Narendra Modi Govt Swiftly Moves for Largest Telecom Spectrum Auction- High Reserve Prices

Telecom Spectrum Auction IndiaThe Narendra Modi led BJP Government has moved swiftly to conduct the Largest Telecom Spectrum Auction across four bands 800MHz, 900MHz, 1800MHz and 2100MHz in India beginning Feb-25-2015. After a series of Scams during the Corrupt Congress regime and a headless move to impose retrospective tax on Vodafone with constitutional amendment had severely deteriorated the Telecom Sector reforms. Clarity on 2100MHz spectrum availability/ reserve price, etc is awaited – we hope that TRAI recommendations are adopted in this case. Unavailability of sufficient spectrum in the 2100 MHz band could lead to more intense competition among operators, especially for the 900MHz band.

The #NaMo Government has put up a total of 178MHz and 99MHz of spectrum for auction in 900 MHz and 1800 MHz bands respectively – 95-97% of the supply, as indicated in TRAI recommendations. Another 104MHz of spectrum in the 800 MHz band (~70% of the supply) would also be up for auction. The 900 MHz and 1800 MHz band spectrum is available in 15 and 17 circles respectively, while 800 MHz band spectrum is available in 20 circles. The total pool of 381MHz spectrum across the three bands is valued at ~Rs626bn based on reserve prices. The government would receive an upfront payment of ~Rs164bn in FY15 if the entire spectrum is sold at reserve prices and all operators opt for the deferred payment option.

High Reserve Price Uncalled For
The reserve price for 1800MHz band across 15 circles is Rs14.25bn per MHz – ~4% higher than TRAI recommendation given in Oct-2014. Aggregate reserve prices are ~31% higher than the winning price in the previous auction Feb-2014. The reserve price for 900MHz band across 17 circles is Rs33.9bn per MHz – on aggregate basis, it is ~27% higher than the TRAI recommendation given in Oct-2014. The ratio of reserve prices for 900 MHz to 1800 MHz band is 1.8x to 3.3x. The reserve price for 800MHz band across 20 circles is Rs34.2bn per MHz – on aggregate basis, it is ~19% higher than the TRAI recommendation given in Nov-2014 and ~94% higher than the winning price of previous auction (Mar-2013).

Silver Lining in the NIA – The government has allowed operators to rearrange frequencies allotted to them, free of cost, once spectrum trading guidelines are outlined by the government.

The High Prices are uncalled for and there is no law which states that prospective auction’s reserve price should be higher than the preceding. With such pricing, it is unlikely operators will make Mobile Data Services affordable to the masses unless challenger Reliance Jio launches with a highly stable network and seamless coverage.

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