TRAI recommends full spectrum auction, including 700MHz for high-speed data

India’s telecom regulator has suggested the government auction ₹6 trillion worth of airwaves, more than five times the value of spectrum sold in the previous auction—a move that may, if accepted, increase the burden on the already over-stretched finances of the telecom operators.

The Telecom Regulatory Authority of India (TRAI) has recommended auctioning of all the available spectrum, including airwaves in the 700-megahertz (MHz) band, considered more efficient for high-speed data services, for the first time.

It has also suggested the government auction spectrum in the 800MHz, 900MHz, 1800MHz, 2,100MHz, 2,300MHz and 2,500MHz bands in the auction, which will be the biggest ever sale of radio waves in India.

The auction of 700MHz spectrum has been opposed by telecom operators, including Bharti Airtel Ltd and Idea Cellular Ltd, till devices and equipment that can operate using the airwaves are available.

The telecom industry, which is in the midst of spending billions of dollars in rolling out 4G data services and before that in acquiring spectrum in a 2015 auction, is struggling with high debt and intense competition that has crimped profitability.

“The ability of the operators to pay for the spectrum will be constrained as realized rate for voice and data are not growing, in fact, declining for the last few quarters and the balance sheets are already overstretched,” said Hemant Joshi, a partner at consulting firm Deloitte Haskins & Sells Llp in India.

Things may deteriorate even further after Reliance Jio Infocomm Ltd, the telecom unit of Reliance Industries Ltd (RIL), starts services later this year— adding to the competition.

Still, most operators may be forced to bid for spectrum in the more-efficient 700MHz band, using which, TRAI says, operators can deliver mobile services at about 70% lower cost than the 2100MHz band.

The 700MHz band requires fewer telecom towers and consequently lower investments.

Since that spectrum will be valid for 20 years, the telcos will have to bid for it to ensure they have it once the ecosystem is ready for deploying services.

TRAI has, however, eased roll-out obligations for services using the 700MHz band.

Rough calculations by Mint show that the value of the spectrum to be sold in the proposed auction would be around ₹ 6 trillion, more than India’s fiscal deficit of around ₹ 5.6 trillion for the current financial year.

The TRAI recommendations are part of a pricing exercise that the regulator conducts prior to every auction to determine the minimum price at which the airwaves should be sold.

If the latest recommendations are accepted by the government, the next auction is likely in the first quarter of the next fiscal.

Analysts say while it is unlikely that much of the spectrum will actually get sold because of the high price, even a partial sale may affect the profitability of telecom companies.

“This is likely to be the largest quantum of spectrum to be sold at once, with an estimated value of $60-70 billion, and even a partial sale (say, $10-15 billion) could be a serious hit on operator returns, that is not reflected in stock prices,” Credit Suisse said in a note to clients on 12 January.

The February 2015 auction was the biggest and most successful of the five sales held so far by the Indian government.

The auction generated ₹ 1.1 trillion; 89% of the spectrum put up for sale in 800MHz, 900MHz, 1,800MHz and 2,100MHz bands was sold.

In its latest recommendations, TRAI has said that the 35MHz of 700MHz band spectrum should be auctioned in blocks of 5Mhz across the country. The recommended pan-India price for each block comes ₹ 57,425 crore per block, or ₹ 4 trillion if all of it is sold at the reserve or minimum price.

TRAI has essentially pegged the value of the 700MHz band at four times the last price of the 1,800MHz band spectrum, a calculation operators say is flawed.

“Those market conditions of when the 1800MHz price was found don’t exist anymore. We now have spectrum sharing and trading, and with the consolidation, the telcos are not as starved for spectrum and demand is not that high,” said Rajan Mathews, director general, Cellular Operators Association of India, which represents the major telcos.

“None of the telcos can afford these prices and there will definitely be a lot of cherry picking.”

TRAI has also recommended that the 800MHz band be put through a reassignment exercise so as to ensure all spectrum in that band is sold. Similarly, the regulator has also suggested that the Department of Telecommunications coordinate with the defence forces and telcos to harmonise the 1,800MHz band.

Analysts expect an adverse impact on the sector if the auction is held at these prices.

“For 700 MHz band, a pricing at four times the reserve price of 1800 MHz is very ambitious, especially when the ecosystem is not fully developed; the potential benefits may need significant investment and lead time before being realized,” said Joshi of Deloitte.

The TRAI recommendations will now go to the Telecom Commission and then to the Union Cabinet for final approval. Livemint