Trai jacks up spectrum pricing; Delhi to cost Rs 717 cr/Mhz

The Telecom Regulatory Authority of India has recommended blockbuster reserve prices at future 2G spectrum auctions which will be higher than the record set at the July 2010 3G auctions.

The regulator, which has been formulating a new spectrum policy in the wake of the 2 February Supreme Court judgment which cancelled all 122 licences issued by A Raja in 2008, has said that all spectrum allocations will be done through the auction process - and the auction method will be the simultaneous multiple round auction (SMRA) format used during the 3G auctions.

The new reserve prices for spectrum varies from circle to circle, with Delhi and Mumbai having the highest reserve prices for the 1,800 Mhz band at Rs 717.26 crore and Rs 702.14 crore for Delhi and Mumbai ( See table ).

[caption id=“attachment_285770” align=“alignleft” width=“380” caption=“The Telecom Regulatory Authority of India has recommended blockbuster reserve prices at future 2G spectrum auctions which will be higher than the record set at the July 2010 3G auctions.Reuters”] [/caption]

Telecom operators are reeling under the impact of the recommendations which will push up all costs for almost all operators significantly.

While spectrum will normally be sold in blocks of 5Mhz, Trai Chairman JS Sarma told CNBC-TV18 that in the very first auction of the 1,800 Mhz band, which will be auctioned soon, bids can be done in blocks of 1.25 Mhz in order to enable more operators to participate.

Sarma also pointed out that various technologies available now make it possible for operators to offer their desired services even with such a small block of spectrum. Sarma said that 500 Mhz in the 1,800 Mhz band (which is used for 2G services) will be auctioned immediately, followed by auctions in the 800 Mhz band. He said anyone - even those whose licences were cancelled - can participate in the fresh bids for 2G spectrum.

Trai has already recommended that the 900 Mhz band be refarmed - taken away from existing operators and distributed again - while pushing back further auctions in the 700 Mhz space (for 4G services) to 2014.

THE FOLLOWING IS THE SUMMARY OF MAJOR RECOMMENDATIONS

1. The Authority (Trai) recommends that excess spectrum of 2x2.4 Mhz should be immediately taken back from MTNL.

2. The Authority recommends that the spectrum which is available in at least 75 percent of the total number of districts of the LSA, including the state capital (s), should be considered for allocation through auction.

3. The Authority recommends that all spectrum to be assigned through the auction process in future shall be liberalised. In other words, spectrum in any band can be used for deploying any services in any technology.

4. The Authority recommends that the refarming of spectrum in the 800 Mhz and 900 Mhz bands should be carried out progressively at an early date but not later than the due date of renewal of the licences. The spectrum available with the service providers in the 900 Mhz band should be replaced by spectrum in the 1,800 Mhz band, which should be charged at the price prevalent at the time of refarming.

5. The Authority recommends that the government must actively explore the possibility of refarming of the spectrum in the 900 Mhz band immediately, by invoking the authority to change the licence conditions.

6. Since the application for renewal of licenses must be made at least 30 months in advance of the expiry of licenses, the Authority recommends that the 900 Mhz spectrum be auctioned at least 18 months in advance so as to enable the winning bidders to be ready with the deployment plans. Accordingly, the Authority recommends that the auction of 900 Mhz spectrum may be carried out in the first half of the year 2013.

7. The Authority recommends that in Circles where the amount of spectrum in 1,800 Mhz band is insufficient for carrying out fully the refarming exercise, immediate steps must be taken to get the government agencies to vacate the 1,800 Mhz spectrum so that the entire 900 Mhz spectrum can be refarmed.

8. Authority would like to partially modify its recommendation contained in para 1.73 of the May 2010 recommendations as follows: “……. for licence holders of 800 Mhz band spectrum should be assigned in 1,900 Mhz band”.

9. The Authority recommends that the DoT should immediately arrange to allocate spectrum in the 1900 Mhz band for refarming the spectrum in the 800 Mhz band.

10. The Authority recommends that the DoT should immediately carry out the interference study. The spectrum in the 800 Mhz band should progressively be refarmed at the time of renewal of licences of such operators.

11. The Authority recommends that the auction of spectrum in 700 Mhz band may be carried out at a later date, preferably in 2014 as and when the ecosystem for LTE in the 700 Mhz is reasonably developed, so as to be able to realise the full market value of the spectrum.

12. The Authority recommends the following structure for the auction of spectrum in future: The auction of spectrum shall be conducted using Simultaneous Multiple Round Auction (SMRA) format.

- As regards the auction of spectrum in 1800 Mhz and 800 MHh bands to be conducted immediately following these recommendations, it should be held in single stage.

- Every auction shall be open to all those holding CMTS licence/UAS licence/Unified licence or eligible for grant of Unified Licence. Auction shall not be open to those that hold spectrum above the prescribed cap.

- If a new entity is successful, then the Authority recommends that such an entity will have to take either the National level or the State level Unified Licence, as the case may be.

- In all auctions at least 5 Mhz of spectrum shall be offered, except where the spectrum available is less than 5 Mhz.

- Spectrum shall be offered in blocks of 1.25 Mhz each.

- For the auction that is to immediately follow these recommendations, the amount of spectrum to be offered will follow the scheme laid out above.

