BIF Asks TRAI To Do Fresh Valuation Drill For Spectrum Pricing

Broadband India Forum, an association of the telecom network and broadcasters has questioned the TRAI methodology of calculating reserve price for spectrum, alleging this has resulted in spectrum prices being unreasonably higher than global price lines.

The association in a letter to the TRAI chairman R.S. Sharma has said “TRAI Methodology of calculating Reserve Price does not rely much on fresh valuation”.

BIF’s contention is that the reserve prices can be referenced back to last auction only if it is not more than one year old. In case spectrum is auctioned after a gap of more than a year of last auctions (in this case the last auction happened in 2016), spectrum must be valued afresh to take into account the current market structure and condition.

T V Ramachandran, president, IBF said in the letter, in the latest spectrum pricing recommendations of TRAI, though fresh valuation has been computed for each circle, it is not applied to all circles. For instance in 1800 MHz, for 19 out of 22 circles, fresh valuation is not used. These circles have been computed using indexation and valuation methods have been simply ignored.

On 5G radiowaves, which will be auctioned for the first time if auction takes place this year, the IBF president said the present 5G Reserve Price (3.5 GHz band) recommended by TRAI is out of line with international norms. The average price of 5G band auctioned in 4 countries -South Korea, Spain, UK and Italy comes out to be Rs 84 Cr/MHz. The TRAI recommended price for the same band is Rs 492 Cr/MHz (5 to 6 times higher).

Airtel promoter Sunil Mittal had also hit out at the regulator for 5G spectrum price terming it higher saying Airtel would not buy 5G spectrum at the current prices.

But TRAI chairman has stuck to his ground and had said the pricing of 5G and other bands were done in consultation with the stakeholders and government has not found any issues with the TRAI pricing.

TRAI reserve price for 3.5 GHz band is so high because it has used the indexed price of the 1800 MHz band (of the 2016 auction) to arrive at the price of 3.5 GHz band. As the last auction price was available, and therefore the ground up valuation (output of the pricing models) was rejected by TRAI, even though these numbers were significantly lower than the last auction price, he stated adding there should be a fresh valuation calculation.

“There is a need to carry out fresh valuation exercise and not index it to value of 1800 MHz as recommended by TRAI. The best approach is to do ground up valuation using a number of methods (pricing models) and take the discounted average to arrive at the reserve price.”, he said.

To drive home its point, it cited the case of 700 MHz spectrum which remained unsold with a whopping price Rs 11,484 crore per Mhz in 2016 auction, and now its price has been cut by 42 percent for the upcoming auction, BIF said TRAI inadvertently erred in fixing Reserve Price of 700 MHz Spectrum in 2016.

The error was on account of two factors – calculation error and outlier effect. This resulted in reserve price set for 700 MHz band at 4x of 1800 MHz reserve price leading to entire 700 MHz spectrum remaining unsold which constituted approx. 60% of the overall quantum of offered spectrum for the auction. The Indian 700 MHz reserve price was effectively 46 times more than the US auction price of 600 MHz, he said. Though the error has been corrected, the current price of 700 Mhz is still higher by global standards.―Business Standard