) format.
As regards the auction of spectrum in 1800 MHz and 800 MHz bands to be conducted immediately following these recommendations,TRAI has said that it should be held in single stage. Auction of 1800 MHz spectrum can be done in current 2012-13 fiscal itself.
“It (TRAI recommendations) will hamper the ability to connect the unconnected and goes against the objectives of National Telecom Policy of ensuring improved rural tele-density and right to broadband,” Vodafone said.
TRAI said all spectrum should not be auctioned at one go. As a start,5 MHz of spectrum could be auctioned initially.
Auctions could be phased out across three years.
About 100 MHz is to be auctioned in phases per telecom circle.
It recommended annual usage charge for companies for all spectrum bought via auction to be 1 per cent. At present,the annual usage charge is 8 per cent.
TRAI recommended 25 per cent initial payment by telecom companies,a two-year moratorium and rest of payment over 10 years. The only exception is in the auction of the 1800 MHz band,where 33 per cent has to be paid upfront.
“According to the recommendations,spectrum would not be bundled with licenses in future. This would thus enable true market value realisation of this scarce natural resources.
“Liberalisation and refarming of spectrum and its auctioning to both incumbent and new operators would lead to a level playing field between service providers in the telecom sector space. This is of utmost importance for the 900 MHz band,” Jaideep Ghosh of KPMG said.
He said while the proposed auction is in blocks of 1.25 MHz,this was itself inadequate to commence or continue operations.
“Higher reserve price and resultant auction price is likely to lead to an increase in tariffs by service providers,” he added.
“The guidelines on spectrum,if accepted by the government in totality,then the business models by the incumbents and new operations would have to be redrawn as operators would have to pay significantly higher price for spectrum which may ultimately lead to upward revision in tariffs,” said Hemant Joshi of Deloitte Haskins & Sells.
The Indian telecom sector is reeling under hyper competition due to overcapacity and under cash strain due to high prices paid for 3G spectrum.
Telcos slam Trai’s recommendations on spectrum auction
Terming regulator Trai’s recommendations on spectrum auction as “arbitrary,regressive and inconsistent”,telecom operators today said the proposals will hurt further investment in the sector and expansion of services in rural areas.
“We believe that several of these recommendations are retrograde and if accepted,will do irreparable harm to the industry,” Vodafone India said in a statement.
“It will hamper the ability to connect the unconnected and goes against the objectives of National Telecom Policy of ensuring improved rural tele-density and right to broadband,” the country’s second largest operator said.
Telecom associations COAI and AUSPI termed the recommendations as “being arbitrary,regressive and inconsistent”.
“The industry was looking forward to reasonable spectrum reserve price recommendations from Trai in the light of the government’s own articulated policy directions on affordability and rural penetration,” the associations said in a joint statement.
They alleged that the industry has repeatedly been facing “contradictory and regressive approach” from the regulator,which is detrimental to the future of the sector.
“From deciding to link the price of 2G spectrum to 3G spectrum auctions,to its own expert committee’s inputs without the application of any logic … the regulator’s actions appear to be unfair and biased against all operators,” they said.
The Telecom Regulatory Authority of India (Trai) today proposed reserve pricing per MHz at Rs 3,622 crore (1800 MHz),Rs 14,000 crore (for 700 MHz) and Rs 7,244 crore (for 800/900 MHz).
This translates into a reserve price of over Rs 18,100 crore for a block of 5 Mhz in 1800 Mhz band.
The associations said that under regulatory environment,the telecom industry,which is already in a state of doldrums,will be able to deliver on the government’s vision of affordable communications,rural penetration and rollout of data services.
“Moreover,it will also affect the investors’ already shaken sentiments as it will prove to be an impediment for operators to invest and expand services,” they said.
“It seems obvious that some of these recommendations will create severe negative impact on the entire industry. It is up to the political leadership of India to now ensure that the gains of the past few years of affordable phone calls for India’s people are not undone,” Uninor said in a statement.
Following are the highlights of the spectrum auction recommendations issued by Telecom Regulatory Authority of India (TRAI) today:
* TRAI recommends Rs 3,622.18 crore per Mhz for 1800 Mhz band
* TRAI recommends Rs 14,488.72 crore per Mhz for 700 Mhz band
* TRAI recommends Rs 7244.36 crore per Mhz for 800 and 900 Mhz band each
* TRAI recommends spectrum reframing in 800 MHz,900 MHz bands
* 2X2.4 MHz excess spectrum to be taken back from MTNL
* Auction of spectrum in 700 MHz band may be carried out preferably in 2014.
* Spectrum auction to take place using simultaneous multiple round auction (SMRA) format
* 5 MHz spectrum to be offered in all auctions
* Spectrum shall be offered in blocks of 1.25 MHz each
* Final bid price to be base price for subsequent auctions
* Spectrum acquisition limit to be 50% in each band
* 33 per cent of bid amount as initial payment for 1800 MHz
* 25 per cent of bid amount as initial payment for 700 MHz,800 Mhz and 900 MHz
* Moratorium of two years with balance payment in 10 years
* Licencees acquiring spectrum through auction in future would have to pay spectrum usage charge at one per cent of adjusted gross revenue (AGR)
* 2G spectrum auction validity period should be 20 years.