- The final bid price of one auction in a given band shall be the base price for the next auction whenever it takes place, with the rider that it will suitably be adjusted in the event of gap beyond one year.

- The limit for acquisition of spectrum shall be 50 percent of the spectrum assigned in each band in the respective service area and 25 percent of the total spectrum assigned in all bands put together in each service area.

13. The Authority recommends that after conducting the auction for spectrum in the 1800 Mhz band, and reserving the spectrum required for refarming, out of the remaining spectrum if any, one block of 2x1.25 Mhz of spectrum may be allocated to those licensees having 4.4 Mhz of spectrum in the service area, at the auction discovered price for that service area. It should be clearly understood that while this tranche of 2 x 1.25 Mhz will be paid for at the auction discovered price, it will be treated on par with the unliberalised spectrum of 4.4. Mhz that is held by the licensee, unless the licensee opts to liberalise the 4.4.Mhz spectrum also by paying the auction discovered price.

14. The Authority recommends that the government may consult the Ministry of Law on the appropriateness of the course of action recommended above, keeping in view the licence conditions as well as the order of the Hon?ble Supreme Court. x

15. The Authority recommends that the service providers may be allowed to convert their existing 1800 Mhz spectrum into liberalised spectrum on payment of the auction determined amount in which case they will be granted spectrum rights for a period of 20 years. They will be allowed to adjust the price paid by them for the existing spectrum on pro-rata basis for the balance period of the existing licence.

16. The Authority recommends that in order to create a uniformly liberalised environment with a level playing field, the government may consider incorporating a suitable incentive package for service providers in New Telecom Policy 2012 to encourage all of them to migrate immediately to the new regime envisaged above.

17. The Authority recommends that the auction of 800 and 1,800 Mhz spectrum should be held through two separate auction processes and in quick sequence.

18. The Authority recommends that the reserve prices shall be as given in table given above.

19. The Authority further recommends that the annual instalments for deferred payments shall be duly securitised and the net present value of the bid amount is safeguarded by imposing a suitable rate of interest, which shall be decided by the DoT in consultation with the Reserve Bank of India/Ministry of Finance.

20. The Authority recommends that the sequence of spectrum auction could be as follows:

(a) 5 Mhz of 1,800 Mhz band- This auction would be to establish the market value of spectrum. This could be done in the current year 2012-13 as early as possible.

(b) Allocation of additional 1.25 Mhz spectrum to the holders of 4.4 Mhz in 1,800 MHz bands, subject to the legal opinion.

(c) Auction of spectrum in the 800 Mhz band. This should also be done in the current financial year.

(d) Auction of spectrum in the 900 Mhz band. This auction should be conducted in the first half of 2013-14 preferably in the first quarter so that there is adequate time for deployment as and when 900 Mhz spectrum is available by November, 2014.

(e) Balance spectrum in 1800 Mhz band. This should be done in the first half of 2013-14

(f) Auction of spectrum in 2,100 Mhz band. This should also be carried out in the second half of 2013-14.

(g) Auction of available spectrum in 700 Mhz band. This should be carried out in the first half of financial year 2014-15.

(h) Auction of additional spectrum in 2,300 Mhz band. This should be carried out in the second half of financial year 2014-15.

21. The Authority recommends that the Department of Telecommunications should engage an auctioneer for a period of three years so as to conduct the auctions without delay.

22. The Authority recommends that mortgage of spectrum may be allowed by spectrum holders to a registered Indian financial institution against borrowings. The mortgage will be subject to the condition that in the event of default of the liability, the spectrum shall be auctioned by the financial institution under the supervision of DoT and all proceeds in excess of the liability shall be remitted to the government.

23. The Authority recommends that the Department of Telecommunications must take up with the Ministry of Finance and the Reserve Bank of India to remove all the roadblocks in the framework for borrowings by the telecom sector against the spectrum assigned to them.

24. Therefore, the Authority reiterates its recommendation regarding rural roll-out obligations as spelt out in the 3 November 2011 recommendations and that the measures contained therein should be made applicable to all spectrum holders.

25. The Authority recommends that

A. Licensees who have acquired spectrum only through auction conducted here onwards shall be levied spectrum usage charge only at the rate of 1 percent of the Adjusted Gross Revenue spectrum.

B. Licensees who have a mix of spectrum assigned administratively and spectrum acquired through auction and Licensees who have been assigned spectrum only through administrative process shall be levied the spectrum usage charges at the rate applicable on the administratively assigned spectrum and on the entire AGR.

C. In the event the spectrum holder, who falls under “B” above, pays the current auction determined price for the spectrum that is administratively assigned, then it will be entitled to the payment of Spectrum usage charges at the rate of 1 percent of the AGR.

26. The Authority recommends that for the purpose of calculation of the licence fee as well as SUC, there shall be a minimum AGR, which shall not be less than 5 percent of the bid amount. The calculation will be on the basis of minimum AGR or the actual AGR, whichever is higher.

27. The Authority recommends that the validity period of the spectrum should be for 20 years.

28. Therefore, the Authority recommends that spectrum trading should be allowed between spectrum holders having obtained spectrum through auction or having paid the auction determined price for the spectrum held by them, only for the limited purpose of frequency configuration (arranging spectrum in a contiguous band).