Spectrum auctions in India are seldom devoid of controversy. The forthcoming 700MHz sale appears no different. With the Telecom Regulatory Authority of India (TRAI) setting an exorbitant fee of $1.69 billion per MHz as a minimum base price, the scene has been set for a bitter showdown between the industry and the government.
As a low-frequency band ideal for providing in-building and wide-area coverage, 700MHz spectrum is generally coveted by service providers. Using these airwaves in preference to higher frequency ranges, operators can substantially reduce their spending on basestation equipment. "Typically, rural-area coverage can be achieved with approximately 30% of the capex needed for 2100MHz," says Amresh Nandan, a research director for the communications service providers area at Gartner Inc. .
Yet globally there is a huge variance in the price of 700MHz spectrum. Australia priced these frequencies at $1.4 per MHz per head of population during an auction in 2013 -- about 80 times more than they cost in Chile (around $0.024 per MHz per capita) a year later. In setting such high spectrum fees, Indian authorities seems to have ignored what happened in Australia, where spectrum went largely unsold due to the initial price tag. On the other hand, while Chilean authorities took the opposite approach on pricing, they attached a number of stringent conditions to 700MHz licenses regarding coverage obligations, fiber deployment and access for MVNOs.
Predictably enough, the setting of high base prices in India has triggered a bitter reaction from industry players. Bharti Airtel Ltd. (Mumbai: BHARTIARTL), Vodafone India and Idea Cellular Ltd. have asked TRAI not to auction 700MHz airwaves until more low-cost devices have become available. Reliance Jio , which has yet to launch a commercial 4G offer, has also suggested that authorities conduct a two-year evaluation of the ecosystem before selling spectrum in this band.
Both the GSM Association (GSMA) and the Cellular Operators Association of India of India have also criticized the pricing and timing of the auction. "Spectrum's greatest value does not come from high sales prices, but rather from its use to expand social and economic opportunity for all India's citizens," said John Giusti, the GSMA's chief regulatory officer, in a press note. In 2014 alone, the mobile industry contributed 6.1% to India's GDP." (See Idea, Airtel, Vodafone Splash Out on Indian Airwaves.)
Analysts have also hit out at the timing of the process. "The industry has not been able to leverage the spectrum procured in the last auction and now the government wants to auction the much sought-after 700MHz," says Deepak Kumar, the founder analyst of B&M NXT, a market research and advisory firm. "The government should provide the industry with a five-year roadmap for spectrum auctions so that the industry can plan its investments and strategy."
Only Telenor Group (Nasdaq: TELN) has been supportive. As of now, Telenor offers only 2G services in India, but it would be looking to offer more data services after procuring 700MHz spectrum. These airwaves will be of particular interest to the operator because of its current focus on rural areas and value-based services. Moreover, Telenor failed to procure any licenses during India's last spectrum auction in March 2015, when operators collectively spent $17.5 billion on new licenses.
But analysts are unequivocal about the impact of the high price and the timing of the auction. "It [the base price] is definitely high, not only based on absolute number but also because the ecosystem for 700MHz band is not ready," says Nandan. "So a CSP acquiring this band now will have to wait for another two to three years for a return on this investment. Certainty of return on investment in a given time period is one of the primary criteria for investors and it is hard to meet that in the given scenario."
Going by the strong resistance of the industry to this auction, operators likely to push for its postponement. The other scenario is that incumbents decide not to participate in it at all.
— Gagandeep Kaur, contributing editor, special to Light Reading