Cabinet clears biggest spectrum sale yet

The Union Cabinet on Wednesday set the ball rolling for the biggest spectrum auction by approving the sale of all available airwaves across seven frequencies as well as their pricing, estimated to be worth about Rs 5.6 lakh crore.

The Rs 5.6 lakh crore amount is based on the assumption that all spectrum put on auction is sold at their reserve prices. If there is competition among operators, this price may go up. But at present such a scenario looks unlikely as operators claim that the base price for 700 MHz spectrum is “too high” and their balance sheets are stretched.

“The appetite for India’s telecom sector is very big,” information technology and communications minister Ravi Shankar Prasad said when asked if such a large auction would evoke the kind of interest the government hopes to see.

This auction will give telecom operators more spectrum to launch 4G services and also improve their services. On the other hand, it will raise revenue for the exchequer and help finance minister Arun Jaitley meet his tough fiscal deficit target of 3.5 per cent of GDP for the current fiscal. “This may be the largest ever auction in the history of the country. It has been approved,” said Mr Jaitley.

However, the government has decided to refer back to the Telecom Regulatory Authority of India (Trai) the issue of spectrum usage charge (SUC) paid by operators as there was a difference of opinion between the views of Trai and the Telecom Commission on one side and attorney general of India Mukul Rohatgi on the other.

The government may invite applications for the spectrum auction after receiving Trai’s recommendation on the SUC. Around 2,300 MHz of airwaves will be up for auction in seven bands — 700 MHz, 800 MHz, 900 MHz, 1,800 MHz, 2,100 MHz, 2,300 MHz and 2,500 MHz.

This is the first time that 700 MHz spectrum will be auctioned, but its high price may discourage operators.

It will be auctioned at a reserve or base price of Rs 11,485 crore per MHz. For pan-India 5 MHz spectrum in this band, a telecom operator will have to pay a minimum of Rs 57,425 crore if no counter bids are made during auction. This band alone has the potential to fetch bids worth over Rs 4 lakh crore. It is a high efficiency band and the cost of delivering mobile services in this band is estimated to be around 70 per cent lower than the 2100 MHz band, used for providing 3G services.

Cellular Operators Association of India director-general Rajan Mathews indicated that there may be a scenario where there is no bid for 700 MHz spectrum as its high price is out of the range of most operators. COAI represents GSM players like Airtel, Vodafone and Idea Cellular, among others.

“The telecom ministry has done a great job by getting spectrum from defence and other sources. For the first time there will be no supply constraints (on spectrum quantity) but affordability may be an issue,” said Mr Mathews.

Mr Mathews said bidding for 2,500 MHz may also be lukewarm as the eco-system for it has not fully developed. The government had got Rs 1.1 lakh crore from the sale of spectrum in March 2015. The lock-in period for trading in spectrum bought at auction has been reduced to one year from the current three years, a move that will encourage consolidation in the telecom industry.