The upcoming spectrum auction is being seen as a crucial step for the commercial roll-out of 5G services in India. It will ensure the availability of sufficient spectrum to support the technology deployment. In view of this, the Department of Telecommunications (DoT) had requested the Telecom Regulatory Authority of India (TRAI) for its recommendations on the reserve price of spectrum, the quantity to be auctioned and associated conditions for the auction of spectrum. TRAI released its recommendations on the upcoming spectrum auction in August 2018, after almost a year of consultations and deliberation with 21 industry stakeholders. The recommendations discuss the availability of spectrum, roll-out obligations, spectrum cap, preferable block size for auction, and the valuation and reserve price of spectrum.
Spectrum availability
At the end of the previous spectrum auction, held in October 2016, around 60 per cent of spectrum remained unsold. This included the entire spectrum auctioned in the 700 MHz, 800 MHz, 900 MHz, 1800 MHz, 2100 MHz and 2500 MHz bands. DoT has now decided to include two more bands, 3300-3400 MHz and 3400-3600 MHz, in the forthcoming auction. Further, refarming and harmonisation of spectrum, coupled with the expiry of licences in a few local service areas, is expected to free up spectrum in some of the bands.
TRAI has recommended that the entire available spectrum be put to auction in the forthcoming auction. It has also stated that in case of termination of GSM or CDMA services, a telecom service provider (TSP) cannot be allowed to hold the spectrum, which has been administratively assigned. Thus, any such spectrum should be taken back and put to auction.
Pricing and valuation
TRAI has recommended that the price of spectrum in the 800 MHz, 1800 MHz, 2100 MHz, 2300 MHz and 2500 MHz bands determined in the previous auction, indexed with the marginal cost of funds-based lending rate (MCLR), be considered as a possible value during spectrum valuation in these bands. Moreover, the average expected valuation of a spectrum band in a licence service area (LSA) should be the higher figure between the average expected valuation based on simple mean and the duly indexed auction-determined price in October 2016. For the Northeast and Jammu & Kashmir LSAs, TRAI has recommended keeping the reserve price for these bands at half the normal rate.
The reserve price for the 800 MHz, 900 MHz, 1800 MHz and 2100 MHz bands should be higher of the two figures – 80 per cent of the average valuation of spectrum band in the LSA or the price duly indexed with MCLR realised in the October 2016 auction. Further, in LSAs where no spectrum was offered in 2016, the reserve price should be 80 per cent of the average valuation, while in LSAs where spectrum was offered in 2016 but remained entirely unsold, the reserve price should be lower – 80 per cent of the average valuation or the reserve price as fixed in the previous auction.
The reserve price for the 2300 MHz and 2500 MHz spectrum bands should be equal to the price duly indexed with the MCLR realised in 2016 for those LSAs where auction took place in 2016. For LSAs where spectrum in these bands remained unsold in 2016, the last recommended reserve price will be applicable. The reserve price of the 700 MHz band should be twice that of the 1800 MHz spectrum band. For the 3300-3600 MHz band, 30 per cent of the reserve price of the 1800 MHz band has been recommended.
Block size
A minimum 5 MHz (paired) contiguous spectrum block is desired for the deployment of the latest technologies. Therefore, wherever practicable, spectrum is now typically awarded in blocks of minimum 5 MHz. However, in case the spectrum available is less than 5 MHz, it cannot be kept idle. Therefore, TRAI has recommended that in the case of the 900 MHz band, a new entrant be allowed to bid for 5 MHz if available, or else the minimum block size be kept at 0.6 MHz.
For the two new bands that have been added, TRAI recommends that 3300-3600 MHz band be auctioned as a single band and a TDD (time division duplex)-based frequency arrangement be adopted for it. Spectrum in this band should be auctioned in a block size of 20 MHz, subject to a limit of 100 MHz per bidder to avoid monopolisation. Further, since TSPs can trade spectrum holdings, the limit of 100 MHz will be applicable to spectrum trading. In case a TSP acquires more than one block, the entire spectrum should be assigned to it in contiguous form and if a TSP acquires spectrum in more than one LSA, it should be assigned the same frequency spots in all those LSAs.
Roll-out obligations
Most stakeholders were of the view that the existing roll-out obligations are adequate for the existing 700 MHz, 800 MHz, 900 MHz, 1800 MHz, 2100 MHz, 2300 MHz and 2500 MHz bands. Thus, TRAI recommends that the roll-out obligations prescribed for the auction held in 2016 for the existing bands be retained in the next auction.
High frequency waves, such as those in the 3300-3600 MHz bands, are not suitable for extending mobile coverage, but can be used to enhance the network capacity and for 5G. In view of the above, TRAI has recommended that no roll-out obligations be mandated for spectrum in the 3300-3600 MHz band. However, in order to avoid any misuse, a lock-in period of five years, up from the existing two years is to be put in place for spectrum in this band to become eligible for trading.
Spectrum cap and audit
Recently, in March 2018, DoT revised the spectrum cap norms based on inputs received from TRAI in November 2017. Thus, TRAI felt no need to review the existing spectrum cap provisions. In view of the above, TRAI has recommended that the revised provisions of the spectrum cap, which increased the overall spectrum limit to 35 per cent and a cap of 50 per cent on the combined spectrum holding in the sub-1 GHz bands be extended to the 3300-3600 MHz band. In addition, in the 3300-3600 MHz band, there should be a spectrum holding cap of 100 MHz per licensee.
TRAI also highlighted the urgent need to audit the entire spectrum allocated both to commercial and government units, in order to monitor the efficient utilisation of spectrum. The audit should be done by an independent agency on a regular basis.
Industry response
Broadly, there is a consensus among stakeholders regarding the timing of the auction being early and that it should be held in 2019, when 5G technology is likely to be available for commercial deployment. However, some stakeholders suggested that delaying the spectrum auction any further would not be best suited for the explosion of 4G services and the advent of 5G.
Meanwhile, industry experts have questioned the ability of operators to make the required investment, considering the financial stress in the sector. According to Ashish Sharma, partner, telecom, strategy &, PwC India, “The new policy recognises that for India to have an early advantage on 5G deployment, it requires an extensive fiberisation programme and this needs to be undertaken by telcos. However, the financial strength of the sector is still in transition and, therefore, the sector’s ability to do so is a question that needs to be addressed first. In any case, the auction is a bit early, given that we are yet to get ubiquitous fibre and 4G.”
The Cellular Operators Association of India (COAI) raised concerns over the dampening impact of spectrum usage charge (SUC) and other levies on investment. Rajan S. Mathews, director general, COAI, said, “Considering the current financial stress that the industry is going through, lowering the spectrum prices alone does not fix anything. Until and unless the SUC, licence fees and other levies are lowered, the industry may not be able to cope with the requirements for the state-of-the-art infrastructure needed for new technologies and the early roll-out of 5G.”
Conclusion
TRAI seems to have struck the right chord with the industry by lowering the reserve price of spectrum to ensure adequate participation, assist in 5G roll-out and hopefully avoid a repeat of the previous auction, which failed to find takers for 60 per cent of the auctioned spectrum. However, the industry is currently reeling from the ongoing consolidation and is under substantial debt, making 2018 a less favourable year for the next round of auctions.
Aditya Kumar
