The Indian Telecom Regulator TRAI, in a bold move has recommended auctioning 15-20 MHz (3-4 blocks of 5 MHz each) of 2100 band spectrum [3G Spectrum] in the upcoming auctions along with 900 and 1800 spectrum. TRAI expressed strong disagreement with not auctioning 2100 spectrum at all or auctioning a lower quantum (one block only in 17 out of 22 circles), the other two options indicated by the DOT in its communication to the TRAI.
The Ministry of Defence has communicated to the TRAI that it has agreed to a spectrum swap with the DOT in principle. This swap would free up 15 MHz of 2100 band spectrum (three blocks of 5 MHz each) in all circles. The TRAI has recommended that the DOT go ahead with auctioning these blocks even if the swap is not implemented before the auctions. The authority suggests that the auctioned spectrum can be allocated later as happened several times in the past. The operators should be fine with this rider in our view, as long as their 20-year spectrum lease period starts from the date of actual allocation.
2100MHz 3G Mobile Broadband Spectrum Reserve Price for 2015 Auction
TRAI recommended a pan-India reserve price of Rs 27.2 bn per Mhz, 80% of its pan-India valuation of Rs 34.1 bn per MHz. We have seen the DOT set the reserve prices at TRAI’s valuation in some auctions in the past and would work with Rs 34.1 bn per MHz assumption. This would be in line with the per MHz pan-India price discovered in the hyper-competitive May 2010 auctions. Nonetheless, what matters is circle-level reserve prices and we believe the valuation of 2100 MHz spectrum will likely be seen as reasonable by the operators in many circles.
The quantum of 2100 MHz spectrum auctioned is the second most critical variable for the upcoming auctions, in our view. We view the minimum bid quantum for 900 spectrum (5 MHz or a lower number) as most critical. Ample supply of 2100 MHz spectrum (3-4 blocks would be ample) will open up 3G footprint expansion choices for incumbents meaningfully and take away bidding pressure in the 900 auctions, to some extent, in our view.