The Telecom Regulatory Authority of India (TRAI), in a recent consultation paper, sought comments from the industry and other stakeholders on a variety of spectrum-related issues. One of the surprising issues raised in the paper was whether there was a need to modify the current regulations around spectrum caps. Current provisions have an in-band cap as well as an overall cap on spectrum that any single operator can hold – maximum 50% of the total (commercial) spectrum in any particular band (800/ 900/ 1800/ 2100/ 2300) and maximum 25% of all (commercial) spectrum across bands applied on a circle-wise basis.
The key modification proposed in the recent consultation is to do away with separate in-band caps for all sub-1 GHz bands and rather apply the 50% cap on all sub-1 GHz bands (700/ 800/ 900) combined. To illustrate, assume there is spectrum availability of 20 MHz in the 900 band, 15 MHz in the 800 band and 35 MHz in the 700 band in a particular circle. Current provisions allow an operator to hold a maximum 10 MHz of 900, 7.5 MHz of 1800 and 17.5 MHz of 700 band spectrum. The proposed change of clubbing all these bands together for spectrum cap purposes would mean that a single operator can end up owning (1) all of 700 MHz spectrum in the market or (2) all of 900 plus all of 800 band spectrum in the market or some such arrangement where an operator can monopolize spectrum holdings in a particular band.
The past four spectrum auctions in the country (Nov 2012, Mar 2013, Feb 2014, Mar 2015) have all been conducted with in-band caps? These four auctions saw combined bids of Rs 1.84 tn (US$ 28 bn) of which 75% of the total bids were made by the top-3 incumbents (Airtel, Vodafone, and Idea). In-band cap regulation, we believe, was an important input variable to the bid decisions of these operators. To that extent, we tend to agree with the response (to the consultation paper) of the incumbent operators that any change in this regulation is tantamount to changing an important rule of the game mid-way. In other words, A-Vo-Id Wireless Operators may have spent this US$21 bn differently if cap regulations were different.
A-Vo-Id Telcos have also argued that the proposed change favors only Mukesh Ambani’s Reliance Jio Infocomm. We agree that there are capex/ opex advantages of aggregating multiple carriers in the same band; however, we have seen such advantages get passed on to the exchequer in the form of higher spectrum prices in past auction.
The design of spectrum auctions in India prevents arbitrage, in most cases. However, this safeguard is still not an argument in favor of changing an important regulation within such a short time of auctions that saw massive investments. Policy framework is an important input to investment decisions by companies and a reasonable level of time consistency in important policies is always desirable, in our view. We will also know the Narendra Modi led Government’s will to bring back Stability in Policy Making as and when the DoT unveils the Spectrum Cap Rules.