Next round of spectrum auctions may again flop as DoT withholds info

The next round of spectrum auctions may again flop. And this failure may entirely be the fault of the Department of Telcom (DoT).

DoT has done a half-hearted job in referring the matter of spectrum pricing back to regulator Trai. Neither has the DoT spoken of how much spectrum in 1800 mhz band (used for 2G services at present) is contiguous, nor has it asked Trai for new pricing for the 900 mhz band.

If operators bid and win spectrum which is not contiguous, they have the option to back out - which means demand for spectrum would have been artificially created and can lead to auction failure. Besides, Trai cannot obviously arrive at correct pricing unless it is also told about how much contiguous spectrum is available in each circle. Contiguous spectrum means spectrum in blocks of 5 mhz each which is needed if telcos are to offer 2G, 3G or 4G services with this 1800 mhz band - the very basis for recent spectrum auctions and pricing has been that spectrum has been made technology neutral and therefore telcos should not hesitate in paying a much higher price for airwaves.

[caption id=“attachment_945053” align=“alignleft” width=“380”] Neither has the DoT spoken of how much spectrum in 1800 mhz band (used for 2G services at present) is contiguous, nor has it asked TRAI for new pricing for the 900 mhz band.[/caption]

But if spectrum is not contiguous, why would they come forward even in the next round of auctions?

The second important issue where DoT has left things vague is pricing for the 900 mhz band, which currently is twice that of the 1800 mhz price. This issue has already divided the telecom industry right down the middle because incumbent telcos are expected to surrender 900 mhz spectrum they already hold. They are then expected to bid for the twice-as-expensive 900 mhz in upcoming auctions, a process which is called refarming. Incumbents are against the idea while newer telcos are for it.

From DoT’s note, two things seem possible: either the DoT is putting refarming on hold for now, given hectic lobbying against it by telcos like Bharti and Vodafone; or DoT will use the multiple of two for 900 mhz spectrum once TRAI decides on a new price for 1800 mhz spectrum.

In a letter to TRAI, DoT’s Deputy Wireless Advisor has merely sought applicable reserve price for 1800 mhz, 800 mhz and 900 mhz spectrum bands. The first is currently used for 2G, the second for CDMA and the third also used for 2G services as of now. The DoT letter has been reviewed by Firstpost.

A telecom industry veteran points out that though DoT has adhered to the directive of the Supreme Court, it has made clever changes by offering more than mandated spectrum in many circles in the next round of auctions. SC had directed DoT to offer all the spectrum which was released as a consequence of licenses being quashed by a previous SC order.

As per DoT’s submission to Trai, the quantum of quashed spectrum was 413.6 mhz. The department managed to sell 127.5 mhz in auctions held last November but instead of putting up all the remaining 286.1 mhz for auction now, it proposes to only put up 285 mhz. Also, cleverly the DoT has increased spectrum available in the most expensive circles, in some cases way beyond what the SC has mandated, and reduced spectrum available in less expensive circles. This could be a ploy for the Department to earn more through auctions while still towing the SC line on putting up all quashed spectrum in fresh auctions.

For example, tDoT note speaks of only 4.4 mhz spectrum quashed in the 1800 mhz band but the amount of spectrum it will put up for auction is 15 mhz! In Mumbai 13.2 mhz was vacated but 15 mhz is on offer; in Rajasthan 17.56 mahz was vacated but 18,75 mhz will be put up for auction. These three are the most expensive circles in the country, which clearly indicates that DoT wants to maximize earnings through the next round of auctions.

Yet another point begs consideration: what steps has DoT taken to harmonize spectrum between Defence and commercial users? About 10-15 mhz of spectrum needs to be harmonized or once again, any bidder will face the hurdle of non-contiguous spectrum .

So multiple issues have been left untouched by DoT while making a reference to Trai for new pricing. In the last two auctions, the DoT was left red faced when participation was way below expectations in the first round and not a single GSM telco came forward to place bids in the second round. Now that the Department is looking to raise substantial amount of money through the next round of auctions, it had better provide more information to the Trai. And keep its fingers crossed. Telcos want the reserve price for 1800 mhz lowered further and the mandated is now with Trai to make the pricing attractive.